OCTOBER 1, 2023
7 min read
Fintech merchants are pivotal in revolutionizing how businesses and consumers interact with money. They provide diverse services and products that facilitate seamless, secure, and efficient financial transactions.
So, join me in this article as we explore their types, the products they offer, and the intricate process through which they enable digital payments.
Types of Merchants in Fintech
Let’s start with the basic definition of who merchants are. Here at DashDevs, we define merchants as software partners who can mediate between business and their customers’ needs for various types of payments.
Let’s delve further into the types of merchants.
Merchant Account Providers
Merchant account providers offer specialized accounts to businesses, allowing them to accept payments from various sources. Here are the top 5 notable merchants in this niche:
- National Processing
Payment Processing Services Providers
Payment services providers can streamline the transaction process, ensuring funds move efficiently from the customer to the business. In my opinion, the best among them are:
- WildApricot Payments
- Apple Pay
Payment Gateway Providers
These providers act as intermediaries in the payment process. They securely transmit payment information between the merchant and the banks, ensuring authorization and fraud prevention. Here are some of the most trusted examples:
Products Fintech Merchants Provide
Fintech merchants offer many products tailored to meet the evolving demands of businesses and consumers in the digital age.
- Merchant Accounts: These are specialized accounts that enable businesses to accept and process electronic payments. For instance, Square’s Point Of Sale (POS) system not only facilitates payment acceptance but also integrates other business functionalities, making transactions smooth for retailers.
- Credit Card Terminals: These are devices tailored to accept card-based payments. Modern terminals, like those from Ingenico, support a spectrum of payment modes, such as chip and pin, swipe, and even contactless transactions.
- Digital Wallet Solutions: Digital wallets, like Apple Pay or Google Pay, offer consumers a platform to digitally store their payment information. This ensures quick, secure transactions without the need to enter payment details repeatedly.
- Point-of-sale (POS) Systems: These are comprehensive solutions that integrate both hardware and software components. For instance, Shopify’s POS system offers retailers a unified experience, enabling them to seamlessly manage inventory, sales, and customer relationships.
- Mobile Payment Systems: With the advent of smartphones, payment systems like Google Pay and Samsung Pay have transformed these devices into digital wallets, allowing users to make mobile payments on the go.
- Payment Gateways: These are vital for e-commerce. Platforms like Adyen and AmazonPay act as intermediaries, securely transmitting transaction information between the merchant, the bank, and the consumer, ensuring that all payments are processed securely and efficiently.
- Virtual Terminals: Essential for businesses that operate remotely or offer telephonic orders. These terminals allow merchants to enter payment details manually, facilitating transactions without the physical presence of a payment card.
- Integrated Payment Software: Systems like Intuit’s QuickBooks Payments provide an integrated solution for businesses, combining payment processing with accounting functionalities making financial management straightforward.
- Multi-Currency Payment Solutions: Platforms like Payoneer have carved a niche by offering businesses the ability to transact in various currencies, eliminating the challenges of currency conversion and facilitating smooth international trade.
- Subscription Billing Software: For businesses that operate on a subscription-based model, such software automates and streamlines the billing cycle, ensuring consistent revenue streams and enhanced customer experience.
- P2P (Peer-to-Peer) Payment Platforms: These are designed for individual users who wish to transfer money directly to others without intermediaries. Apps like Venmo and Cash App are popular examples.
- Blockchain Wallets: With the rising prominence of cryptocurrencies, blockchain wallets provide users with a platform to securely store and manage their crypto assets.
- Lending Platforms: Peer-to-peer platforms, such as LendingClub, have revolutionized borrowing by directly connecting borrowers with individual lenders, offering a more personalized lending experience.
How Fintech Merchants Work in the Financial Services Sector
Now you understand what a fintech merchant is and their products. However, how they would work still might remain a mystery. In this article, I aim to resolve any mysteries.
- Step 1: Customer initiates payment. For example, a customer at a coffee shop taps their contactless card on the POS terminal to pay for their order.
- Step 2: Payment information is sent to the merchant service provider. In that case, a merchant service provider, like the abovementioned Square, securely transmits the payment details to the respective bank for processing.
- Step 3: Transaction relay to card company and customer’s bank. The bank relays the transaction details to the merchant service provider and the relevant card company (e.g., Visa, Mastercard).
