Top 10 processor fee line items to negotiate beyond the discount rate 

Many merchants believe that successfully negotiating the discount rate will substantially reduce payment processing costs. Although it is true that the discount rate is an integral part of payment processing costs, it is not the only factor to consider.  

It is common to find multiple additional charges on a merchant account. It is essential to understand the payment processing pricing structure to negotiate effectively with payment processors. By understanding the various categories of payment processing costs, it is possible to reduce them. 

Understanding Payment Processing Fee Structures 

Typically, payment processing fees have multiple layers. At the first level is interchange, which is determined by the card networks and is paid to the issuing bank. At the second level are the network assessment fees charged by the card brands. Finally, there is the processor markup, and it is at this level that negotiable fees usually appear.  

For merchants who use interchange-plus pricing, it is common to find all these components separated on their statements. Although interchange and assessment fees are fixed, there is a wide variety of negotiable fees included in the processor markup. These may be monthly service charges, PCI compliance charges, and transaction processing costs. 

Fee 1 – Authorization Fees 

Authorization fees are charged for every transaction that is presented for authorization through the payment system. In other words, even if the transaction is declined, the authorization fee is still applicable.  

Since merchants handle many transactions daily, the authorization fees may add over time. Many merchants are not aware of authorization fees because they are not high on individual transactions. However, over time, these fees can add up to a substantial cost.  

Reducing authorization fees can help merchants save money on the total cost of payment processing. This is because authorization fees apply to every transaction, and merchants process many transactions daily. This is particularly true for merchants such as retail stores and restaurants. 

Fee 2 – Batch Processing 

The batch processing fee occurs when the merchant closes the day’s transactions and forwards them to the processor for settlement. Most payment systems process transactions daily, hence the daily batch processing fee.  

Although the individual fee might be minimal, if the business operates daily throughout the year, the total batch processing fee might be substantial. Some payment processors allow merchants to negotiate the batch processing fee and, in some cases, waive the fee altogether.  

To assess the fairness of the batch processing fee, merchants need to understand the batch processing process. During the negotiation of the contract, merchants should ask the processor if the batch processing fee can be lowered or included in the overall cost. 

Fee 3 – Monthly Statement 

Monthly statement fees enable the generation of account statements and their delivery to merchants. In the past, this charge has been used to pay for printed statements that were mailed to merchants. Currently, however, most statements are not printed but rather sent electronically.  

Despite this, however, there is still a monthly statement of charge. Merchants should consider whether or not this is needed. For instance, with online dashboards, there is no longer a need to pay this charge. It is quite easy to work with a payment processor to get rid of the monthly statement of charge.  

This is especially true when one realizes that administrative costs have been greatly reduced through digital reporting services. Merchants should also consider whether they get reporting services with access to their payment processor’s online platform. 

Fee 4 – PCI Compliance Fees 

PCI compliance fees are levied on businesses to ensure that payment of security standards is maintained. Although maintaining compliance with security standards is important, it is also important to recognize significant variation in PCI compliance fees.  

Some payment processors may charge annual compliance fees, while others charge merchants monthly. In a few instances, merchants may even be required to pay a penalty fee if they fail to complete compliance with questionnaires.  

It is important to understand that businesses should negotiate and try to get a reduced PCI compliance fee or a combined annual fee. At the same time, merchants should also try to ensure that they are getting adequate tools to help them with compliance. 

Fee 5 – Monthly Minimum 

With monthly minimum fees, merchants must generate a minimum amount of processing revenue for the payment processor each month. If there is a lack of transactions to meet this minimum, then the merchant is required to pay this amount.  

This is a problem for merchants who are seasonal or those who experience a lot of ups and downs in business. Negotiating this amount down or even eliminating it is a possibility that it can give merchants a lot of flexibility.  

Merchants should also consider their average monthly processing volume when it comes to minimum fee requirements. If a merchant is a business that experiences a lot of transactions, then this may not affect them as greatly. However, it is important to know how minimum fees work to determine whether this is a reasonable requirement for a merchant business model. 

