As e-commerce continues to expand, merchants are continuously processing even more transactions with merchant service payment providers. Because of this, many start to wonder “can I negotiate a better merchant service or how much does it cost to process credit cards?”. The simple answer to this question is, yes you can negotiate a better merchant service, but how this is done consists of a few different parts.
Hard-to-approve merchants are increasingly turning to alternative payment channels like an e-Check merchant account for high-risk business to sell their goods and services. However, as sellers become more digital, many are finding that their previous contracts with payment processing companies aren’t keeping pace.
This is why negotiating a better merchant service contract makes sense, especially with companies that are willing to work with you and review your account to see how much you are really paying in credit card processing fees as things progress – often leading to reduced fees for the longer term.
Without reviews or anyone checking, the cost of merchant services can creep up without businesses noticing. That’s why it’s more important than ever to review and negotiate an effective merchant service contract, one that offers the best value for money combined with reliable service.
This is why SecureGlobalPay takes the time to review our client’s overall fee structure on an ongoing basis and offer a reduction whenever possible. While this is more for high-volume merchant accounts or reduced-risk clients, we are always happy to openly discuss the status of accounts.
How to Negotiate a Better Merchant Service Contract
Negotiating a better merchant service contract doesn’t need to be difficult. The right strategies and tactics can lead to greater profit margins with cheaper merchant services. In this article, you’ll learn how to negotiate a better merchant service contract, as well as some negotiation tips to help you get the best overall pricing possible.
What is a Merchant Service Agreement?
A merchant service agreement (MSA) or merchant processing agreement (MPA) is the legal contract between a merchant (seller) and a payment processor that sets out the terms and conditions under which the merchant will receive payments. It’s essentially a written contract between the merchant and the processor, so both parties should have copies and understand their commitments.
It’s a necessity for a merchant to enter into an MSA or MPA with their payment processor when they first establish their merchant ID. However, it’s also common for merchants to renegotiate their payment processing agreement at renewal time or look for better options from other merchant service providers.
In this article, we’ll focus on how to possibly negotiate better terms and conditions at renewal time, but the same negotiation techniques can apply at any time during the term of the agreement once a long-term relationship has been established.
We’ll also give some handy tips on negotiating a better merchant service contract by reducing your fees, regardless of whether you are using high-risk merchant services, a high-volume account, or standard processing services.
Tips for Negotiating a Better Merchant Service Contract
There are a few key things you should keep in mind as you negotiate a better merchant service contract.
First, be prepared for some initial pushback from your processor. While many payment processors are willing to work with you, they also want to maintain the high income and volume of business that comes from their other merchant portfolios.
Both you and your processor will benefit from a clear mind and a business-like attitude. Set your negotiating goals, understand your negotiating boundaries, and try to maintain a level head as you negotiate.
Preparation is key, and that means researching other processors and knowing what you want from the contract.
Negotiation tactics may include suggesting improved terms and conditions on what you pay in fees for a high-risk merchant account, offering to pay for certain expenses, or offering a certain amount of business.
Having a history with the processor is also often in your favor when negotiating a better merchant service contract, as things can be tailored better to your business’s reduced risk level.
Negotiations will normally go much more smoothly if both parties come prepared with facts and figures.
Understanding High-Risk Merchant Account Pricing
When you’re setting up a high-risk merchant account with high-risk credit card processing, your processor will provide you with a merchant application and agreement that includes some high-risk merchant account pricing specifically assigned to your particular business model and risk profile.
This option is designed for your business only. It’s essentially a more expensive type of processing solution designed specifically for business, its volume projections, and the various risk factors associated with accepting payments. Each high-risk merchant account goes through underwriting and is accessed on its own, whereas low-risk accounts are bundled together, auto-approved and unwritten at a later time.
While lower-risk accounts may seem to come with more flexibility for the supported types of businesses they accept, this is not always the case. Occasionally, some lesser-known cost savings, such as free equipment, can be enticing, but merchants end up paying more in the long run if they are not careful.
Additionally, early termination fees for higher-risk accounts can be a surprise. Make sure you understand what your terms and conditions are for closing an account before the term is up. One of the most attractive features for low-risk business types is the application process. This process is usually seamless and merchants can be up and running within a day or so.
High-Risk Merchant Account Rolling Reserve Reduction
Can I negotiate a better merchant service on my high-risk merchant account? Yes! This is a lesser-known way to technically reduce a kind of “fee” and actually release some funds back into your working capital.
