5 Signs You Should Walk Away from a Credit Card Processing Contract

Signing the right payments contract is a big deal for businesses large and small, after all, it's normally a business's second highest operating expense behind labor. Vetting a contract properly can mean the difference between growing your business and hemorrhaging money in unexpected payment processing fees each month. If you’re in the market for a new credit card processor or you’re a fledgling business owner about to sign your first service contract—then it’s critical to avoid the following five payment processing dealbreakers.

This post is from SwipeSum CEO Michael Seaman, a veteran of the credit card processing industry on a mission to give more power to merchants everywhere.Signing the right payments contract is a big deal for businesses large and small, after all, it's normally a business's second highest operating expense behind labor. Vetting a contract properly can mean the difference between growing your business and hemorrhaging money in unexpected payment processing fees each month. If you’re in the market for a new credit card processor or you’re a fledgling business owner about to sign your first service contract—then it’s critical to avoid the following five payment processing dealbreakers.

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1. Tiered PricingCredit card processing is a commodity that's normally sold by a commission incentivized salesperson, which would love to sign businesses up on tiered pricing. Processing companies typically charge merchants in one of two ways: via tiered pricing or interchange-plus pricing. Tiered pricing usually involves 3 tiers: a qualified tier, mid-qualified tier, and an unqualified tier. While one tier might appear to be low, most cards won’t qualify for that rate. The system relies on interchange rates that most payment processors don’t disclose to merchants, which means business owners rarely know how much margin their provider is actually padding on top of cost. Many service providers try to use tiered pricing because it’s most beneficial to their bottom line—but it’s virtually never beneficial to merchants. That’s why SwipeSum never sets up business owners on contracts that involve tiered pricing. When processors compete for a business on SwipeSum, they must bid on a set cost-plus rate and monthly fee.2. Service FeesBelieve it or not, some merchant service providers will charge their clients a fee for contacting customer service, receiving statements, or the general basics of their service. But if you’re already paying for services, you shouldn’t have to pay an additional cost to handle problems with said services. Service fees are a sure sign that a payment processing contract is not going to be in your business’ best interests.3. Hidden FeesAs I’ve written before, the payment processing industry is notorious for its lack of transparency—and this is certainly true when it comes to contracts. Because salespeople’s income is often commission-based, they have a vested interest in not telling you about the various hidden fees that can be tucked away in the fine print. From charges for account statements or upgrades to transmission costs, equipment fees, early termination fees, and so on, the list of possible hidden fees goes on and on. Not all of these fees need to be dealbreakers—for example, it’s a payment processing myth that it’s impossible to terminate a contract early without incurring high fees—but if a salesperson isn’t forthcoming about these costs and can’t speak clearly about margins, premium cards, interchange, and so on, then that’s a good sign you should walk away from the contract. The prevalence of hidden fees also underscores that it’s critical to read every line of a contract before signing—and refuse to sign if you don’t understand the terms. SwipeSum can help you navigate contracts so you never add your John Hancock to something that’s not in your company’s best interests. We’re committed to full transparency so business owners don’t have to live in fear of being smacked with unexpected fees.4. Transaction Limits (Including Volume Commitments)Whenever you’re vetting a contract, be aware of transaction limits in the form of size or frequency limitations. In particular, look out for volume commitments that require businesses to generate a certain volume of sales each month or else pay a fee. This might not be a concern for large and/or well-established companies that can easily predict their sales volume each month. But volume commitments can be highly damaging to small and mid-sized businesses and potentially even crippling for young startups. If your business falls into these latter categories, then it’s best to avoid any contract that includes volume commitments.5. Bundled OffersBundled deals are frequently offered by banks or point-of-sale software companies. While there’s nothing inherently terrible about these offers, the trouble is they’re only one-size-fits-all. But given the sheer variety of businesses in the world, one-size-fits-all just doesn’t cut it. You’ll find a system that’s better tailored to your business’ needs if you shop around for specific business solutions. The SwipeSum platform helps businesses do this every day. All of these dealbreakers can be avoided if you’re knowledgeable about the payment processing industry. But developing all the knowledge necessary to make informed decisions about payment processing contracts is beyond the scope of many business owners, who already have their hands full running their businesses. If you’re not confident you can avoid damaging contracts or the wiles of scammy salespeople, then it’s critical you enlist the help of experts. At SwipeSum, we can help you negotiate contracts that allow you to know exactly what you’re signing up for and give you confidence that the contract is truly in your business’ best interests.

Michael Seaman

Michael is the co-founder and CEO of Swipesum. A veteran of the payments industry, Michael and his brother Stephen have led Swipesum since its inception in 2016. In his free time, Michael likes to play with his two daughters and skateboard.

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