The core definition of merchant services is very simple.  Merchant services is literally transferring money from a customer’s bank account into a merchant’s account.  In this episode I’ll go back to the basic nitty gritty information.  Those following my content for years have probably seen the need for some updates.  And for new followers, knowing the basics is important when selling payment processing.  Find a brief history and simple definition here.

Many years ago, this was an extremely simple process.  The customer took money out of a wallet and paid the merchant.  The merchant took money to his/her bank and made a deposit.  End of transaction.  Over time banks realized they were spending a huge amount of money on tellers to conduct these transactions.  Consumers didn’t carry money, so they had to visit the bank before making any purchase.  Banks began to see the necessity and benefit of creating some automation.

Thus, the ATM machine was created.  These generated great savings for banks who fired tens of thousands of tellers.  It made sense for banks, and hopefully those people found other jobs!  ATM’s were also a time saver for consumers.  They eliminated human error and time spent going in and out of the bank to conduct business.

The next part of this saga involves the retail viewpoint.  Consumers could now get cash from the ATM.  The consumer would go into a store such as Walmart to spend their $20 cash on some grocery items.  Suppose a consumer sees a big screen TV on the way to check-out.  He/she says, “Oh, look at that thing.  Wow, it is marked down to $295.  I want that TV!”  But the consumer couldn’t get that TV because he only had $20.  Retailers wanted to find a way to get the revenue for such impulse purchases.  The ATM card gave consumers access to all their money.  Now retail businesses wanted to gain that access for consumers, so they could spend as much as desired in the store.  To solve this dilemma, stores began to install ATM machines.

This was a partial solution for retail stores.  However, each ATM machine only accepted cards in their network and usually charged an extra fee for use.  Thus, the consumer’s impulse might pass before getting cash from the machine.  Or he/she may be unable to use that particular machine.

Visa created a solution to this problem, “We are going to make a network tying all the banks together.”  Years ago, Visa was actually owned by a bank.  It was a network of banks, an affiliate group of banks.  Visa recognized a big opportunity!  These banks decided to charge the business owners an interchange fee rather than charging the consumers for this process.  Then these banks told merchants, “Look, you can accept any of our cards at the point of sale right at the register.  Consumers just swipe their card and ‘boom.’  They can buy whatever they want, as long as the money is available on their credit card or check card.”  Visa soon became its own entity.  MasterCard was formed to compete with Visa.  Then more brands such as American Express and Discover came on the scene using different banks.  The idea of merchant services was to get the money from consumers’ bank accounts to the business owner’s account.

There is the brief history and simple definition of merchant services.  Now the question is, “How is money to be made by selling merchant services?”  To get the answer to that question, make sure you don’t miss tomorrow’s episode!

Read the previous post here:  Can a College Student Sell Merchant Services

Read the next post here:  How to Make Money Selling Merchant Services – Selling Payment Processing

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