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September 22, 2023
by David Goodale

Don't Accept Rate Increases from your Credit Card Processor

(Slightly edited from video transcript for greater readability)

Hello, David here at Merchant-Accounts.ca. Today we're tackling the topic of when is Merchant repricing fair. When your rates get raised by your processor, what can you do? Stay tuned. We'll dig in in one second.

Rate Increases

Rate increases are almost never fair, and generally speaking should not happen. What's surprising is that a lot of merchants seem to accept rate increase, as if it's an inevitability. It should not be like that and a good payment processor will not treat you like that.

To be explicitly clear: rate increases should rarely happen. If nothing has changed with your business or processing activity, and nothing has changed with interchange, the rate increase is almost never warranted.

When is a Rate Increase Reasonable?

Let's start by looking at examples of when it would be reasonable. Well, the first time that it could arguably be reasonable is, let's say that you have a flat rate. Maybe a merchant has a flat rate of 2.2% as an example plus interchange. Now I have other content on the channel about what interchange is, but simply put it means cost from Visa and MasterCard to the payment processor.

If you pay 2.2% for a transaction, your processor doesn't make 2.2%. They they had to pay Visa and MasterCard, their interchange fees and got to keep what was left.

Now, if the interchange costs go up significantly and you're on a flat rate, the payment processor's cost is higher than the rate that you're paying, well that would make sense that they would have to raise your rate in that situation. Let me be super clear, that is extraordinarily rare. Very few merchants would be on flat pricing that's low enough that a payment processor would have to raise the cost to you in the event of an interchange increase. That payment processor should have you priced so that they're making enough money that if there are little fluctuations in the cost from Visa, or MasterCard, it shouldn't matter. They should just absorb the interchange increase.

Common Causes of Rate Increases

I'm just giving you one example where a rate increase could make sense. Now, something where it would easily make sense is if the risk has dramatically changed on your account. Maybe you had a store that was for example selling sweaters and t-shirts, and then you started a pot dispensary. Is that a higher risk? I don't know. Maybe it is. My point is, that if something dramatically changes about your business, then it might make sense to revisit the rates.

Now, another situation where the rate could go up is if you get excessive chargebacks. That's where your customers are calling their bank that issued the card and saying, hey, this merchant ripped me off. I never got what I paid for. If you're getting a ton of chargebacks that are out of control, well, yes, there's an argument that your rate should go up because there's a lot more work going on behind the scenes with the payment processor.

They're also exposed to the potential for losses from chargebacks or fines from the card brands because the payment processor does get fined when their merchants get excessive chargebacks. Those are the examples that I can think of when it could arguably be a possibility. Stay tuned because I'm going to talk in a second about what you can do about it.

Why is Your Rate Increasing?

The first thing that you should do is ask your payment processor, hey, why is my rate going up? They should be able to tell you exactly why they're doing a rate increase. If their answer is anything remotely along the lines of this as a standard rate increase, well then, it's time for you to cancel your agreement with that garbage processor. That should never happen. Little plug for us at Merchant-Accounts.ca, we never do rate increases. I can think in 22 years I had one merchant where we had to do a rate increase because they were European and interchange changed dramatically on international sales and they were okay with it because we explained it to them.

Cancel Agreement

We would never arbitrarily increase a rate on a merchant. If your payment processor increases your rate, and if you're Canadian, when you go to contact them you can say, hey, you raised my rate, so I'm canceling.

They might try and reference your contract. Oh, you're on a two-year agreement, you're on a three-year agreement. It doesn't matter, you are protected. There's something called the code of conduct in Canada. It says if your payment processor increases your rate, you can cancel your agreement regardless of the term remaining on your contract. If they raise your rate, you cancel that agreement and you find a better processor like us at Merchant-Accounts.ca or any processor as long as they're not doing rate increases.

Conclusion

If you have had a rate increase, you should do something about it. Don't just accept it. One last thing to keep in mind, is if they are raising your rates because of something that's happened, go back to them and say, hey, if I get my house in order, if my chargebacks come back down, I want a rate reduction. You should be able to negotiate a rate reduction when whatever issue caused the increase is resolved. (Such as excessive chargebacks). Thanks for watching. Have a nice day there. Bye now.

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