Credit Card Processing: Beware of ‘Rate Reductions’

In my experience, most merchants feel that their credit card account provider is more likely to increase their rates or invent new fees rather than offer an unsolicited rate reduction.

The reason merchants feel this way is because the industry has shown this to be the case — loyalty has little value. In fact, a merchant who has been processing with the same provider for several years shouldn’t be surprised to find that it may be grossly overpaying for the service.

The credit card processing industry is consolidating. Some of the larger providers are buying smaller ones. This is not necessarily good for merchants as it can lead to less competition and more misleading tactics, especially for merchants who now find themselves locked into one or two providers by their software or gateway company.

Hopefully, Practical Ecommerce readers understand though my articles that a “rate reduction” does not necessarily mean a “cost reduction.” Moreover, credit card processing is not an industry where the providers generally reach out to their merchants and offer an unsolicited reduction in cost. Merchants therefore need to be on guard if their provider offers a “rate reduction” because it could end up being a cost increase, especially if another company has purchased the provider.

Beware Unsolicited Rate Reductions

One tactic of an unsolicited rate reduction that I have recently seen occurs after a provider is acquired. The new owner will send out an addendum to its newly acquired merchant base offering a lower rate. The addendum may still have the old provider’s name on it. On the surface, the addendum may look like a cost reduction. But it can be the opposite.

I have had merchants contact me wondering why their processing cost has gone up by thousands or tens of thousands of dollars per year after their provider was purchased. The reason is because the addendum often comes with verbiage that offers a minor reduction in the provider’s discount rate, for example from 0.20% + $0.10 to 0.15% + $0.10. However, deep in the new terms and conditions section, the merchant agrees to surcharges that can be more than 1.00 percent and that apply to over 90 percent of the merchant’s sales.

Just as importantly, the new terms and conditions may now have a liquidated damages clause that requires the merchant to pay the new provider the average revenue that the provider makes on the account each month times the number of months left on the contract. This can result in paying thousands of dollars to get out of a contract.

Merchant account providers generally do not reach out to their merchant customers to offer a true cost reduction unless they are forced to do so because another provider is offering a lower cost or the merchant insists on a cost reduction.

Thus if you receive an unsolicited rate-reduction offer from your merchant account provider, every warning bell should go off. Treat it as though you are receiving an offer from a new company. Use the tools and methodology in my “Negotiating Mistakes” and “Partnering with Credit-card Salespeople” series from 2016. In the end, get everything in writing, using concise verbiage that you can understand, especially when it comes to inflated fees, surcharges, and any cost to terminate the contract.

Has Your Provider Been Purchased?

Most merchants do not know if their provider has been purchased. Sometimes the merchant will notice that the customer support number has changed or that the statement has changed. These can be signs that the provider has been acquired. However, it may also mean that their current provider has simply moved the account to another processing service.

Merchants should always know if their merchant account provider has been purchased because pricing and terms and conditions may change after a buyout.

Merchants should always do a quick effective rate check on their statements each month. To do this, simply divide the monthly cost by the processing volume. For example, $1,846.56 in cost divided by $92,300 in monthly processing = 2.00 percent effective processing rate.

If the merchant finds the effective rate suddenly jumps from 2.00 percent to, say, 2.40 percent or if the rate continually increases each month from, say, 2.00 percent to 2.10 percent to 2.20 percent, then the merchant should use all the tools in my Practical Ecommerce articles to determine the real cause and take the necessary action.


  • Beware of unsolicited rate reductions.
  • The credit card processing industry continues to consolidate.
  • Use the tools and methodology in my articles to understand any offer.
  • Conduct an effective rate analysis every month.
Phil Hinke
Phil Hinke
Bio   •   RSS Feed