An Expert's Guide to Switching Merchant Services

Payment processing is one of the least exciting things for business owners. When you're switching merchant services, make sure you take these steps.

Payment processing is easily one of the least exciting things that business owners deal with. Nobody stands at the water cooler to talk about switching processors and setting up new gateways, but they’re a fact of life.

If your processor’s doing their job, you shouldn’t even know they’re there. But when processors aren’t doing what they should, it can be catastrophic for your business. Withheld funds, lost transactions, and excessive fees can cause real trouble.

If you’re regularly handling issues with your merchant services provider, it may be time to consider processor switching and a new merchant account. If you’ve already been through this process, you’re likely hesitant to start all over again. That’s why we have created this step-by-step guide to help you cover every necessary piece of a processing change.

Already know you need to switch your merchant account processor and want expert assistance? Swipesum’s independent payments consultants can help with everything related to payments, from consulting to vendor evaluation and rate negotiation. Because we’re independent, our top priority is delivering the best possible results for your business.

1. Start with the point-of-sale

A customer in a store uses their phone to complete a payment.

When accepting a card payment, the point-of-sale (POS) system kick starts the whole process. Unsurprisingly, it’s the start of the process of switching merchant services, too.

First, you need to decide whether you need to switch or upgrade your point-of-sale (POS) system. While the processor operates in the background, your POS acts as a link between your customer and your business. You should prioritize that link. Make sure the experience for the customer (and your employees) is great first, then find a processor that fits your needs.

If your current POS operates on a closed system (such as Clover or Square), you’ll have to switch to integrate with your new processor. If your POS instead connects to your processor via a gateway, you can probably keep the POS you’ve already got.

When switching your POS is the way to go, be sure to research a wide variety of POS systems. You’d be surprised to find how specific these get -- there’s a POS for every kind of business. Clothing stores, hair salons, restaurants, sporting goods stores, spas, you name it. This is a great way to narrow down your search.

Of course, considerations like budget and integration opportunities should play a big part. Our recommendation? Steer clear of closed systems.

If your POS requires you to work with one payment provider, you’re signing yourself up for trouble. That will only make it more difficult to switch if your new processor doesn’t work out.

2. Investigate integration possibilities including gateways

With your POS ready to go, it’s time to figure out what you need to do to connect it with a payment processor. If you’ve chosen an open-system POS, you’ll discover there are several options for you. Your POS could connect directly to a number of processors, or you may need to route transactions through a payments gateway.

The easiest option is to choose a POS system and a processor with direct integration. Not only are these generally less expensive, but they are the most direct way to complete a transaction. You won’t have to worry about customer funds being routed through multiple entities before being deposited into your business bank account, which means there’s less opportunity for error.

A customer taps their card on a POS system.

Payment Gateways

Of course, direct integrations aren’t your only option. If your POS system doesn’t integrate directly with any processor, you’ll need to search for a gateway.

Online stores will also need gateway services. Think of a processing gateway as a security guard and delivery person of a transaction. When customers swipe their card, they give sensitive information to your business.

One of the gateway’s main jobs is to encrypt that card information to keep it safe from fraud and breaches. Another job of the gateway is to escort encrypted information through the processing journey from the POS system to the processor. Eventually, it will send those funds back to your merchant account, too.

Perhaps the most important role of a gateway is as a virtual terminal for eCommerce shops. Since those merchants never actually see the customer’s card, the gateway is responsible for collecting all the information and sending it to your processor while adding extra security for the card-not-present transaction.

The gateway will then inform merchants when the transaction is authorized and your money is on its way. Unlike brick-and-mortar shops, online businesses would not be able to function without gateway integrations — online transactions simply wouldn’t be feasible.

Keep in mind that all gateways will charge a per-transaction fee on top of any payment processing fees. Most trustworthy gateways will cost around $0.05 to $0.15 per transaction. Make sure you aren’t paying excessive rates for your gateway -- they’re only doing half the work!

3. Select your new payment processor

We debated whether or not this section should be labeled step 2B. Gateways and processors work hand-in-hand, so it’s hard to call this an entirely separate step. If you know how you need to integrate a processor into your POS system, it’s time to look for processors that fit that integration.

Unfortunately, there are literally thousands of processors out there. While your POS and gateway choices will narrow down that list considerably, you’ll still be looking at a few dozen that could potentially be your new provider. This is the most difficult part of making your switch -- doing the research.

A holographic globe hovers above a keyboard with a green “online payment” key.

How to choose a new processor

First things first: there is no such thing as a “one-size-fits-all” processor.

No processor can offer the “best rates” to both a flower shop and an international manufacturing firm. Just like your POS system, it’s important to find a processor that specializes in your business type.

For example, if you see large average transactions, look for a processor that minimizes the percentage you pay on each transaction. If your business is seasonal, you might prefer a processor that offers straightforward, predictable pricing. It’s really up to you.

Don’t fall for the salespeople claiming one processor is vastly superior to another in terms of service; processing is a commodity and differentiation between brands is incredibly difficult to achieve. It all comes down to the details, pricing in particular. Look at the processors with the best pricing structures and contract terms for you, choose five or so and get quotes from them so you can start the negotiating process.

You can use your existing monthly statements as a negotiating tool. Since their goal is to get you to sign their contract, most processors will happily undercut your current rates with their first bid.

Then, take your new bid to the next processor and see if they’ll beat that. Continue the process until you’ve reached a rate that you feel comfortable with. Now it's time to pull the trigger.

4. Sign a Merchant Agreement

Once you’ve found your new processor, you’ll fill out a merchant agreement. This is essentially an application to open a merchant account. These applications can get needlessly complicated, which means they’re a great opportunity for salespeople to sneak in extra fees.

