Small business owners are incredibly busy people.  They also make the best customers because they

  • Make more money on average than other types of workers
  • Are sympathetic to business interests – i.e. you know what it’s like for a customer to give you a hard time so you cut your suppliers a break
  • Are too busy generating new revenue to bargain very hard with their suppliers

Credit card processing services (Merchant Accounts), however, are among the biggest expenses for many small businesses and usage of credit cards is only going to increase in the future.  In the case of my business, which sells satellite radio equipment online, our monthly Merchant Account expenses are more than our Downtown rent.  By learning a little bit about the industry and taking the time to shop carefully I reduced my Merchant Services expenses by approximately 33% (several thousand dollars / month) which had a very beneficial impact to our bottom line.  These are the techniques I used:


Understand How It Works

You can’t bargain effectively if you don’t understand how your Merchant Account Provider makes their money.  Read these articles:

How Merchant Accounts Work

Merchant Account Costs

Merchant Account Supply Chain

Who Makes Money From My Merchant Account


Know how to read your statement

This is key, if you don’t know what you are getting charged you are going to have a hard time negotiating:

Reading a 3-Tier Statement

Explaining The Fees

Reading a Multi-Tier Statement

Reading an Interchange-Plus Merchant Statement 


Get Pricing As Transparent As Possible

The more transparent your pricing is, the easier it will be to tell what you are getting charged and know that you are not getting ripped off.

The two biggest things that you can do to ensure transparency are:

1. Get Interchange-Plus pricing

2. Get Monthly (rather than Daily) discounting



Watch Out For Their tactics

There are several tactics that Merchant Account Providers use to get the upper hand, know them and you won’t be fooled:

  • Marking Up The Downgrades
  • Debit Markup
  • Rip-Off Leases
  • Surprise Reserve


When shopping for a new merchant account provider don’t call Just one

If you just call one Merchant Account Provider you usually will get a better deal than you are getting now, because they will offer you a lower price to get you to switch.  However, if you really want to get the most out of your time, find a few Merchant Account Providers and bid them off against one another.  Some tips:

1. Be organized – The main piece of information that they will need to give you an offer is a copy of your last 3 statements.  You can use a fax machine to send those but I have found it easier to go to Kinkos and scan them into 1 PDF document, so that it only takes a few clicks to send a copy to another prospective Merchant Account Provider.

2. Sound professional – Sounding professional and well-informed is important because it will reduce the chances that the salesperson will think that he can sneak things by you and also because Merchant Account Providers are can be easily defrauded by fraudulent businesses and are very paranoid about not doing business with anyone that sounds illegitimate.

3. Make sure that they know you are price comparison shopping.  Explain to them that you want to get the best deal, but also good customer service.
If a bid isn’t competitive, tell the salesperson.  In many cases they will improve their bid.

4. Get everything in writing, have the salesperson prepare a sales pitch that includes every single fee.  If you don’t do this, in writing, they will try and sneak extra fees in on you at contract time.

I did an experiment where I shopped for a new Merchant Account several times to see how important it is to have multiple bidders.  The first time I decided to only talk to onie bidder and I got a slightly better price that I currently had.  I didn’t sign that contract, I waited a week and then I went shopping again, this time talking to 2 bidders. I repeated the experiment until I was talking to 6 bidders.  The results are below.


I got significantly greater savings by making the bidding process more competitive.  At a certain point the benefit of adding more bidders tapers off.  Based on this experiment I would say that anything more than 4 bidders is a waste of time.


Wait Three Months and then shop again

Humans all suffer from a cognitive bias called Anchoring (see Wikipedia article).  “During normal decision making, individuals anchor, or overly rely, on specific information or a specific value and then adjust to that value to account for other elements of the circumstance. Usually once the anchor is set, there is a bias toward that value.”

In the world of Merchant Accounts, both the salespeople for the Merchant Account Providers and the merchants tend to become overly fixated on the old price that the merchant was paying.  Usually when you request a rate quote the merchant account provider will quote one that is below your current rate, but higher than the lowest rate that they can offer.  They will then point out to you the very significant savings from the new rate schedule.

If you push back at the salesperson and say: “well why can’t we go lower” they will respond “I already cut $500 a month off of what you are currently paying, I really can’t go lower than that”.   The solution is to accept the lowest offer, use that Merchant Account Provider for 3 months and then go shopping again.  Repeat until you get a deal that you are happy with.

Why 3 months? Because they will insist on seeing your last three statements.  It looks a lot better if they all have your last (lowest) rate and if they all are from the same provider.  You don’t necessarily want the people that you are shopping with to know that you might jump ship for a better deal in 3 months.

I did another experiment where I shopped around for a new provider over a period of 2.5 years (I didn’t go shopping every 3 months because I was busy).  The results are below and pretty clearly show the benefits of continuing to shop for better deals over time.


This isn’t a fully scientific experiment, since it was only tested with one company (mine) and during that time my business was growing in size (bigger customers get better deals), however, the general direction of the results seems right.

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