What to do When Your Processor Increases Rates

Credit card processors and merchant service providers are businesses. Like any business, prices can increase over time—oftentimes unexpectedly.

Just like your neighborhood coffee shop might increase the price of a latte or your local dry cleaner changes the cost to clean a sports jacket, processors raise their rates. 

Unfortunately for merchants, the increase could potentially result in thousands or even tens of thousands of dollars in extra processing costs per year. It’s not quite the same as an extra $0.50 for your daily coffee. 

So what can you do when your processing rates increase? Can you stop your merchant services provider from doing this? Is it possible to go back to your old rates?

I created this guide to help you navigate through this unpleasant situation. 

Types of Credit Card Processing Increases

A processing increase can come in all different shapes and sizes. While you might just see an extra cost on your statement, it’s important to understand where that cost is coming from.

Is the increase coming from the card networks? Or is it coming directly from your merchant services provider? Was the increase mentioned in your contract? These are just a few of the many questions you should be asking yourself.

Hopefully, your processor clearly informs you about an increase, as opposed to just burying the information within the fine print of a 20-page letter. 

Otherwise, you could have to compare previous statements to see if your rates, fees, and percentages have actually gone up, which is a daunting task. 

Reasons For Credit Card Processing Rate Increases

There are dozens of potential reasons why your rates might have gone up. But in most cases, we can segment those sources into a handful of common categories.

Card Network Increases

If the credit card networks update their interchange rates, there’s nothing you can do about it. As those interchange fees rise, it’s going to cost you more to process each transaction. 

How often does this happen? As a matter of fact, Visa and Mastercard both planned to update their interchange rates in April 2020. COVID-19 ultimately caused a delay, and the update has been tentatively pushed to April 2021.

Technically, this is an update—not an increase. But the vast majority of these changes will be an increase in interchange pricing.  

How does an increase affect you as a merchant? I’ll give you a simple example with easy numbers to explain.

Let’s say that Visa is increasing the interchange rate from 2% + $0.10 per transaction to 2.5% + $0.15 per transaction. We’ll say that your processor currently has you on an interchange-plus plan, where you pay 0.50% + $0.10 per transaction above interchange.

After the card network increases, your total cost could go from 2.5% + $0.20 per transaction to 3% + $0.25.

But sometimes you can be hit with a double-whammy increase here. In addition to the card network increase, your processor could go up on you as well. Your interchange-plus plan might change from 0.50% + $0.10 per transaction to 0.75% + $0.15 per transaction. 

This would bring your new rate (card network + processor increase) all the way up to 3.25% + $0.30 per transaction. 

In short, the card networks could increase prices alone. Or the card network increase could cause your processor to go up in pricing as well, adding to your total costs. 

Processor Increases

Aside from the card network increases, your processor could always increase the rates on their own. Just imagine the last example we discussed, without the first increase from the card network.

Some processors will even deceive merchants, claiming that an increase is out of their hands, and it’s coming directly from the card network. While this might be true in some cases, it’s deceptive in others. 

Simultaneously increasing rates at the same time as the card network is a sneaky way that merchant service providers try to get away with an increase. But other times, these rate increases could come out of nowhere, even if the interchange fees imposed by the card networks remain the same. 

Interchange Padding

When a processor adds to the interchange fee without telling the merchant, it’s known as “interchange padding.” 

Sometimes this can be tough to spot with the untrained eye. It involves comparing statements, which can be challenging since there are so many different interchange categories.

If you suspect that your processor is “padding” your fees, reach out to our team here at Merchant Cost Consulting, and we’ll take a look.

Tiered Price Increases

Also known as bundle pricing, this contract structure offers different rates based on qualifications of the transaction. These are typically bundled as qualified, mid-qualified, and non-qualified. You’ll be charged accordingly based on the qualification category.

However, your processor determines which qualification category each transaction falls into. So the interchange rates imposed by the card networks are essentially irrelevant. 

Your processor could start routing certain transactions from qualified to mid-qualified or from mid-qualified to non-qualified, therefore increasing your rates without actually changing the percentages in each category. 

Trying to figure out what’s happening with these increases on your own can be a nightmare. So it’s definitely in your best interest to consult with a professional if you’re on a tiered plan. 

Flat-Rate Processing Increase

Technically speaking, flat-rate pricing falls within the tiered or bundle structure. Processors like Square charge a fixed rate for all transactions, regardless of the card type. 

So there’s no way of knowing which portion of the fee is coming from the interchange and which portion is coming from markups and assessments. 

A flat-rate processing statement won’t show details about the interchange categories. So if your rate increases, you’ll have no way to know if it’s coming from the card networks or if it’s coming directly from the processor. 

Final Thoughts

What should you do when your processor increases rates? 

The first thing you need to do is figure out the cause of the increase. Your course of action from here will largely depend on the source of the increase and the type of contract you have. 

If you’re having trouble, consult with our team at Merchant Cost Consulting. We’ll review your statements and see if we can help lower those processing costs. Depending on the situation, we can even get you better rates than you were paying before the increase, without switching processors.