After building a long-term relationship with your payment service provider, you are more than likely, no longer considered a new high-risk client. This means that your risk can be more accurately assessed and in turn, the amount of rolling reserves held against your approved monthly volume (AMV) can be reevaluated.
This is in essence a security deposit to offset any potential chargebacks and chargeback fees that might be accessed. Payment providers continuously need to protect themselves from these perceived high-risk credit card transactions being processed, especially when the merchant account is new and in its begging stages. For example, if the rolling reserve is initially set to 10% of all transactions processed and the chargebacks are lower than expected, it could potentially be reduced to 5%.
Not only that but occasionally, the funds held in the reserve account can be reduced or even returned entirely to the merchant.
Rate Reviews with Existing Processors When Negotiating a Better Merchant Service Contract
When you’re preparing to renegotiate your merchant service contract, make sure you fully understand your pricing structure and what you are paying in rates and fees.
Shopping other providers is a great tactic when trying to negotiate a better overall fee structure. A capable payment provider will have no problem offering a rate review and telling you exactly how much you are paying in credit card processing rates and fees.
A rate review is when your processor reviews your existing statements to help determine if there is an opportunity for a reduction. If you clearly understand your fee structure, then your existing processor might be more willing to renegotiate your rates with you. This can also be argued as a way to better align your rates with your competition – especially if you can prove your competitors are charging less.
Interchange costs and the basis points (BPS) can change 2 times a year. Occasionally these increases are passed on to merchants and so it’s important to keep an eye on statements. Changing service providers can often be a huge hassle that businesses want to avoid. However, a small increase is often accepted without much thought and easily overlooked.
Another way of negotiating a better merchant service is to possibly consider charging a small convenience fee to help reduce your processing costs. This option might not be feasible for your particular business model or even possible with your existing provider. However, surcharging or offering a cash discount merchant processing program can almost offset your processing costs entirely. Make sure to ask your payment provider if they offer these services for your particular high-risk industry and business model.
The Truth About Credit Card Processing
When it comes to credit card processing, there are a lot of companies and services claiming to offer the best deals and the lowest costs. But which one would be the best fit? The answer depends on your business type, volume processed, and your specific needs.
The right credit card processing company for your business will be able to handle your transactions securely, process them quickly, accept your risk profile, and at the lowest possible cost.
The main areas to keep in mind when looking for a merchant account are service reliability, speed, and security. If you’re accepting credit cards, debit cards, e-Checks, etc., you want a company you can count on to process them quickly and securely. Especially when just starting out, you don’t want to waste time or effort getting stuck with a cheaper provider that can’t meet your expectations or funding time needs.
However, when your business is new, or in a high-risk niche, it can be tricky to find a reliable processor that won’t impose restrictions if you get high amounts of chargebacks or fraud.
How Does Credit Card Processing Work?
Basic credit card processing involves accepting and charging credit cards via a physical credit card terminal or through a secure payment gateway. There are many variations to this depending on the business model.
When a card is lost or stolen, someone needs to take responsibility for it. Should this happen, make sure and let the issuing bank know what happened as soon as possible. If the card ends up being fraudulent, someone will have to deal with the financial repercussions. Merchants need rock-solid payment solutions to help avoid these risks.
With a proper merchant account and credit card processing system, you don’t handle the risk. Instead, a secure payment gateway and payment service provider handle them. They secure the transactions, scrub them for fraud, collect the money, and send it to your business bank account for funding.
Merchants shouldn’t have to worry about fraudulent transactions or taking responsibility for lost or stolen cards if the merchant account is set up properly. Business owners need reliable merchant service providers with years of experience to help facilitate all aspects of accepting payments and preventing fraud. SecureGlobalPay is here to help!
Types of Credit Card Processing
There are three main types of credit card processing: subscription-based, SaaS-based, and on-site.
Subscription-based processing means that you sign up for a monthly or annual program and are billed automatically each month or year. This is a very common type of transaction, also called recurring billing. This option is designed for both enterprise-level merchants and small businesses alike.
SaaS (software as a service) accounts offer a combination of both subscription and on-site processing, letting you determine which features you want.
On-site payment processing, also referred to as retail payment processing, consists of various methods to accept payments in person. This can be done via high-level POS (Point of Sale) systems, mobile devices, and card readers, or through various mobile phone applications depending on the business type and specific needs of the merchant.
Data Security – Is it Worth Chasing Low Fees?
