Quick Take

Get the Rates you Deserve! Insist on…

  • Interchange Plus Pricing: Never accept a Tiered Rate
  • Always Refuse Contracts and Early Termination Fees
  • Insist on Free Equipment
  • Don’t be talked out of PIN Debit

Read the full details below

A necessary evil; that’s how many business owners think of their relationship with their credit card processing company. For the vast majority of businesses that are trapped with long term contracts, ugly lease commitments or exorbitant rates, that description is all too accurate. However, if you understand the industry’s basics, and know how to negotiate, almost any business can get a better deal on credit card procesNegotiate a better dealsing. If you work the right deal, your processing relationship can become a value add, a trusted partner and consultant that can help you add to your revenues, not just be a drain on your bank accounts.

Here’s the first step to tell if you’re being taken advantage of. Take two or three of your last merchant statements, add up your total sales, and then add up the bottom line fees you were actually charged each month. Divide the fees by the sales totals to find what’s known as the effective rate. Here’s a simple example.

Month One Sales          $ 75,000               Month One Fees          $ 2,227.50
Month Two Sales          $ 90,000              Month Two Fees          $ 3,454.50
Month Three Sales       $ 60,000              Month Three Fees       $  1,975.75

Total Sales                     $225,000              Total Fees                      $7,657.75

Effective Rate = 3.4%

In this example, the merchant is almost certainly getting screwed. Most normal businesses that have customers who pay for goods or services in person (not over the phone or online), and that are not considered to be “high risk” (like pawn shops or adult businesses), should never see charges this high.

Elsewhere on this site, we explain how merchant processing works, what the wholesale rates are (known as interchange), and the different pricing models processors offer merchants, and if you haven’t done so already, now would be a good time to review the basics. Once you have a basic understanding of all this, you should realize that you are always better off with the pricing model known as Interchange Plus. What this means is that the processor is going to process your charges at their cost, plus a modest, agreed upon up-charge for their services. A reasonable up-charge would be in the neighborhood of 50 basis points, or 1/2 % of sales, depending upon factors like gross sales, length of time in business, type of business etc. Sometimes, the up-charge can be much lower.

So how can you tell if your rates are too high? Well, if the effective rate is 4% or more, you should probably call 911: there are definitely unarmed robbers dipping into your cash flow. If the rate is anywhere between 3% and 4%, you can wait to call for help until tomorrow, but not much longer than that: someone is definitely enjoying a nice weekend getaway each month at your expense. If your rates are between 2% and 3%, you’re in pretty good shape, but you can almost certainly do better. Even if your rates are less than 2%, you should still look around and get an expert opinion.

Five negotiating tips to help you get a better deal on credit card processing:

It’s not difficult to get a better deal on credit card processing if you follow these five simple suggestions:

Five Tips

  1. Interchange Plus is really the only pricing model you should consider because this provides access to the wholesale itemized network fees that are passed through from Visa and MasterCard to the processors. Until fairly recently, only large franchises or big-box retailers could get these rates, and unless you ask, most processors will still not offer this plan unless you demand it because it is generally not as profitable for them. It’s up to you to insist on this model.One caveat: Even if you are offered Interchange Plus, watch out for excessive add-on fees. As with everything else in this business, some of these fees are reasonable, but don’t accept an offer that requires you to spend $50 a month or or more on statement fees, access fees, PCI compliance or other extra charges.
  2. Forget about contracts and Early Termination Fees (ETFs). As competition in this space has increased, the old model where a merchant had to agree to a long term contract in order to get a merchant account is rapidly fading away, and only unsophisticated merchants still believe that’s a requirement. Don’t be that guy.If the sales agent who is trying to get your business doesn’t agree to this condition, look elsewhere. Also, even if he does promise there is no long term, contractual agreement or ETFs, ask to see the document known as the “Terms and Conditions” (T&Cs), or insist on a “No Contract Amendment”. The T&Cs are almost always referenced somewhere in the small print of the paperwork you’ll be asked to sign, but rarely actually disclosed. In our work, we speak with merchants daily that want to change processors and are convinced they have no ETF, only to be shocked to find out that they have to pay $295, $395, $495 or more for the privilege of stopping the bleeding.
  3. Always insist on free equipment. Unless you need a POS system, you should never buy, rent or lease equipment. Terminals are inexpensive, and a processor that is confident that they can earn and keep your business over the long term will never have a problem providing free terminals or pin-pads. Some merchants like to buy their own equipment, but this is not really the best idea.  Security and compliance standards are constantly changing, and a terminal that is perfectly compliant today may very well be outdated within a year or two. Also, if you own the terminal, you’ll be responsible for keeping up with compliance issues, but you will most likely not know what to watch out for. Other problems can arise when your machine breaks down, because you’re on your own. You may think you see a good deal on eBay, only to find out that the machine you purchased is encrypted and not compatible with your processor. If the processor provides the equipment, they always have the responsibility to replace it if it malfunctions or compliance standards change.
  4. Don’t get talked out of offering PIN debit. Processors make little or no money when your customers choose to pay for goods or services using a PIN pad, but you can save quite a bit. PIN pads are not appropriate for businesses with low average transactions, or places like coffee shops or restaurants, but if your average sales is $40 or more, it is definitely very worthwhile to include PIN pads in the processing mix.
  5. Get a quote!  There is no better way to tell if you have a raw deal than by getting a professional review of your current statements or on offers you’ve been provided by processors who claim they can save you money. We’ll be happy to help with that, even if you choose not to take our recommendation.

Ten or twenty years ago, merchants were under the impression that it could be tough to qualify for a merchant account, that they had little bargaining power, and in some cases that they were lucky to even have the relationship. Today it is all different. There is so much competition in this industry that the merchant really is in charge, and it’s the processors who are lucky to have your business. The bottom line is that most merchants don’t mind paying a fair price for the critical services credit card processing companies provide, but they don’t want to be taken advantage of.

With what we’ve explained here, there is no longer any reason that most every business can’t get a better deal on credit card processing.


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Russell Halley

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