Negotiating With Merchant Account Providers

The reason being is you it doesn’t matter if you negotiate a low ‘card-present’ discount rate if 80-90% of your transactions will be ‘card-not-present’ and you have a really high ‘non-qualified’ discount rate.

It may have seemed to the novice that the rate of 1.75% sounds a lot better then 2.1%, but not after factoring in that the majority of this business’s transactions will fall under the non-qualified rate. Therefore, this business when negotiating with merchant providers will want to focus on getting the ‘non-qualified’ rate as low as possible.

Now if take this same example but reverse the percentages for ‘card-present’ vs. ‘card-not-present’ then you will see shortly that Example A would be a better choice as an merchant provider.

Now traditionally if the majority of your transactions are low risk (card-present) then the lower your average ticket price and the higher you monthly/annual credit card volume will allows you to secure the lowest rates. The higher you average ticket price and the lower your business volume the higher you should expect your rates to be.

NOTE: You should never over estimate you sales volume and under estimate your average sales ticket to try to secure lower credit card rates, unless you are looking to have your rates raised dramatically, or your funds frozen, or for you merchant account provider to drop you as a client. It is always best to be completely honest and conservative about your business volumes on your application.

The reason being is your provider is creating a profile on your business transactions to help prevent against fraud. And let’s say for example that you stated that your average ticket price was $50 on your application because you thought it would help you secure a lower rate, and yet your average ticket price is really $5000.

Well, after you process your first couple sales at $5000, it will exceed your profile that was set-up based on the numbers stated on your application and now the merchant account provider will automatically freeze those funds and your account will be sent to the securities department to put under investigation to make sure no fraudulent activities are going on. Your funds can be tied up in investigations for 4 to 6 months easily, crunching your cash flow and possibly even putting you out of business.

Now you explain to the merchant account provider that this is normal for your business model and now they want you to put a $10,000 deposit or maybe they will hold 20% of all your sales until it totals a reserve fund of $15,000 or the new conditions on your account could have all sorts of stipulations. This all could have been avoided if you were just honest about your typical sales transactions from the beginning.

If you are concerned about getting really competitive rates, then it is public notice of what most credit card processors buy rates are from Visa & MasterCard. Just look-up on their sites for their current interchange rates and you then know what your merchant provider pays to process Visa & MasterCard for you.

If it is close then you know you are getting competitive rates. Now remember the merchant provider has to cover there expenses and make a profit too, so do not expect it to be the same rate as their buy rates and if it is then I would be careful of tons of back end hidden fees that may be making up for the low discounted rates on the front end.

Read Part 6: Choosing A Credit Card Service Provider