Navigating through the world of payment processing can be challenging
and many small business owners who have ventured into online sales are
not very well-versed in the nuances of negotiated rates. Having a better
understanding on how your Online Merchant Provider runs his business
will help you better run your own.
Payment Processors refer to the rates being charged as a discount rate. In Canada, most payment processors will have a 3-tiered pricing structure. In order to benefit from a lower transaction rate you must first begin with researching and creating a list of Payment Processors that service your industry and geographic location. Merchant Service Providers (MSP’s) will need some general background information, such as sales volume, length of ownership and industry type, among other key indicators. The discount rate can be broken down into three levels:
1. Qualified Rate
The Qualified Rate is the rate applied to credit cards that are defined as standard by MSP’s. Services that fall under this category include cards that do not collect points such as Air Miles. The Qualified Rate is the most commonly-quoted rate.
2. Mid-Qualified Rate
The Mid-Qualified Rate is applied to credit cards that collect reward points and specific corporate credit cards. The criteria that define this category are often ambiguous and subject to interpretation by Payment Processors.
3. Non-Qualified Rate
The Non-Qualified Rate is the highest rate in the tiered structure. This rate is reserved for
Negotiating Your Online
MSP’s will typically request sales volume, length of ownership and industry type to establish your competitive discount rate. If you were able to obtain a better rate while conducting your research, verify with your current MSP if they will match the offer. If you choose to move to a different provider, you would be well-advised to verify that there are no cancellation fees from your original MSP. Always do the math and make sure that the potential benefits offered through the newly negotiated discount are not outweighed by the costs of substituting providers.
Card-Present vs. Card-Not-Present Rates
Keep in mind that some companies will quote a Card-Present Rate, and then downgrade the discount rate when processing Internet transactions. In some instances, MSP’s will quote the Card-Present Rates because they are typically the lowest rates available. Be sure to confirm that the quoted rate is a Card-Not-Present Rate as this rate is applied to all online credit card transactions.
Negotiating Your Rate
Shopping around is essential. Perform some research in order to build a list of Payment Processors that services your industry type and local market. Actively seek quotes. MSP’s will need some general background information in order to give you a realistic quote. MSP’s will typically request sales
volume, length of ownership, industry type and, depending on the MSP, current discount rate. With this information, you will be able to determine which discount rate is most competitive.
Here are two major items to take into account if you decide to switch providers:
1. Cancellation Fees
Determine if the cancellation fee outweighs the benefits of the new rate. Some compa-nies may have a variable monetary or liquidated damages clause in the contract in the event of a cancellation.
2. Integration and Setup Costs
Determine the cost of setting up your new payment processor; this can vary greatly depending on the website configuration, whether or not a website developer is needed, complexity of the API programming, etc. This is the actual cost of “plugging-in” your Payment Processor.
Your new discount rate should save you money over the duration of your contract. If the outcome of this exercise is positive, move on to the next step. If the initial switching costs outweigh the savings, verify with your MSP to see if they are able to reduce your rate.
Fine Print
Questioning the fine print on any contract is important. Doing so with the service agreement of your new provider is even more important; neglecting this step might cost you a significant amount of money.
Using the list below, formulate some appropriate questions. Here are some of the more common fees you may find:
Annual Fee
An Annual Fee may be charged to offset the cost of maintaining the merchant account.
Application Fees
Application Fees are charged for the application process, regardless of the outcome of the credit check.
Authorization Fee
The Authorization Fee (Authorization Request Fee) is charged each time a transaction is sent to the card-issuing bank for authorization. The fee applies whether or not the request is approved. Note this is not the same as the Transaction Fee or Per Item Fee.
Chargeback
A Chargeback is the return of funds to a purchaser—forcibly initiated by the purchaser’s issuing bank.
Chargeback Fees
A Chargeback Fee may be charged in the event of a chargeback.
Early Termination Fee
This is the Cancellation Fee. Some companies may have a variable monetary or liquidated damages clause in the contract in an event of a cancellation.
Gateway Fees
The Gateway Fee is similar to the Monthly Fee; this may be charged to maintain the payment gateway.
Liquidated Damages
Are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach.
Monthly Fee
A Monthly Fee may be charged to maintain the merchant account.
Minimum Processing Fees
The contractual agreement may have a minimum processing volume clause. In the event that the order dollar value does not reach the minimum amount, the Minimum Processing Fee will be charged.
Per Item Fee
This is a fee applied to all transactions or items. This fee is considered a hidden fee as it serves no purpose but to raise the transaction rates.
Setup Fees
Setup Fees may be charged for setting up the account once the approval stage is completed.
Settlement Fees
Settlement Fees may be charged to settle a transaction disputes.
Statement Fee
A Statement Fee may be charged for paper or online invoices.
Transaction Fee
The Transaction Fee is applied on all transaction types, and is considered a hidden fee as it serves no purpose but to raise the transaction rates.
Navigating through the world of payment processing can be challenging. Hopefully this article may reduce some confusion and help you to better understand how to negotiate lower rates.
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