Credit Card Processing: How to React to a Rate Increase

Editor’s Note: Contributor Phil Hinke is a veteran of the credit card processing industry. He now consults with merchants to help lower their processing costs, believing the credit card industry is often unfair to them. His latest article, below, addresses how merchants should react to rate increases.

Merchants that are processing with Wells Fargo have been sending me their recent rate increase notices. Some have asked for my help to get the increase waived. Others have asked me to find them a new provider.

First, I want to say that I believe Wells Fargo is a decent company and I’m sure it’s trying to be fair to merchants while also adding shareholder value. I’ll also give Wells Fargo credit for not hiding behind “Visa and MasterCard have increased their rates so we are increasing ours” — as many providers have done in the past. The bank has claimed full responsibility for the rate increase.

Other Rate Increases Coming?

That said I am shocked at the severity of the increases. I have seen Wells Fargo’s “interchange plus” markup increased as much as 44 percent and its per-item fee increased as much as 26 percent. In addition, Wells Fargo is implementing a new “Interchange Clearing Fee (ICF)” on transactions it deems to be higher risk or higher expense. The proposed rate increase has been in the thousands of dollars for some of merchants I have audited.

Whether or not you are processing with Wells Fargo, follow the methodology in this article because other banks and providers are likely watching to see how merchants react to the Wells Fargo increase, and what success this bank has. Do not be surprised if other banks and providers, including yours, follow suit with an attempt to increase rates.

Also, understand that every merchant agreement I have ever read gives the provider the right to increase fees or create new ones. Some contracts have more legitimate reasons than others. But all have the caveat. Any salesperson who tells you otherwise hasn’t read their merchant agreement — and many haven’t.

Reacting to a Rate Increase

If you receive a rate increase notice, stay calm and understand that you have clout, as a merchant customer.

Card processing is a commodity. It costs a processor — the company that actually routes the transactions for the provider — around 2 cents per authorized transaction. Almost everything the provider charges a merchant above the processor’s markup, plus interchange and card company fees, is used to run its business and produce a profit. When it comes to routing transactions, there is nothing one processor does that is materially different from any other.

Understand that the marketplace is fiercely competitive among providers in the U.S. There are hundreds of providers that would love to process your transactions. However, also understand that there are many providers that I — as a consultant and veteran of the card processing industry — would not use. If you are thinking of changing providers for any reason, first read my 4-part series “How to Lower Credit Card Processing Costs and Obtain Better Terms.” I haven’t found any saints in this industry. However, the methodology outlined in that 4-part series is designed to weed out the worst when it comes to providers and their salespeople, as well as find the best processing value.

Rate Increases Are Negotiable

The credit card industry is going through price compression. In fact, I recently attended an industry conference where that was the consistent theme. Provider pricing has been falling over the past few years because of better education by merchants, competition, and the economy. In fact, if you have not renegotiated your card processing cost within the last 2 to 3 years, you may be overpaying.

Negotiating a rate increase — such as the Wells Fargo example — is no different than negotiating the pricing in your initial contract. I have helped merchants with both. In one case, I found that not only was the rate increase unjustified but the merchant was already overpaying by $12,000 per year. The bank not only waived the rate increase, but also proposed a substantial cost reduction. Unfortunately for the bank, its rate increase caused this merchant to seek alternative processors. The merchant asked me to find him another provider to obtain the full $12,000 cost reduction.

Education Is Key

If you have been reading over the last couple of years, you know that I neither advocate merchants leaving nor staying with their current providers. I advocate merchants being educated. Merchants should not make decisions based on emotion. Instead they should compile all the facts including pricing, funding deposit cycle, terms and conditions of their contracts, expertise, service, and other important items. They can then make a solid business decision regarding their card processing.

I suggest the same methodology when a merchant receives a rate increase notice. In the Wells Fargo example above, one merchant made a knowledgeable business decision to stay with that bank — but at its current rate, not the new, higher one. The second merchant, the one that was overpaying by $12,000 per year, made a knowledgeable decision to switch providers.

The More Flexibility You Have, the More Clout You Have

The terms and conditions in your processing contract should have an early termination fee no greater than $300 — if there’s such a fee at all. That way, the provider knows you can change quickly without an extreme financial penalty. Never sign an agreement with a liquidated damage clause.

Stay away from proprietary gateways, terminals, and point-of-sale systems if possible. Proprietary entities generally only work with one processor. Open gateways such as Authorize.Net work with virtually every processor. Therefore, changing from one provider to another is as simple as changing a few parameters on the gateway.

Brick-and-mortar merchants should never lease a terminal; they should use non-proprietary terminals — such as VeriFone and similar terminal manufacturers — because they work with many processors.

Ask candid questions when selecting a POS system. More than likely the POS system distributor is selling card processing or getting paid behind the scenes by a provider. Some POS distributors can virtually lock the merchant into a provider by making it too expensive to change software or equipment.


  1. Every provider can change rates or create a new fee.
  2. Stay calm if you receive a rate increase notice.
  3. Rate increases are negotiable and merchants have clout.
  4. Keep the contractual terms and conditions and system flexibility to your liking.
  5. Follow the methodology in my 4-part series to get the best processing value.
Phil Hinke
Phil Hinke
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