Credit Card Processing: How to React to a Rate Increase

Editor’s Note: Contributor Phil Hinke is a veteran of the credit card processing business. He consults with merchants to help lower their processing costs, considering the credit card sector is often unfair to them. His most recent post, below, addresses how merchants should respond to rate increases.

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

First, I would like to say that I think Wells Fargo is a good company and I am sure it’s attempting to be fair to merchants while also adding shareholder value. I will also give Wells Fargo credit for not hiding behind”Visa and MasterCard have improved their prices so we’re rising ours” — as many suppliers have done previously. The lender has maintained full responsibility for the speed increase.

Other Speed Increases Coming?

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

Whether you are processing with Wells Fargo, follow the methodology in this article because other banks and suppliers are probably watching to see how merchants react to the Wells Fargo growth, and what success that this bank has. Don’t be surprised if other banks and suppliers, including yours, follow suit with an effort to improve rates.

Also, understand that each and every merchant agreement I’ve ever read gives the supplier the right to raise fees or make new ones. Some contracts have more valid reasons than others. But all have the caveat. Any salesperson who tells you differently has not read their merchant agreement — and many have not.

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Reacting to a Rate Increase

If you get a rate increase notice, remain calm and understand that you’ve got clout, as a merchant client.

Card processing is a commodity. It costs a chip — the firm that actually routes the transactions for the supplier — about 2 cents per approved transaction. Almost everything the supplier charges a merchant over the chip’s markup, also interchange and card company charges, can be used to run its own business and create a profit. When it comes to routing transactions, there’s nothing one chip does this is materially different from any other.

Realize that the market is fiercely competitive among suppliers in the U.S.. There are hundreds of suppliers that would really like to process your transactions. But also understand that there are many suppliers that I — as a consultant and veteran of the card processing industry — wouldn’t use. If you are considering changing services for any reason, first read my 4-part series “How to Lower Credit Card Processing Costs and Acquire superior Terms.” I have not discovered any saints in this business. However, the methodology outlined because 4-part series is intended to weed out the worst in regards to their salespeople, in addition to find the best processing value.

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Rate Increases Are Negotiable

The credit card market is experiencing price compression. In actuality, I recently attended a business convention where that was the constant theme. Provider pricing has been decreasing over the last few years due to better education by merchants, rivalry, and the market. In actuality, if you haven’t renegotiated your own card processing cost within the previous two to three decades, you might be overpaying.

Negotiating a speed increase — like the Wells Fargo instance — is no different than negotiating the pricing in your first contract. I’ve helped merchants with both. In 1 case, I discovered that not only was the speed increase unjustified but the merchant was overpaying by $12,000 each year. The bank not only waived the speed increase, but also proposed a significant cost reduction. Unfortunately for the lender, its speed increase caused this merchant to seek out alternative processors. The merchant asked me to find him another supplier to get the full $12,000 cost decrease.

Education Is Essential

For those who have been reading over the past few years, you know that I advocate merchants leaving nor remaining with their existing providers. I recommend merchants being educated. Merchants shouldn’t make decisions based on emotion. Instead they ought to compile all the details including pricing, financing deposit cycle, provisions and conditions of their contracts, experience, service, and other significant items. They could then make a good business decision regarding their own card processing.

I suggest the identical methodology when a merchant receives a rate increase notice. From the Wells Fargo example above, 1 merchant made a knowledgeable business decision to remain with that bank — but at its present pace, not the new, higher one. The next merchant, the one which was overpaying by $12,000 per year, made a knowledgeable decision to change providers.

The More Flexibility You Have, the More Clout You’ve Got

The stipulations on your processing contract should have an early termination fee no more than $300 — if there is such a fee in any respect. In this way the supplier knows you can change quickly with no extreme financial penalty. Never sign an agreement with a liquidated damage clause.

Steer clear of proprietary gateways, terminals, and point-of-sale systems if possible. Proprietary entities normally only work with one chip. Open gateways like Authorize.Net work with almost every chip. Therefore, changing from 1 supplier to another is as easy as changing a few parameters on the gateway.

Brick-and-mortar merchants shouldn’t let a terminal; they should use non-proprietary terminals — such as VeriFone and comparable terminal makers — since they work with many processors.

Ask candid questions when choosing a POS system. Most likely the POS system distributor is selling card processing or getting paid behind the scenes with a supplier. Some POS distributors can practically lock the merchant into a supplier by making it too expensive to alter software or equipment.


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