While most of the information requested will be straightforward -- business name, location, etc. -- you’ll also have to provide some information about your transaction volume that may not be so easy to remember. You should know your annual volume, average transaction size, what percentage of your transactions are card-present versus card-not-present, and more.

The most important section to watch out for is the rates and fees section, which outlines how you’ll be charged for the processor’s services. Whatever you do, never sign a contract with tiered pricing. Unfortunately, spotting that may not be super easy.

Some might disguise tiers by using terms like "qualified," "mid-qualified," and "non-qualified." If you see these terms, write in zeroes where percentages and dollar amounts can be added. Your application should only reflect base processing rates (though some exceptions might need to be made for American Express cards, which face higher interchange rates).

5. Participate in the underwriting process

After you’ve submitted your merchant application, it will go into a process known as underwriting. This process assesses your business’ reliability and legitimacy. It’s a time-consuming process that usually takes several days to complete.

Along the way, you’ll be required to provide several supporting documents. These may include previous statements, your business license, and even your personal social security number to prove your legitimacy.

The point of underwriting is to stop fraudulent businesses, so some businesses will be under more scrutiny than others. Companies that deal in drug paraphernalia and online services are particularly vulnerable. You may be required to provide a list of products you’re selling, a sample customer contract, photographs of your storefront or warehouse, and other similar verifying documents.

Once the process is complete, your new merchant account is officially open. Your processor should then assist you in connecting that account to your gateway or POS system. That connection is usually as simple as copying an account number into the settings of your gateway. 

Once that's done, you're fully ready to accept credit and debit cards!

A closeup view of a gold credit card.

Other Important Factors

Choosing payment hardware

We weren’t sure where to put this in our step-by-step guide, because it can really come in at any part of the process. Some POS systems provide hardware, while other times you won’t choose hardware till you’ve signed on with your processor. In many cases, you may not even need new hardware, even if you’re switching processors.

If you are in need of new hardware, make sure to consider all the ways you want to accept payments.

If you see mobile payments regularly, NFC capability is a must. On-the-go businesses will want something portable with wireless connectivity. Image-conscious companies, consider what color or look you’d like the hardware to have.

Your processor or POS provider should be able to direct you to options that fit whatever criteria you like.

Of course, once you choose your hardware you have to consider what it is going to take to set it up. Some systems are just plug-and-play, meaning you’ll essentially be able to start taking purchases the day you get it. But others require more technical knowledge. For these, you’ll have to either learn how to set them up yourself (YouTube is a great resource for this!) or invite a representative to come set it up for you.

Canceling your current merchant service provider

Unfortunately, there’s one major snag that gets in the way of most provider switches: an existing contract. Merchant services contracts are there to keep you with your current processor, so odds are it isn’t going to be a simple goodbye. In most cases, you’ll be required to pay an early termination fee -- usually somewhere between $100 and $500 -- and return any “rented” hardware that the processor provided.

There are a few scenarios to keep in mind where you could potentially reduce or avoid an early termination fee when switching processors:

• The provider violated their contract terms,
• The salesperson gave you misleading information (in writing), or
• Your new processor is willing to pay the fee for your switch.

In any case, it is best to have an attorney look over your contract. They can help you look into the fine print of your contract and (hopefully) find one of these ideal situations to lower your exit cost. Beyond that, the best practices for canceling a merchant services contract early are: understand your end of the deal and everything you originally signed up for, read everything (twice), and most importantly, get everything in writing (especially the final cancellation letter).

Potential Issues During a Provider Change

It’s clear by now that the process of changing merchant services providers is anything but clear. That, unfortunately, means there are going to be bumps in the road that you’re not expecting once you’ve initiated the change in merchant solutions. Here are a few things to start thinking about to lessen those burdens when they come:

Time investment

You are probably prepared for this process to take time. But don't be surprised if it takes longer than is convenient. Be prepared to sit on the phone with salespeople and support staff for most of those early days. There won’t be a lot of setup and training happening when you have to confirm and learn the systems yourself, but once you do, you’ll have to pass that knowledge on to the rest of the staff--where there may be a wide range of technical knowledge.

Even past those time sucks, you’re going to be doing a lot of waiting, especially during the sales and underwriting processes. We wish a switch between processors could happen immediately, but that’s just not how it works. You’re running on the other party’s schedules, so be patient and know that this transition period won’t last forever.

Possible held funds or transactions

The troubles don’t stop in switching merchant services when you’re all set up with your new processor. There is a learning curve involved when you make a major change in your business. That, unfortunately, means you might see larger transactions held or experience a longer wait for deposits than you’re accustomed to.

Just like you have to learn how to use your new processor, the processor has to get a feel for how your business operates. It just takes a little time and effort to get used to the way your new processor handles things like statements, support tickets, and online functionality. Every processor works a little differently, so don’t expect to understand everything right away.

Additional fees

Hopefully, you’ve found a new processor that fits safely in your budget, but keep in mind that per-transaction rates are not all there is to your processing statement. You should expect to see a number of additional fees, including network fees, PCI compliance fees, assessment fees, and batching fees. This can make it hard to know exactly what you’ll be paying when your new contract first takes effect, so make sure you have the wiggle room in your budget to handle that until things get settled.

We hope this guide has proved helpful to you as you switch your merchant services provider. While we weren’t able to cover everything here, we think this is a good starting point for anyone who’s looking for a way out of a poor situation.

Get Expert Help When You Switch Merchant Accounts & Merchant Service Providers

Switching merchant services providers can be especially involved and complex. Having a knowledgeable and experienced ally on your side can make the process that much easier.

Swipesum is dedicated to helping your business find the best possible payments solution and rates. Our consulting services reach across the entire payments experience, helping you realize a truly optimal result.

Ready to change your payment processing for the better? Set up your free consultation today!

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Taft Anderson

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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