Fee 6 – Gateway and Technology Fees 

There are additional service charges for payment gateways and integrated payment technologies. These service charges cover the costs of routing the transactions, authorization of payments, and software integration for the payment systems and the point-of-sale systems or online stores.  

Even though the services of the payment gateways are essential, the costs may vary depending on the service provider or the technology platform. Businesses can negotiate payment technology costs, reducing monthly service fees. There may be some services within the payment gateways that are essential, while others are not necessary. Removing the services may help reduce costs for business enterprises. 

Fee 7 – Chargeback Handling 

Chargeback fees apply when customers dispute transactions with their card-issuing bank. These fees help compensate for the work involved in handling the dispute process. Although merchants cannot eliminate chargebacks entirely, they can reduce the costs of handling them.  

Merchants with solid anti-fraud measures and low dispute rates may be in a better position to negotiate with processors for reduced chargeback processing fees. Merchants should also consider whether the processor offers tools to assist with handling disputes efficiently.  

By using chargeback monitoring solutions and fraud detection solutions, merchants may be able to reduce the number of disputes and consequently minimize the number of chargeback fees incurred. Negotiating reasonable chargeback fees is part of managing costs for merchants. 

Fee 8 – Annual Account Maintenance Fees 

Some merchant service providers charge annual account maintenance fees for handling the merchant account throughout the year. The annual account maintenance fees vary widely among merchant account providers.  

In some cases, the annual account maintenance fee may be negotiated, replacing it with a lower monthly service charge. Businesses should evaluate the total cost of the annual account maintenance fee and assess whether they are receiving value for money from the services provided.  

Evaluating the annual account maintenance fees helps merchants negotiate and eliminate unnecessary fees. Businesses should ask merchant account providers to explain the reason for the annual account maintenance fees to negotiate a lower cost. 

Fee 9 – Early Termination Fees 

Early termination fees are incurred when a business ends its contract before the contract term ends. The amount can be quite high and might discourage businesses from changing their service providers, even if they have better offers available.  

Negotiating lower early termination fees or waiving them altogether can prove to be beneficial. Businesses should always carefully review the contract before they sign up with any service provider.  

Knowing the calculation of early termination fees can help businesses understand the risks involved should they want to change their service providers in the future. Some service providers offer contracts on a month-to-month basis, which does not require businesses to commit long-term. 

Fee 10 – Miscellaneous Administrative Fees 

Some statements have miscellaneous administrative charges, which are not always easy to understand. These charges can vary and can be categorized as regulatory charges, reporting charges, and service adjustments, which are usually periodic. Although some of these charges are valid, there is also a possibility that they are obsolete and remain in the system.  

By seeking clarification from the processors regarding these charges, businesses can benefit from negotiations. Clear billing is essential to both parties, as it helps avoid confusion. By being vigilant and checking their statements, businesses can have control over their processing expenses. 

Strengthening Negotiation Through Statement Analysis 

A successful negotiation begins with a thorough examination of the merchant’s processing statement. Knowing all the fee categories and their impact on annual expenses helps businesses negotiate better terms.  

Negotiation with a merchant’s processor is a significant step in business, and when businesses are aware of exactly where costs are being incurred, it is easier to negotiate. Most processors are willing to adjust their fees to keep a merchant as a long-term client. Businesses that are prepared to negotiate with their processors are in a better position to negotiate a pricing adjustment. 

Conclusion 

However, negotiating payment processing costs is not limited to negotiating the discount rate alone. Many merchant account statements include a number of additional costs that can impact a business’s expenses.  

Negotiating payment processing costs requires a business to analyze various costs, including authorization, batch, and PCI compliance costs. Engaging in transparent negotiations with payment processors is vital in reducing costs, simplifying costs, and increasing transparency in payment processing costs.  

A business that is able to monitor payment processing costs is in a position to manage payment costs effectively. Negotiating payment processing costs is vital in increasing financial control and ensuring that businesses get value for money spent on payment processing services. 

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