What is a Merchant Processor?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2019
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Merchant processors are entities that handle the processing of financial instruments for various types of merchants. A typical processor will provide service options that allow the merchant to accept and make payments via electronic transfer from a bank account, a debit card, or a credit card. In some cases, a merchant processor will also provide some type of data processing services to clients in addition to the accessing of payments.

Perhaps the most common example of a merchant processor would be an entity that manages credit card transactions on behalf of a client. In most countries, this function is handled by merchant processing banks that are specifically structured to manage various types of ecommerce solutions. These banks may also offer other types of support services along with the credit card merchant services, such as processing electronic payments from the client, either on a recurring basis or as needed.


Today, a merchant processor may provide services in a variety of formats. Some still provide what are known as legacy card processing services, following a format that was in common use during the middle part of the 20th century. Others focus on providing more modern approaches that are Internet-based, and allow the client to receive the payment into his or her bank account in a more timely manner. Since different merchant processor companies will offer different service packages, it is important to look closely at what each potential vendor provides, and focus on those vendors who offer the processing formats that will be of the most value.

In order to provide these types of services, the typical merchant processor requires a contract with the merchant. The contract will identify the specific types of merchant services that will be extended to the client, as well as the pricing associated with each type of financial transaction. Many processors will offer some sort of incentive to encourage higher volumes of usage, such as providing the client with card processing software and equipment for free, or at least at a reduced monthly rental fee. Others choose to provide tier pricing that lowers the rate per transaction as the client reaches a certain number of transactions within a specified time period, usually a calendar month.

Once the merchant account is established, it is not unusual for a merchant processor to spend some time training the new client in how to make use of the services to best effect. This helps to minimize errors and other situations that can be somewhat frustrating for both the processor and the client, while also allowing the processor to make sure the client has contracted for the right suite of services. In addition to the initial training, most processors also offer ongoing customer support through such media as telephone contact, emails, and online chat lines.


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