- Step 4: Approval request is sent to the customer’s bank. The transaction information is forwarded to the customer’s bank for approval.
- Step 5: The customer’s bank makes a decision. The bank evaluates the transaction, and either approves or declines the payment.
- Step 6: Confirmation from card company to merchant’s bank. If approved, the card company sends a confirmation to the merchant’s bank.
- Step 7: The payment terminal receives an approval code from the merchant’s bank, confirming the transaction.
- Step 8: The specified amount is debited from the customer’s card, completing the transaction.
Impact of Fintech Merchants on Financial Institutions
Now, let’s review the impact fintech merchants have on the industry. First, I suggest we dissect the issue by looking at fintech merchants’ advantages and then moving forward toward how they can revolutionize the traditional landscape of credit card payments and other financial services.
Advantages for businesses and consumers:
The introduction of fintech solutions like Square has been a game-changer for both online and brick-and-mortar businesses. The efficiency they bring has significantly trimmed down transaction times. In the fast-paced world of retail, even a few seconds can make a massive difference. Some researchers posit that retailers stand to lose up to half of their potential sales due to sluggish checkout processes and related frictions. With fintech, that’s no longer an issue.
One of the most palpable benefits for businesses is the cost-saving potential of fintech solutions. In e-commerce, where margins are often razor-thin, traditional payment gateways with hefty fees can be burdensome. In contrast, contemporary fintech alternatives like Stripe present a more cost-effective approach, saving businesses substantial costs in the long run.
Enhanced Customer Experience
Today’s consumers demand convenience and simplicity. Fintech solutions have risen to this challenge with user-friendly interfaces that come with digital wallets and mobile payments. These platforms not only streamline the payment process but also provide an enriched user experience. The outcome? Happier customers, which translates to higher satisfaction rates and robust customer loyalty.
As businesses increasingly go global, the need for seamless international transactions has become paramount. Fintech firms like Payoneer have broken down geographical and currency barriers, facilitating businesses to receive payments in various currencies. Cashless payments eradicate the cumbersome need for currency conversion, making international business smoother than ever.
In the age of information, data is king. Fintech solutions are adept at harvesting transactional data, granting businesses an unparalleled view of their operations and customer behavior. Tools like QuickBooks Payments handle transactions, process payments, and give businesses actionable insights about customer spending patterns.
How merchants revolutionize traditional financial services:
Disruption of Legacy Institutions
The financial landscape has undergone significant shifts with the emergence of fintech companies like Revolut and Chime. No longer bound by the constraints of brick-and-mortar branches and age-old systems, these digital-only banking services are rapidly making their mark. They’ve managed to prioritize agility and customer-centricity, which allows for a more personalized and efficient banking experience.
Innovation in Financial Products
The way we borrow and lend money has also seen radical transformations. Platforms such as LendingClub and Prosper have pioneered the peer-to-peer lending space, democratizing access to loans. By directly connecting borrowers with individual lenders, they effectively eliminate the need for traditional financial institutions. This model facilitates faster loan approvals and offers more flexible terms, which can be tailored according to individual needs.
Blockchain and Cryptocurrency
The rise of cryptocurrencies, with Bitcoin and Ethereum leading the charge, represents a paradigm shift in our understanding of money and value transfer. No longer just a theoretical concept, blockchain technology provides a backbone for these digital currencies, promising secure, transparent, and decentralized transactions. This poses a substantial challenge to traditional financial institutions, which have always centralized authority and transaction validation. Moreover, blockchain’s potential extends beyond just cryptocurrencies. Its ability to offer tamper-proof records and smart contracts has implications for various sectors, from supply chains to real estate.
With the growth of fintech, financial services have become more accessible to a broader audience. Previously underserved or unbanked populations can now access banking services, investments, and loans, all from the comfort of their homes or mobile devices. This democratization of the financial services industry ensures that more people can participate in the global economy, bridging economic disparities.
In conclusion, Fintech Merchants are at the forefront of reshaping the financial sector. Their innovative products and services have streamlined transactions and expanded the possibilities of how we manage and exchange money. As the financial technology industry continues to evolve, we can anticipate even more groundbreaking developments, ultimately shaping the future of finance.
Since 2011, we’ve built more than 150+ projects aimed to bring fintech startup ideas to life. If you plan to create a merchant services product, please contact us. We’ll be happy to share our experience regarding all the necessary details you need to take into account for a successful launch.