How to negotiate card processing fees

How to negotiate card processing fees

You can now pass on some credit card processing costs to the customer due to recent antitrust settlements. ... But do you really want to?

Due to court cases involving Mastercard, Visa and American Express, shops are now allowed to impose a surcharge in most states for card swipes. However, you risk losing customers to merchants who don't issue the charges. Is a surcharge worth the risk?

But there is a solution to cutting the processing fees. By asking the right questions and doing some research, you can negotiate with merchant account providers for the best deal. (We also tell you handy terms to know before you negotiate.)

Here's how to do it:

First, get a breakdown from your sales rep of what you're being charged -- the rate plus any additional fees that you are paying. (Be prepared: They will explain why this isn't easy to do.)

Once you have a good idea of what you're paying and why, ask your processor if they can do better. Questions to ask:

• Are you paying for some services that you never use?
• Can they cut your discount rate or the per-transaction charge?
• Can they waive or reduce some of the fees?
• Whatever the processor promises, get everything in writing.

Now, compare offers from other card processing companies. Beware of discount rates that are too good to be true; those processors are probably planning to make up for the difference by tacking on additional monthly fees.

Before the processor can give you rate and fee information, you will need to fill out an application form and provide, at a minimum, some basic financial information:

• Your type of business
• Your business license number
• Your tax ID number or Social Security number
• The number of years you've been in business
• The ownership structure of your business
• Your yearly and/or monthly sales volume
• Your percentage of chargebacks
• Your business banking information

While a processing company may ask for your monthly statements up front, at least one credit card expert advises against this. Once it has those statements, all the processor has to do is try to beat your current costs. You want its best price.

Keep in mind that the deal the sales person offers may not be the one that you'll ultimately get, even if they've made that offer in good faith. It's up to the underwriters at the processing company to determine your rate, and the riskier your business, the higher your rate is likely to be. Underwriters may also ask for more detailed financial information to determine the rates you would pay.

As you're comparing offers from different processors, ask:

• What kind of set-up charges will you have to pay? Can you use your current equipment? (If they try to pressure you into leasing new equipment, it can be a warning sign. Leasing equipment is never a good deal.)
• Are there penalties for exceeding a certain number of transactions of credit card transactions per month? (If you're hoping to grow your business, you don't want to get penalized for that growth.)
• If you decide to terminate your contract, what kinds of fees and/or penalties will you have to pay? Some companies offer a month-by-month contract so that you won't be locked in with one processor if you find a better deal elsewhere, but longer-term contracts may offer some rate protection during the length of the contract.

Watch out for contract clauses that state the processor can tack on new fees whenever it wants. And ask each processor to supply references, preferably from a company similar in size and business to yours. 

If you'd like some help with the search for better processing rates or with the negotiating process, there are fee-based consulting companies that analyze merchants' monthly credit card processing statements and determine where you might find savings. They usually represent or have contacts with several different merchant account providers and will work with you and these providers to secure the most favorable credit card processing terms. They may also offer ongoing monthly monitoring services to ensure that your rates stay as low as possible. Consultants make their money by charging fees, often a percentage of the savings that they have achieved for the business owner for a specified period of time.

 

See related: How to decode your merchant payment processing statement

Published: April 17,2023