While some hunt only for the lowest fee, in today’s age of technology it is also worth considering the cost of data security, or more importantly a data breach.
Sure, the cheapest company can seem attractive, but always check how they protect your data and the data of your clients. GDPR and other data protection law penalties can be huge for international companies, so don’t simply take the lowest price before checking the reputation of the company providing the quote by their reviews.
Our primary focus is on keeping data safe. While our fees are not always the lowest, despite being reasonable, we provide security to our clients to avoid potential data costs later down the line.
How to Choose a Merchant Account for Credit Card Processing
The best way to find a merchant account for your business is to shop around and compare rates from various providers. When looking for a merchant account, keep in mind that even though the cost is always a factor, it shouldn’t be the only reason you choose a payment provider.
The absolute best way to know exactly what to expect from a provider is to speak with one of their customer service specialists. They can help you determine which features are most important for your business and help you decide. It also gives you some insight into their response times and service level.
A good advisor can also explain to you how you can offset some or all of your fees, such as passing fees to clients in niches where this is standard practice.
How Much Does a Merchant Account Cost?
Pricing depends on your business type, volume processed, and the risks associated with that particular business model. Most providers offer plans with monthly or annual billing. Some can even provide same-day or next-day funding options.
Can I negotiate a better merchant service once I have an established history? Yes, Depending on your specific needs, choose a provider that works best for you. Once you hit a certain processing volume and have a long-term relationship established, you’ll want to review your agreement to make sure you’re getting the best possible rate.
Merchant Fees Explained
Simply put, in most cases there are:
- Fixed-rate percentages and transaction fees
- Tiered rate percentages and transaction fees
- Interchange fees, dues, and assessments
Fixed or flat rate fees are simply that, a fixed fee per transaction. Often this is as a percentage of each transaction.
Tiered fees depend on the approach to credit card processing, such as online payment versus swiped cards. This is often affected by the level of security involved in each transaction.
Interchange pricing, however, is based on a flat rate paid over the costs associated with processing that specific card type. This type of pricing is the most transparent and easiest to understand.
A “basis point” as a decimal (as it is easier to calculate and demonstrate interchange fees), is written as 0.0001. To get your costs using decimals, you basically divide the number of basis points by 10,000. So, 100 basis points are calculated as 1%, and 50 basis points are calculated as 0.50%. As decimals, 100 basis points become 0.01, and 50 basis points would be 0.0050.
For example, if your business processes $28,000 per month volume via credit card purchases and your payment processor is offering “interchange plus 25 basis points”, you pay 0.25% over base costs (interchange fees) to process all those payments (0.0025 x 28,000).
However, please note that there is also credit card processing fees in addition to this. Be sure to fully read the fee structure and incorporate it into your pricing, should you agree to a contract or be negotiating a better merchant service overall.
How to Set Up a Merchant Account
Once you’ve chosen a provider, you can start accepting payments once the merchant account is approved, your equipment has been downloaded or your payment gateway has been activated. The process will differ depending on your provider. Some may even handle everything for you.
Whatever the case, you’ll need to provide basic information about your business and submit your application form to get approved. After that, your processing company will review your application and hopefully send you an acceptance offer.
You can either accept the offer or decline it. Once your contract is set to begin, you can start accepting credit cards.
Can I Negotiate a Better Merchant Service? – The Bottom Line
As you can see, if you were pondering “can I negotiate a better merchant service?”, then there are certainly options when it comes to credit card processing and higher volume accounts. Whether you’re just starting out or handling high transaction volumes, there’s a plan to fit your needs.
While it can be challenging to negotiate a better merchant service contract, the payoff is worth it.
When your profit margin is lower, it can make it much more challenging to invest in your online presence and push your brand online. A lower cost per click (CPC), higher click-through rate (CTR), and longer click-through duration can all lead to a better bottom line. Optimizing your online business can effectively give you more leverage to negotiate with and having lower fees gives you the ability to make this happen.
With a better merchant service contract, you can invest more into your brand and website and still maintain profitability. This will ensure you stay ahead of the competition and bring in more revenue from your online efforts.
Once things start to move in the right direction, these aspects all come together to improve profits and business stability.
When starting this process, keep your negotiation tactics in mind, understand your negotiation boundaries, maintain a level head, and be prepared for some counter-negotiation tactics from your processor.
If you can’t negotiate much on the fees now, allow some time and try again. As mentioned earlier, having a long-term history with a processor can often work in your favor of negotiating lower fees.