Payment processors increase rates. It’s inevitable, and it’s just what they do.
Credit card processors and merchant services providers, just like every other business out there—are looking for ways to make as much money as possible.
But in the payment processing space, just a few basis points can cost you tens of thousands of dollars. It’s not quite the same as a latte costing an extra dollar at your local coffee shop.
Whether you just got notice of an upcoming rate increase or your new fees have already been implemented, I’ll explain exactly what you need to do next.
Don’t worry. You can fight these charges and even get a rate reduction—without switching providers or having to cancel your account. Here’s how:
Step 1 — Identify the Type of Increase
The very first thing you need to do is determine the reason behind the increase. Not every rate increase is the same, and the type of increase you’re getting will determine your next steps.
All rate increases fall into one of the following four categories.’
- Interchange Updates — These come directly from the card networks, and unfortunately, there’s nothing you can do about it. Card networks typically adjust interchange rates and assessment fees in April and October. If those rates increase, they’ll be passed along to you.
- New Fees — This is any new fee on your monthly statement that wasn’t there before. Sometimes it’s a new assessment fee from the card networks (which can’t be adjusted), but most new fees are just your processor trying to squeeze extra dollars from you.
- Discount Rate Increase — This is your processor increasing their markup on your transactions. These fees are 100% negotiable.
- Padded Fees — Some processors inflate interchange rates and assessments to make it appear as though certain fees are coming from the card networks, but in reality, they’re marking up the cost and profiting from the difference.
Essentially, any fees coming directly from Visa, Mastercard, American Express, and Discover are non-negotiable and something you just need to deal with.
Everything else is up for negotiation.
Step 2 — Audit and Compare Your Monthly Statements
Sometimes it’s very obvious what type of rate increase you’re getting. If your processor is adding new fees or increasing your discount rate, they should send you a notice ahead of time (although this isn’t always the case).
Fortunately, the full story will always be in your monthly statements.
I know these statements can be a bit overwhelming if you’re not used to reviewing them on a regular basis. But at a minimum, calculate your effective rate over the last few months—especially the months before and after the rate change went into effect.
To calculate your effective rate, simply find your total processing costs (all fees) and divide that number by your total sales.
If your effective rate has increased significantly more than the rate change, there’s likely something else happening behind the scenes that needs to be investigated further.
For example, let’s say your processor sends you a notice that they’re increasing your discount rate by 0.25%. But your effective rate jumps 1% in the months following the update. This could be a sign of interchange padding, new charges, or other hidden fees.
We have a step-by-step guide on how to read your merchant processing statement that you can follow as a resource. This will help you audit your statements and truly understand what’s happening with your merchant account.
Step 3 — Assess Your Options
Refer to your merchant agreement. Depending on the terms of your contract, your processor may not be allowed to increase your rates for 12 or 36 months.
We’ve seen this happen dozens of times where processors raise rates while a merchant should have still been locked into a lower cost. So don’t assume that your processor is abiding by your agreement. It’s on you to hold them to those terms.
Armed with the information from your contract and audit, you now need to decide how you’re going to proceed.
There are essentially three main paths you can take from here:
- You can accept the rate increase and do nothing (we don’t recommend this).
- Switch providers (we don’t recommend this either).
- Negotiate a better rate with your current processor (this is the best option).
Most rate increase notices come with a contingency statement saying that the merchant has the right to terminate their account penalty-free.
We strongly advise against this.
Switching providers is rarely more cost-effective, even if you can get out of your current contract without paying a fee.
You’re always going to get a better quote from a new processor because they want your business, and you’ve probably told them what you’re currently paying (so of course they will undercut your existing rate). But in a year or two, that processor will increase your rates again and you’ll find yourself in the exact same position.
Plus, it’s expensive and a hassle to change other processors and software if you’re relying on any type of integrated processing system. Your payment acceptance system is likely embedded into other business operations that would all have to change if you switch processors.
The only logical option left is to pick up the phone and start negotiating with your current processor.
Step 4 — Negotiate and Push Back
You have a lot more leverage than you might realize.
Your processor does not want to lose your business. They’re hoping that you’ll just take the rate increase, shrug your shoulders, and move on without a fight.
