by Matt Rej
Lots of merchants consider switching payment processors for a variety of reasons:
- High rates and extra fees
- Paying more than when you signed up
- Payment integrations unsupported by your current provider
- Getting quoted a lower rate elsewhere
- Lackluster support when you needed it most
Regardless of the reason, switching providers may initially sound like the right move. But it’s not always that simple. There are hidden risks to consider. Expensive risks that likely offset any perceived savings you’d get by switching.
1. Early Termination Fees
Most merchant agreements contain some type of early termination penalty for canceling your contract before the term expires. Some are flat $500 or $2,000 payments, which could be justified depending on the new terms.
But if your contract contains a liquidated damages clause, no amount of savings would be worth switching.
Liquidated damages mean you owe your current processor the average monthly merchant fees for the remaining months on your contract. For many businesses, this penalty would exceed $10,000 and could approach six figures.
2. Downtime
There’s typically a gap in your ability to accept card payments between your old processor ending and new one getting activated.
It’s not always as simple as unplugging one machine or plugging in another. And even if your terminal works with the new provider, there’s still an activation period where you can’t get paid.
This isn’t a huge deal for brick-and-mortar businesses, as you can likely do this overnight or after hours (assuming your new processor is willing to assist in off-hours).
But for online stores or businesses accepting cards through multiple sales channels, it’s much more complicated. Despite how seamless the new provider promises the transition to be, it’s impossible to know how long you’ll be down until you actually go through with this.
3. Integration Breaks
This is a huge problem if you’re currently set up with integrated payment processing tied to a specific software. These tools typically only support a handful of providers, so unless you’ve confirmed that your new processor is also supported, switching will break all of those connections.
And even if the new processor does work with your software, the transition may not be so seamless.
There’s also a risk of systems breaking during a switch if you have customer cards stored on file. Those cards can become inaccessible because they’re tokenized and processor-specific.
So if you switch providers, recurring billing can stop, subscription charges can fail, and customers would have to re-enter payment info.
4. Operational Issues
Businesses often underestimate the hidden operational costs of switching providers.
You’ll need to train your staff on how to use the new systems. And that’s much more involved than just telling customers where to swipe or tap a card.
It’s also tied to refunds, voided transactions, authorization holds, and troubleshooting issues with new systems whenever something goes wrong (which it inevitably will).
This is particularly important if you’re getting a new payment gateway or virtual terminal for phone transactions and non-standard payment types. For example, a restaurant needs to train staff on how the new system handles tip adjustments. Hotels need to make sure everything runs smoothly for authorization holds, room holds, and ensure everything is tied to your PMS/HMS system.
New setups aren’t just simple plug-and-play. There’s a learning curve, and it can be expensive operationally.
5. Lost Data
Switching processors can have a huge impact on years of transaction history. I’m talking about reporting data, historical statements, and records you’ve relied on for accounting and tax purposes that may not transfer cleanly.
Everything that’s nearly organized and accessible with your old provider could suddenly require manual reconstruction.
Of course, you can always export the old data before switching. But getting everything to cleanly fit into your system is much easier said than done.
This is even more challenging if your payments were tied to customer and operational data. Stuff like customer loyalty and rewards programs can break entirely if you get this through your processor. Same goes for CRM integrations, practice management software, and ERP transactions that were syncing transaction data in the background.
Businesses with recurring revenue models are even more exposed here. Subscription platforms, billing software, and automated payment schedules all depend on data continuity that may require a complete rebuild if you switch.
6. Higher Rates
New providers know they need to undercut your current rates for a chance to get your account. But this isn’t as favorable for you as it sounds.
First of all, the rates you’re paying right now are likely inflated. If your processor has been raising your rates over time, your new processor doesn’t have to undercut them by much to offer you a “better deal.” So you’re not actually getting the new processor’s rock-bottom rates.
Additionally, your contract most certainly contains a clause that allows your processor to increase rates and introduce new fees at any time, as long as they give you notice.
They may hold your rates steady for the first year. But after that, expect an annual increase. And after a couple of years this, you could be paying more with your new provider than your old one.
7. Rolling Reserves
Starting from scratch with a new provider comes with challenges when they’re underwriting your account.
Even if you’ve had a low chargeback ratio and no major fraud issues with your previous provider, your new processor will always err on the side of caution early on.
It’s common to see rolling reserve requirements in new contracts, which is your processor’s way of hedging the risk on your account. This could mean that 5-15% of your funds get held in a reserve account for the first 6-18 months until you prove it’s not necessary.
Translation: you’d only be getting 85% of your money from credit card transactions until the reserve gets released.
8. New Fees
Virtually every payment processor in existence has some form of additional fees they charge on top of their base markup. The problem is that each one is unique, meaning that the bogus fees you identified and removed from your current processor won’t be the same when you switch.
So as you’re reviewing new statements, you’ll likely encounter plenty of legit-sounding fees that actually aren’t.
These hidden markups are incredibly difficult to spot when you’re switching accounts because you’re unfamiliar with how this new processor operates, itemizes fees, and reports everything on your statements.
While everything might be neat and transparent with your current provider, your new processor might bury markups alongside card network assessments hoping you’ll think they’re mandatory and not question anything.
By the time you figure this stuff out, you’ll have wasted thousands in excess fees.
9. Contract Term Resets
Most merchant contracts have a 36 or 48-month term.
You might be nearing the end of a term with your current provider, which is why you’re considering a switch now. But your next provider will lock you into another 3-4 years, too.
Instead, you have more leverage with your current processor right now as your contract nears its end. You can negotiate a more flexible renewal (like annual) or even month-to-month.
This is actually one of the best times to negotiate lower rates. Your current processor doesn’t want to lose your business. So they’ll be more willing to make concessions before your contract is up. You won’t have this same leverage with a new provider.
10. Funding Delays
If your current provider offers you same-day or next-day funding, there’s no guarantee you’re going to get that elsewhere.
Most processors don’t relinquish funds for 2-3 business days. Faster options might be available, but only if you pay extra fees.
This can be a real cash flow problem for businesses who have been relying on funds hitting their accounts instantly for years.
When Switching is Actually Worth It
While switching credit card processors doesn’t make sense for most businesses, I recognize that there are definitely some situations where you may have to do it.
The key word here is situations, plural. Meaning rarely does a single issue justify everything involved with switching providers.
For example, high rates alone aren’t enough of a reason to switch. Rates can almost always be negotiated without leaving.
The scenarios where switching might be on the table usually look something like this:
- You’re paying absurdly high rates and your processor refuses to negotiate.
- You’ve worked with a merchant consultant and your processor still won’t budge.
- You’re experiencing week-long outages where you’re unable to accept payments.
- You constantly deal with payout freezes, funds on hold, and rolling reserves that have become an unmanageable cash flow problem.
- Your processor is forcing you to switch because they’ve been acquired and you’re automatically being migrated.
You’ll need to have most of these boxes checked to consider a switch. So if you just have one or two, you’re likely not there yet. There’s a good chance you have more leverage with your current processor than you realize.
If you need help navigating this scenario, contact our team here at MCC for a free consultation. We’ll help you get lower rates and fix whatever issues you’re having, directly with your current provider. So you can save money without switching anything or changing your operations.