This is part of a mini-series taking us back to the basics of merchant services.  I’ll answer questions such as: What is merchant services?  How does it work?  What does it do?  In the last episode we discussed a short history and definition of merchant services.  Merchant services core definition is moving the customers’ money into the business owner’s account.  Today I’ll help you grasp the basics of the system and understand why selling merchant services can be a productive career.

The cost of moving money from consumer to business owner is interchange fees.  These are charged by the banks.  For example, a consumer pays $100 on a bank card for a store purchase.  The consumer banks at Chase.  The business owner banks at Wells Fargo.  Chase will hold some money for interchange fees.  They may transfer $98.50 rather than the full $100.  The amount of interchange depends on the card and the way it’s processed.  So, Wells Fargo doesn’t get all the money.  Interchange fees are held back.

There is no logical way that a small business owner could deal with all the bank relationships.  Visa ties everything together in terms of authorization codes and confirming available funds.  But they are not moving the money.  Someone has to integrate this part of the process.  That someone is the acquiring bank.  The “issuing” bank issues the money to the “acquiring” bank.  Most of the big processors such as First Data, Vantiv, Global, and Tesis are called acquirers.  This means they act as the merchants’ bank.  They pull the networks together to get payments and keep track of fees and funds.  Then they move the money from the merchant’s account in their tils to the merchant’s actual personal account.

The question still remains, “How do you make money selling merchant services?”  The simple answer is mark up.  There is cost, which is interchange fees and some fees from card brands, and there is mark up.  Credit card processing companies cover their costs and make a profit by mark up.  In the example of the $100 purchase, $98.50 is moved to the processor.  Then the processor will grab another $0.50.  Then $98 is moved to the merchant’s account.  The sales reps or ISO’s make money basically by splitting the $0.50 with the processor to make residual income. 

There are multiple ways to make money in this industry.  Check the next episode to learn more.  But the part of the process which renders basic income is mark up.  Understand there is cost and mark up.  Every processor has generally the same cost structure.  They pay the same interchange rate and the same card fees.  The main difference is mark up.  Your choice as a credit card processing sales rep is to sell at a mark-up which creates enough margin to generate income.

This information should help you grasp the basics of the system.  This along with the episode tomorrow, will give you insight into the productivity of a career in selling payment processing.

Read the previous article here:  What is Merchant Services – Selling Payment Processing

Read the next article here:  Four Types of Commission – Selling Payment Processing

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