How to Negotiate Your Credit Card Processing Contract

Payment contracts are complicated, and purposefully so. Processors often make them wordy and fill them with unclear terms so that merchants don’t realize how much they’re being charged. When they’re presented with a contract, many merchants will accept the first offer that comes their way because they don’t understand what they’ve been presented with. Merchants don’t realize they can negotiate with the processor or that they have options. Knowing what to avoid in a contract, and how to start that conversation, is the first step to getting the best contract for your company. What

Payment contracts are complicated, and purposefully so. Processors often make them wordy and fill them with unclear terms so that merchants don’t realize how much they’re being charged. When they’re presented with a contract, many merchants will accept the first offer that comes their way because they don’t understand what they’ve been presented with. Merchants don’t realize they can negotiate with the processor or that they have options. Knowing what to avoid in a contract, and how to start that conversation, is the first step to getting the best contract for your company.

What To Avoid:

Every payment processing contract is different, but there are a few industry-wide tricks that you should keep an eye out for. Avoid these things as much as possible; you have the power to negotiate them away!Tiered PricingUnfortunately, the payment processing industry is run by salesmen that work primarily on commission, so they’re looking to make a buck any way they can. One way they do that is through payment structures. There are three types of payment structures: tiered, flat rate, and interchange-plus pricing. Flat rate and interchange-plus have their pros and cons, but tiered pricing should be avoided at all costs. Basically, tiered pricing separates transactions into buckets based on the type of card used. Each of these buckets incurs a different rate. Usually, the higher the interchange on a card, the higher the rate in that tier.The problem? These rates are compounding. A transaction that falls into a higher tier not only pays the rates of that tier but all the tiers below it as well. This fact is often not explained to merchants during the application process, which can prove very costly. If a contract comes your way that has a tiered pricing structure, send it on its way. Service FeesProcessors will often charge ridiculous fees for services that should be included in the monthly charge. We’re talking fees for calling for hardware or software aid or reporting an issue. If you’re paying for a service, there shouldn’t be an extra charge for using the customer service. If you notice these kinds of extra fees, it’s a pretty sure sign that the processor is trying to squeeze every penny they can out of doing business with you and that they aren’t the right fit for your company.Transaction LimitsIt seems counterintuitive to punish a company for being successful but that seems to be exactly what transaction limits, and the fees that follow them, do. Some processors will charge higher rates for larger transactions or when a large number of transactions are completed each month. This is a sneaky way for processors to charge your business more money as you grow. You should be aware that this is different from a “maximum ticket,” which will be a part of any merchant application. The primary function of a maximum ticket is to prevent fraud -- think about it, if you were a coffee shop with an average ticket of $8 which suddenly ran a transaction for $1,500, it would look fishy. Your maximum ticket just tells your processor that you expect to run transactions up to that amount, so guess high. Filling out this section of your contract does not necessarily mean that you’ll incur an overage fee if you exceed that amount, but transactions will often be flagged and held for review if they exceed your maximum ticket. But, when filling out this section, keep an eye on the fine print to make sure there’s no fee associated with overages.

How to Negotiate:

Now that you know a few of the slimy tactics to look out for, it’s time to find out how to get rid of them. Here are a few surefire ways to reduce fees in any payments contract offer:Don’t Be Afraid to Say NoToday, businesses need to accept credit cards. So, for new businesses or businesses just getting into the credit card game, it can be a mad dash to get a system in place and merchants will often accept whatever they can get. But the truth of the matter is, it’s your business and you’ve got to take care of it. If a contract has rates and terms you don’t agree with, pass on it. More offers will come that will offer more value to your business. Saying no to one processor isn’t the end of the world; there are hundreds more you can talk to.Comparison ShopFinding a payment processor isn’t too far off from car shopping, so treat it similarly. Leveraging different processing contracts against each other is a powerful tool to reduce rates and get better value out of your payment processor. If you’re looking for a new processing contract, you should be in talks with at least three processors before making a decision. After getting initial quotes from each processor, use the best offer to leverage the other two processors to lower their rates.Many processors don’t expect merchants to weigh all their options and they certainly don’t want to lose business to a competitor so simply showing that you’ve shopped around can convince a processor to lower their rates. At SwipeSum, we help make this process easier by presenting clients with all of their options in our online marketplace. Once our clients have seen all that’s out there, they are able to make a better-informed decision on what processor is right for them. AskThis one seems simple, but it’s effective. Sometimes, just asking about a fee can be all it takes for the processor to waive it. Most processors rely on the fact that merchants know very little about the payment processing industry. They don’t expect you to point out inconsistencies or hidden fees, and if you don’t ask when you notice something, it gives them the green light to sneak in more fees. A merchant that points out fees or terms has a lot of negotiating power. Even just asking a question about something you want to avoid can be powerful. If you say “I won’t sign a contract with tiered pricing,” they’ll know you’ve done some homework and remove pricing tiers from consideration.It may seem like avoiding common payment processing practices, such as service fees and tiered pricing, is a lost battle. But the truth is, processors will only keep playing the same game if merchants keep letting them. It is possible to sign a contract that benefits your company. The first step is educating yourself on terms to watch out for and the second step is gaining the confidence to negotiate with your processor.

Taft Anderson

Taft Anderson is the former Product Marketing Manager of Swipesum. A graduate of Washington University in St. Louis' Olin Business School, Taft is a content and branding expert.

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