Negotiating Better Merchant Service Rates: Expert Tips

In today’s competitive business landscape, every penny counts. One area where businesses often overspend unknowingly is in merchant services, the fees charged for processing credit and debit card transactions. Negotiating better merchant service rates can significantly impact your bottom line, freeing up capital for growth, marketing, or employee benefits. This article provides expert tips and insights to help you secure the best possible rates and optimize your merchant processing costs.

Understanding the Landscape: Merchant Service Basics

Before diving into negotiation strategies, it’s crucial to understand the components of merchant service fees. Typically, these fees are comprised of three main parts:

Interchange Fees: These are set by the card networks (Visa, Mastercard, Discover, American Express) and represent the largest portion of the overall cost. They vary based on card type (credit, debit, rewards card), transaction method (card present, card not present), and business type.

Assessments: These are fees charged by the card networks to the merchant service provider (processor). They are generally a small percentage of the transaction volume.

Processor Markup: This is the profit margin charged by the merchant service provider. This is the area where you have the most leverage for negotiation.

Understanding these components will empower you to ask informed questions and identify potential areas for savings.

Preparing for Negotiation: Knowledge is Power

Effective negotiation requires thorough preparation. Here’s how to arm yourself with the necessary knowledge:

Analyze Your Current Statements: Scrutinize your monthly merchant service statements. Identify the effective rate you’re paying (total fees divided by total sales volume), the specific fees being charged, and any recurring fees. Look for inconsistencies or unfamiliar charges.

Understand Your Transaction Profile: Consider factors like your average transaction size, the percentage of card-present vs. card-not-present transactions, and the types of cards your customers use most frequently. This information will help you understand how interchange rates apply to your business.

Research Industry Averages: Use online resources and industry benchmarks to get an idea of average merchant service rates for businesses similar to yours. This provides a baseline for your negotiation. Contacting multiple processors for quotes is also a good idea.

Identify Potential Savings: Look for areas where you might be able to reduce costs. Are you using the most cost-effective equipment? Are you taking steps to minimize chargebacks (which can lead to higher fees)? Are you properly categorizing your business to receive the best possible interchange rates?

Negotiation Strategies: Securing the Best Deal

Once you’re prepared, it’s time to engage in the negotiation process. Here are some effective strategies:

Shop Around and Get Multiple Quotes: Don’t settle for the first offer you receive. Contact several merchant service providers and request detailed proposals. Compare their rates, fees, contract terms, and customer service offerings.

Leverage Competitive Offers: Use the quotes you receive from different providers as leverage. Inform your current provider that you’ve received more competitive offers and ask if they can match or beat them.

Negotiate the Processor Markup: Remember that the processor markup is the most negotiable component of the overall fee. Don’t be afraid to haggle and push for a lower percentage.

Inquire About Tiered Pricing: Be wary of tiered pricing models (Qualified, Mid-Qualified, Non-Qualified) as they can be opaque and lead to higher overall costs. Ideally, aim for interchange-plus pricing, where you pay the actual interchange rate plus a fixed markup. This provides more transparency and control.

Negotiate Contract Terms: Pay close attention to contract terms, including the length of the contract, early termination fees, and auto-renewal clauses. Negotiate for more favorable terms, such as a shorter contract length or the elimination of early termination fees. Many businesses now use a gateway such as https://authorize.net to process payments.

Consider Bundling Services: If you need other business services like point-of-sale systems or business loans, consider bundling them with your merchant services. This can sometimes result in discounted rates.

Highlight Your Business Value: Emphasize the strengths of your business, such as your good credit history, low chargeback rate, and consistent transaction volume. This can make you a more attractive customer and give you more bargaining power.

Be Prepared to Walk Away: Don’t be afraid to walk away from a deal if you’re not satisfied with the terms. There are many merchant service providers out there, and you’ll eventually find one that meets your needs and budget.

Minimizing Fees Through Best Practices

Beyond negotiation, you can also reduce your merchant service costs by implementing best practices:

Address Verification System (AVS): Use AVS to verify the billing address of the cardholder for card-not-present transactions. This can help prevent fraud and reduce chargebacks.

Card Security Code (CVV): Require customers to enter the CVV code (the three- or four-digit code on the back of the card) for online transactions.

EMV Compliance: Ensure your point-of-sale system is EMV compliant to reduce liability for fraudulent transactions.

Prompt Customer Service: Respond quickly and efficiently to customer inquiries and complaints to prevent disputes from escalating into chargebacks.

Clear Return Policies: Clearly display your return policies to avoid misunderstandings and disputes with customers.

Frequently Asked Questions (FAQs)

Q: What is an interchange-plus pricing model?
- A: Interchange-plus pricing is a transparent pricing model where you pay the actual interchange rate set by the card networks, plus a fixed markup to the processor.

Q: What is a tiered pricing model?
- A: Tiered pricing groups transactions into different tiers (Qualified, Mid-Qualified, Non-Qualified) based on factors like card type and transaction method. The fees for each tier vary, and this model can be less transparent and more expensive than interchange-plus.

Q: How often should I review my merchant service rates?
- A: You should review your rates at least annually, or whenever your business undergoes significant changes in transaction volume or processing methods.

Q: What are the signs that I’m paying too much for merchant services?
- A: Signs include high effective rates, unexplained fees, lack of transparency in billing, and poor customer service.

Q: Can I switch merchant service providers if I’m under contract?
- A: Yes, but you may incur early termination fees. Review your contract carefully before making a decision.

Conclusion: Secure the Best Rates for Your Business

Negotiating better merchant service rates is an ongoing process that requires preparation, knowledge, and persistence. By understanding the components of merchant service fees, implementing effective negotiation strategies, and adopting best practices, you can significantly reduce your processing costs and improve your bottom line.

Don’t have time to navigate the complexities of merchant processing on your own? Payminate.com specializes in helping businesses like yours secure the best possible merchant service rates and optimize their payment processing solutions. Contact Payminate.com today for a free consultation and let their experts find the perfect merchant processing solution for your business needs!