Merchant services are a foundational necessity for every business, from mom-and-pop shops to omnichannel giants, but that doesn’t mean they’re a one-size-fits-all addition. Every business has unique needs, and every merchant services provider has unique offerings. Understanding and aligning the two will be key to finding the best fit.
In this article, you will learn:
The differences between merchant services, merchant services providers, and merchant accounts.
Common merchant services options, including point of sale (POS) systems, credit card readers, payment gateways, and more.
Why merchant services have become essential for businesses of all sizes.
How to choose the best merchant services provider for your business.
What Are Merchant Services?
First things first, let’s establish some foundational definitions for merchant services, merchant services providers, and merchant accounts.
Merchant services is a term used to describe a wide range of financial services (and even some equipment) utilized by retail businesses (aka merchants) of all sizes to facilitate both online and in-store electronic payment transactions.
Merchant services providers are the companies that provide merchant services. Merchant services providers can be specialized companies, such as Stripe and Square, or divisions of larger companies, such as Bank of America.
Merchant accounts are specialized bank accounts that allow businesses to securely process credit, debit, and other electronic payments. Merchant accounts aren’t the same as business bank accounts. Instead, they function as an intermediary; for example, a credit card payment would go through a merchant account before being transferred to a business bank account.
Common Merchant Services Offerings
As noted before, merchant services encompass a wide range of software and hardware. Common merchant services offerings include:
Point of Sale Systems
If POS describes when a customer pays for a good or service, the POS system is the hardware and software required to enable customers to pay for that good or service electronically. The very first POS system, the humble cash register, emerged in the 1800s. Now, most POS systems are cloud-based.
POS system capabilities vary by vendor, but most can:
Calculate sales tax
Process discounts
Process payments (cash, credit cards, debit cards, Apple Pay, PayPal, Bitcoin, etc.)
Log and track purchases
Run reports
Some POS systems are also capable of managing staff and inventory and processing checks electronically. POS hardware includes barcode scanners, terminals (e.g., tablet, mobile phone), cash drawers, card readers, and receipt printers.
Credit Card Readers
A credit card reader (aka payment terminal, POS device) is a piece of hardware used to facilitate in-person credit and debit card payments. Credit card readers are sometimes referred to as POS systems, but they aren’t interchangeable terms. Credit card readers are only one part of a POS system.
Payment Gateways
Payment gateways are POS systems for ecommerce, or card-not-present, transactions. In the absence of a physical card, other data must be used for verification, such as the card verification value (CVV).
Online Transaction Processing
Online transaction processing (OLTP) works in tandem with payment gateways to facilitate the processing of multiple transactions at once and to collect data needed for accounting purposes.
Loyalty Programs
Loyalty programs can connect a merchant’s payment processor with a program that automatically rewards customers for their purchases.
Merchant Services in Action
The process of accepting electronic forms of payment is deceptively complicated. Investopedia breaks down what merchant services look like in action, dividing the transaction journey into three main steps: customer payment, merchant payment, and settlement.
This fictional sock purchase provides a step-by-step account of what goes on in each of these three steps:
Customer Payment
- A customer at a brick-and-mortar store selects a pair of socks and goes to the checkout counter. The employee scans the barcode on the socks, and the POS system calculates the total cost with tax.
- The customer swipes or taps their credit card on the credit card reader.
- The merchant’s POS system collects data, including the transaction amount and the cardholder’s account number, and transmits it to the merchant acquiring bank (i.e., the bank providing the merchant account).
- The merchant acquiring bank sends the information to the card processor associated with the card being used (e.g., Visa, Mastercard).
- The card processor then checks with the customer’s card-issuing bank (if separate from the card processor) to ensure the customer has enough credit available to cover the charge.
Merchant Payment
- If enough credit is available, the card processor sends an authorization code to the merchant acquiring bank.
- The merchant acquiring bank then sends the code to its payment processor.
- The payment processor forwards the code to the card processor, and then the card processor sends it to the issuing bank (if a separate entity). This is the beginning of the settlement process (i.e., when money goes from the customer to the merchant).
Settlement
The card-issuing bank transfers money to the merchant acquiring bank, which deposits the money into the merchant account.
The journey from card swipe to settlement takes around 24–48 hours, but thanks to merchant services, the process is relatively smooth and painless for both merchants and customers.
Why Your Small Business Needs Merchant Services
In addition to making payments faster, easier, and more secure, partnering with a merchant services provider is key to meeting your customers — and importantly, your competitors — where they are.
Electronic Is Essential
Cash is no longer king for customers or merchants. The Pew Research Center reported in 2022 that about four of 10 Americans didn’t use cash to pay for any of their purchases in a typical week.
And according to the J.D. Power 2026 U.S. Merchant Services Satisfaction Study, digital payment acceptance is growing among small business owners. Here’s the breakdown of what small U.S. merchants accept:
Payment Type | Merchant Acceptance |
credit or debit cards | 96% |
digital wallets | 92% |
cash | 78% |
buy now, pay later (BNPL) | 58% |
personal checks | 57% |
cryptocurrency | 19% |
Table Takeaways
Electronic payments occupy the top two spots, meaning more small U.S. businesses accept electronic payments than cash by a wide margin.
Personal checks fell to 57% from 63% in 2024.
While still low, cryptocurrency acceptance is on the rise; 33% of merchants that don’t currently accept it said they would likely accept crypto if their merchant services provider offered it.
How To Choose a Merchant Services Provider
There are several factors small businesses should take into consideration when choosing a merchant services provider.
Business Needs
Every business has unique needs. For example, the merchant services needs of a strictly ecommerce business will differ from those of a brick-and-mortar store.
Scaling Potential
Your business will change over time, and it’s important that your merchant services provider is able to grow with you.
Costs
Alas, the freedom to accept electronic payments isn’t free. The costs and pricing structures vary by merchant services provider. Some charge flat monthly rates to use their hardware and services, while others charge fees on every transaction. Some charge a combination of these. Adding more services and hardware can increase costs, as well.
It’s important to note that determining how to manage these costs is tricky. The J.D. Power 2026 U.S. Merchant Services Satisfaction Study found that 35% of small businesses charge customers a fee when using credit cards to help cover the processing costs. However, 32% of merchants also said that their customers occasionally or frequently cancel purchases when a surcharge is added.
Integration
The more seamlessly the merchant services software and hardware integrate with other software and hardware you use, the better.
Customer Service
Even if you choose the perfect merchant services provider for your business, questions and problems will arise. How help is offered varies by provider.
Your To-Do List of Next Steps
With these considerations in mind, here's what to do next:
Make a list of all the services and POS hardware your business needs and rule out any providers that don’t match your list.
Think ahead about what you might need in the future as well. Which providers could grow with your business?
Research which merchant services provider offers the best price on the services and hardware your business needs.
Determine how you plan to pay for these costs. Will customers help cover the fees?
Research which software best aligns with the tools your business already relies on.
Determine what kind of support you want from your merchant services provider. Would you like to interact via chat? Telephone? Email? Do you want 24/7 access?
Read customer reviews and industry rankings. If possible, reach out to current customers for more information.
Grow With SPS Commerce
Did you know that SPS offers electronic data interchange (EDI) services for small businesses like yours?
We understand that for small business owners, time is precious and in short supply. With an EDI solution, you can get some of that time back to focus on your next product innovation or partnership. Our solutions are designed to meet you where you are when it comes to solution and price. And whenever you grow, we’ll scale with you.
