Merchant Account Pricing Strategies

Most business owners are excellent negotiators. They negotiate with vendors and business partners every day. Because of the skills they have in this area, a majority of businesses negotiate their merchant account processing fee structure completely on their own, often with little research done prior to the negotiation process. Credit card processing fees are as confusing and convoluted as anything a business ever pays and a majority of businesses end up unknowingly and unnecessarily paying too much for this service.

One of the primary difficulties with trying to negotiate credit card processing is that it has become extremely complicated and difficult to determine what the proper costs are for your business. Very few business owners or finance administrators can truly understand this expense category without a tremendous amount of research and time. As an example of the complicated nature in this cost category, in the 1990's there were eight (8) different Interchange Categories that Visa and MasterCard assessed to businesses that accept credit cards. Today, there are over 300 Interchange Categories that a business may be charged when accepting a credit card. The explosion of fee categories, business and rewards cards and the ever expanding billing options for credit card processing companies has made it virtually impossible for a business owner to fully understand this cost.

There are numerous ways for a processor to achieve the revenues and profits they want to make on a particular account even if they are forced to give their client a seemingly great program up front. If it were as simple as negotiating a "better rate" and then walking away, processing costs for businesses that accept credit cards would not have increased at 8 times the rate of inflation since 2001.

For businesses that accept credit cards, there are far more considerations than simply "processing rates" to consider when looking at the profitability of a merchant account. Every major processing company has teams of pricing specialists whose sole responsibility is to price proposals to current clients looking for reductions and potential clients that are coming to them for a proposal. From a processor's perspective, every single pricing proposal is looked at from the standpoint of "How can we maintain as much profitability on this account as possible?".

For those that have negotiated merchant account pricing and have experienced the frustration of going through this exercise, you know that the first thing a processor asks for is copies of your previous statements with all of your current pricing included. The processor claims that the reason they need this information is to see what type of programs you may qualify for. The real reason is that they want to see what type of pricing you have so they can be sure to slightly undercut this pricing, but not by too much. The goal of any processing negotiation, from a processor's standpoint, is to gain or retain the business while still maximizing their profits on your account. In many cases, these profits are substantial.

Below are some questions a business owner or financial professional in charge of this cost category may want to ask themselves prior to negotiating a new merchant services agreement.

• Do you know if your business qualifies for any emerging market interchange programs that significantly reduce the cost of processing?

• How much time do you plan to spend each month reviewing interchange qualifications and downgrades?

• Do you know exactly what you are looking for to identify Interchange downgrades and alert your processor?

• Do you have a solid understanding of all the alternative payment acceptance methods available to your business and know which may fit your given situation to cut costs even lower?

• Virtually every Fortune 500 retailer has an expert or team of experts on staff whose sole responsibility is to manage this cost category daily because they realize the importance of it. Does your business have someone on your staff that has the expertise to do this?

• Do you know the exact terms to insist on when talking to your current processor or a prospective processor?

• Do you know the exact profit margins your account represents to a prospective processor?

• Do you know which contractual pitfalls that should be avoided in every situation?

• Do you have time to gather bona-fide back up proposals with clear pricing goals to show your processor that if they don't give you the exact terms laid out, somebody else will?

• Have you ever had a credit card processor lower your costs after you have signed an agreement with them?

• Have you ever had a credit card processing company call you and offer a rebate or a refund on overcharges they have charged your company?

The bottom line is that when businesses do their research and get their information primarily from processors themselves (or brokers representing processors), there is one common denominator that these advisors all look at when talking to your business - "How much profitability can we achieve from this account?" Remember, there are literally 100's of different ways to achieve profits on a merchant account from the processor's perspective. Each month represents a new profit opportunity for a processing company.

There are alternatives to going the traditional route of talking to several different processors and attempting to negotiate the best pricing structure for your company. Companies like Financial Mitigation Services are truly independent experts that are not compensated by credit card processors. Advice from an independent expert can save businesses substantially of dollars over the term of your merchant services agreement and there is no need to change from your current processor to achieve these savings. Research indicates that businesses using an independent expert in this cost category pay as much as 20% less than comparable companies that negotiated on their own.

There are literally thousands of instances happening every day around the country where a business owner or finance administrator is busy patting themselves on the back because they have just negotiated a new processing "rate" for their company in which they are told they are going to be saving substantially! Meanwhile, the merchant account salesperson that signed them up is in the back office getting "high fives" from the processing company for bringing in a hugely profitable deal for their company. This happens every day to businesses all over the country because of the difficulty of determining true processing costs and the often erroneous advice business owners receive from processing salespeople or brokers.