But remember, any fee that’s not coming directly from the card networks is negotiable.
Your processor will likely tell you that the rate increase is helping them cover costs associated with new technology, fraud detection, other rising business costs—blah blah blah. It’s all nonsense.
They’re making plenty of money on your account and they don’t need to increase your rates.
Not only can you get your rates back to what you were paying prior to the hike, but you could potentially get them even lower than your old rate. It just depends on how good of a negotiator you are.
Expect to be met with some resistance. Your first phone call or email may just be rejected. But call back. Try again tomorrow and then again next week.
If you’re still not having luck, it might be time to seek help from an expert.
Step 5 — Partner With a Merchant Consultant
Working with a merchant consultant can help you get the best possible deal on payment processing.
Here’s what you should expect from a good consultant:
- Negotiate directly with your current processor.
- Won’t pressure you to switch providers.
- Audit your statements for free.
- Get bogus fees and hidden charges removed.
- Obtain refunds and credits to your account.
- Continue monitoring your statements every month to spot any new fees or rate increases.
In terms of negotiations, merchant consultants have the experience and insider information that you can’t get anywhere else.
When you pick up the phone and ask your processor for a lower rate, your processor will likely tell you that that’s the lowest rate they offer (and you’re forced to take them at their word).
But when we pick up the phone, they can’t tell us that. Because we have dozens of other clients using that processor and we know exactly what their rock-bottom number is. We know which fees are legitimate and which ones are just money grabs—so they can’t fool us.
FAQs: Answering Your Questions About Rate Increases
There’s a good chance you’re wondering the answer to at least a few of these questions below.
How often do payment processors typically raise rates?
It depends on the processor, but you can usually expect a rate increase after the term of your initial contract expires (typically 12-36 months after you sign up).
Many processors increase rates annually. If your processor is raising your rates more than once per year, it’s a problem and a huge red flag.
Can a rate increase get reversed after it’s been implemented?
Absolutely. Nothing is set in stone with your processor.
So if you received a notice about an increase and didn’t act right away, you can still get your rates lowered—even months after the new rate has been implemented. Depending on the scenario, you may even be entitled to a refund or credits to your account.
How much notice must processors give before increasing rates?
Legally, the only notice that’s required is based on the terms of your merchant agreement.
Most processors give 30 days’ notice before increasing rates. We’ll rarely see any notice provided longer than 45-60 days in advance, and some processors don’t give any notice at all.
Sometimes these “notices” are just buried in a large paragraph in the footer of a 20-page statement. So they’re not always transparent and easy to find.
Is it worth switching payment processors for a cheaper rate?
No, it’s rarely worth switching payment processors. While your initial rate might seem cheaper, it’s usually more expensive in the long run when you assess the other costs associated with switching systems, internal processes, integrations, and more.
Plus, your new processor will likely be raising your rates as soon as they can. You have much more leverage with your existing processor.
How do I know if my current rates are competitive in the first place?
Most payment processors don’t publicly publish their rates online because they are customized for each business. We’ve seen some processors charge markups as low as 0.05% + $0.05 over interchange per transaction, while others charge over 100 basis points.
But your rate will depend on so many factors, including your transaction volume, risk, integrations, and other features.
Speaking to a merchant consultant is the fastest way to figure out if you’re getting a good deal or if your processor is ripping you off.
What’s the difference between a rate increase and a fee structure change?
Some processors (unethically) mask rate increases by calling them a change to your “fee structure.” But nine out of ten times this is just another rate hike.
We tend to see this happen around the same time that the card networks adjust their interchange fees. So your processor might be trying to hit you with an increase at the same time so they can blame it on the card networks.
Final Thoughts
So, your credit card processor just increased your rates—now what?
Don’t stand for it. Processors will charge you as much as they can get away with and increase your rates as often as possible if you let them.
But you can fight back, and you don’t need to switch providers, either.
Contact our team here at Merchant Cost Consulting for help. We’ll audit your statements to identify any savings opportunities and negotiate directly with your current processor to lower fees on your behalf. We’ll even find out if you’re entitled to any refunds. Get a free audit today.