Negotiating Merchant Processing Rates: Get the Best Deal Possible

Negotiating Merchant Processing Rates: Get the Best Deal Possible

In today’s competitive business landscape, accepting credit and debit card payments is non-negotiable. It’s a crucial element for attracting and retaining customers, driving sales, and ultimately, ensuring the longevity of your business. However, the world of merchant processing fees can feel like a complex maze of percentages, transaction fees, and monthly charges. Understanding how to negotiate effectively is paramount to securing the best possible rates and protecting your bottom line. This article will guide you through the key aspects of merchant processing rates, equipping you with the knowledge and strategies needed to negotiate like a pro.

Understanding the Components of Merchant Processing Fees:

Before diving into negotiation tactics, it’s essential to understand the different components that make up your merchant processing costs. Generally, these include:

• Interchange Fees: These fees are charged by the card-issuing banks (e.g., Visa, Mastercard, American Express, Discover) to the merchant’s bank (the acquiring bank) for processing a transaction. Interchange fees vary based on factors like card type (credit vs. debit, rewards cards, business cards), transaction type (card present vs. card not present), and merchant category code (MCC). They are generally the largest and least negotiable portion of your processing fees.

• Assessment Fees: These are fees charged by the card networks (Visa, Mastercard, etc.) to the acquiring banks for using their payment networks. Similar to interchange, assessment fees are not directly negotiable.

• Processor Markup (or Discount Rate): This is the fee charged by your merchant services provider (the processor) for handling the transaction. This is the area where you have the most negotiation leverage. The markup can be expressed in several ways:

  • Percentage: A percentage of each transaction.
  • Per-Transaction Fee: A fixed fee for each transaction, regardless of the transaction amount.
  • Monthly Fees: Fixed monthly fees for account maintenance, gateway access, or other services.

• Other Fees: Be on the lookout for additional fees such as:

  • Statement Fees: For receiving your monthly processing statement.
  • Chargeback Fees: Fees incurred when a customer disputes a transaction.
  • PCI Compliance Fees: Fees for ensuring your business meets Payment Card Industry Data Security Standard (PCI DSS) requirements.
  • Early Termination Fees: Fees charged if you cancel your contract before the agreed-upon term.

Strategies for Negotiating Lower Merchant Processing Rates:

Now that you understand the various components of merchant processing fees, let’s explore effective negotiation strategies:

1. Shop Around and Compare Quotes: This is arguably the most crucial step. Don’t settle for the first quote you receive. Contact multiple merchant service providers, including banks, independent sales organizations (ISOs), and online payment processors. Compare their fees, contract terms, and customer service offerings. Be sure to ask for a complete fee schedule to avoid any hidden charges.

2. Understand Your Transaction Volume and Average Ticket Size: Knowing your monthly transaction volume and average ticket size is essential for securing the best rates. Processors often offer different pricing tiers based on these factors. A high-volume merchant might be able to negotiate a lower percentage markup, while a low-volume merchant might benefit from a lower monthly fee.

3. Leverage Your Existing Business Relationship: If you have a long-standing relationship with your bank or another financial institution, leverage it during negotiations. Explain your loyalty and inquire about preferential rates. Banks are often willing to offer competitive pricing to retain existing customers.

4. Negotiate the Processor Markup: As mentioned earlier, the processor markup is the most negotiable aspect of your merchant processing fees. Don’t be afraid to push back and request a lower percentage or per-transaction fee. Use the quotes you’ve gathered from other providers as leverage.

5. Consider Different Pricing Models: Processors offer various pricing models, including:

   • Interchange-Plus Pricing: This model is considered the most transparent and competitive. You pay the actual interchange fees plus a fixed markup from the processor.
   • Tiered Pricing (Bundled Pricing): Transactions are grouped into tiers (e.g., qualified, mid-qualified, non-qualified) based on factors like card type and transaction method. Each tier has a different rate. This model can be less transparent and potentially more expensive if a large portion of your transactions fall into the higher-priced tiers.
   • Flat-Rate Pricing: A simple model where you pay a fixed percentage and per-transaction fee for all transactions. This is often offered by online payment processors like Square and Stripe. While it’s convenient, it can be more expensive for businesses with lower transaction volumes or larger average ticket sizes.

   Understand the pros and cons of each model and choose the one that best suits your business needs. Interchange-plus pricing is generally recommended for most businesses seeking the best value.

6. Eliminate Unnecessary Fees: Scrutinize your processing statement and identify any unnecessary fees. Negotiate to have these fees reduced or eliminated. Examples include statement fees, PCI compliance fees, and inactivity fees.

7. Read the Fine Print and Negotiate Contract Terms: Before signing any contract, carefully review all the terms and conditions. Pay close attention to the contract length, early termination fees, and automatic renewal clauses. Negotiate for more favorable terms, such as a shorter contract length or a waiver of early termination fees. Many processors are adopting a “subscription” model for their services. Platforms like Payment Cloud Inc. provide access to a wide variety of payment technology, but ensure the long term implications and costs are clear.

8. Emphasize Your Payment Security: If you have robust security measures in place, such as EMV chip card readers and fraud detection systems, highlight this during negotiations. This can help lower your risk profile and potentially lead to lower rates.

FAQs: Negotiating Merchant Processing Rates

• Q: What is PCI Compliance, and why is it important?

  • A: PCI Compliance refers to adhering to the Payment Card Industry Data Security Standard (PCI DSS), a set of security standards designed to protect cardholder data. It’s important because it helps prevent data breaches and fraud, which can damage your business reputation and lead to significant financial losses.

• Q: How often should I review my merchant processing rates?

  • A: You should review your rates at least once a year, or whenever your business experiences significant changes in transaction volume or average ticket size.

• Q: Can I negotiate rates with companies like Stripe or Square?

  • A: While it’s more difficult to directly negotiate rates with larger companies like Stripe or Square, you can still explore options like volume discounts or customized pricing plans if your business processes a significant amount of transactions.

• Q: What is a chargeback, and how can I minimize them?

  • A: A chargeback is a dispute initiated by a customer with their credit card company. You can minimize chargebacks by providing excellent customer service, using clear product descriptions, processing transactions promptly, and implementing fraud detection systems.

Conclusion:

Negotiating merchant processing rates is an ongoing process that requires diligence, research, and a willingness to advocate for your business’s financial well-being. By understanding the components of processing fees, shopping around for the best deals, and employing the negotiation strategies outlined in this article, you can significantly reduce your processing costs and improve your profitability. If you find the process overwhelming or simply don’t have the time to dedicate to it, consider reaching out to experts who can help. For personalized assistance in securing the best merchant processing solution for your business, we recommend contacting Payminate.com. Their experienced team can navigate the complexities of the market and help you obtain competitive rates tailored to your specific needs. Taking the time to optimize your merchant processing rates is an investment that will pay dividends in the long run, contributing to the overall success of your business.