When most business owners start their business, one of the first things they do after getting their business license is open a bank account for their business.
It’s an exciting time!
This is also a time when business owners are evaluating the financial products they may need as they grow their business.
Business owners along their journey in entrepreneurship may need an SBA Loan, Line of Credit, and most likely, merchant services so they can accept payment from their customers.
Since most banks have a good size network of business owners in their local community, it is important for them to offer critical financial products that a business may need to assist in attracting new business clients, while also adding an additional profit center for their institution.
This is where bank merchant services fit into their portfolio of products.
Only a couple banks actually own a payment processing platform, so what they do is act as a referral partner for an actual credit card processor.
Through this partnership with one of the dozen North American payment processors, they get paid a recurring referral fee to refer their business clients to the payment processor.
Are Bank Merchant Services Better For Your Business?
It really depends, most merchants we’ve transitioned away from the bank merchant services have been surprised at how expensive their bank relationship was in comparison to the bank independent offers we were able to secure for them.
This is usually because banks often mislead merchants by presenting their services in bundles or requiring businesses to use their merchant services in order to get loans, when in fact, the bank merchant services really have no impact on the actual economics of the loans being offered.
This isn’t all banks, there are many very honest and ethical banks that help their business owner clients secure competitive pricing on all of the financial products they offer.
Why Your Best Deal May Not Be At The Bank
Credit card processors approach banks an offer them better compensation, better products, and better service than their current processing partner. This causes banks to switch in search of greener pastures; much like us business owners do when evaluating our payment processing situation.
Here are 4 reasons why your best deal may not be with the bank merchant services:
- Single Provider: When the bank signs the partnership agreement with a credit card processor, it is usually an exclusive agreement that requires them to refer business to that credit card processor. How competitive will a credit card processor be if they know there is no competition? Because of the nature of the business relationship, the processor generally charges a little more to make up for the referral fees paid to the bank.
- Wrong Provider: All payment processors aren’t a great fit for all industries. If your bank is tied to Processor A, but Processor B specializes in working with businesses in your industry, then you are at a disadvantage by working with your banks’ chosen credit card processor. Having the right processor for your industry not only will help you secure the most efficient credit card processing rates, but will also help you find the most effective business tools for processing payments for your clients.
- Dishonest Provider: All payment processors aren’t necessarily ethical. We often hear banks complain about their payment processing relationship because of how the processor hikes the credit card processing rates on their business clients, making it difficult for the bank to retain clients. If your banks’ payment processor isn’t being honest with them, they may not be honest with you either.
- No Advocate: When you sign up with the bank merchant services, you rarely have an account manager that is responsible for managing your bank merchant services account. This makes it difficult for you to resolve challenges with your account, and also allows the bank payment processing partner to increase your fees without notifying your bank.
Securing the best merchant account for your business requires having access to all the payment platforms available to you. At the Northwest Advisory Group, we give you access to the platforms and tools you need to be efficient and effective with handling payments in your business while also helping you manage your payment processing relationship.
If you’re using the bank merchant services and you’re wondering if it is right for your business, we’d love to have a conversation with you.