How to Get a Better Merchant Account

Pool and spa retailers can save money and increase profit by negotiating favorable terms in their credit card merchant accounts. Here’s what you should look for in a good contract, how to weigh competitive quotes on an “apples to apples” basis, and how to assess the quality of merchant account providers.

Your customers love to pay with credit and debit cards. Unfortunately, merchant account fees can take a hefty slice out of each sales transaction — sometimes to the tune of three percent or more. And that, in turn, can make a costly dent in profits.

But the news isn’t all bad in the credit card world: For starters, merchant accounts are becoming more economical. “Price compression in the credit card industry has been going on for years,” says Paul A. Rianda, an Irvine, Calif.,-based attorney specializing in the bankcard industry ( Rianda likens the payment card marketplace to that of the cell phone industry where competitive pressures are bringing better deals to businesses and consumers.

Given the number of merchant account providers clamoring for business, it’s not uncommon for a retailer to reduce costs by shopping for a better deal. And landing a more favorable contract can bolster the bottom line: Trimming two percentage points off the cost of a merchant account can mean $2,000 in additional profit for every $100,000 of annual revenue. 

That level of savings is not unheard of, due to the industry’s wide pricing disparity. Smaller merchants, especially, have long been burdened by contracts with onerous terms: perhaps three percent plus a quarter for each transaction, instead of a more reasonable, and commonly available, 1.8 to 2.4 percent plus a dime. In such cases there’s plenty of latitude to find a better deal.

Start local

Of course, shopping around must be done the right way. It’s tempting to start negotiating with all of the merchant account providers that are battering down your door and advertising on the Internet. Before you go too far afield, though, take a look in your own back yard by making an appointment with your regular financial institution.

“My advice is to start with your local bank where you already do business,” says Mike Shatz, a Boston-based merchant account consultant ( “This is especially the case if you have an outstanding loan or line of credit.” A bank with which you have a lending arrangement has a vested interest in making sure you have a merchant account agreement with a competitive rate.

Once you have an offer from your bank you can search for a better deal from merchant account providers, often referred to as Independent Sales Organizations (ISOs). Just be aware that price comparisons can be tougher than you think. “ISOs can set prices and terms on a per case basis,” says Ben Dwyer, president of CardFellow, Middletown CT, an online merchant account marketplace where credit card processors compete for business ( As a result, he says, “you can call an ISO and get one quote, then call back a few minutes later and get another quote that is completely different.” By the same token, you can call two ISOs and get quotes that are widely divergent.

The reason? For one thing, ISO sales people commonly test different offerings to see what the market will bear. For another, because there is no accepted standard for merchant contract terms the two quotes may be for radically different packages. The lower quote, for example, may come loaded with a lengthier contract and a hefty early cancellation fee. 

Aggregating accounts

Because performing the work required for underwriting a new merchant account can be expensive and very time consuming, small businesses are sometimes shunned by ISOs. Hence the rise of organizations called “aggregators” to serve the small business market. Aggregators share one merchant account (or a few) with hundreds or thousands of client businesses. The largest of such aggregators are Square.Com,, and Intuit Merchant Services. 

Aggregators might be good choices for businesses which transact low volumes of credit card sales and therefore might either be spurned by ISOs or charged high markups. Another benefit is the lack of a monthly service charge common with ISO merchant accounts. “Aggregators might be a good choice for businesses which have sporadic (and in some months, no) credit card transactions,” says Dwyer.

Aggregators, however, are often more expensive than competitive merchant accounts. That’s because aggregators usually bundle all merchant account fees into one flat charge, often consisting of a percentage and a flat fee assessment. The result is that you might end up paying more for merchant services than you otherwise would. “As a rule of thumb, if you are transacting more than $2,000 a month in credit card sales you probably do not want to use an aggregator,” says Dwyer. Instead, look for an ISO that offers a “cost-plus” pricing model. This term will be explained next.

Cost-plus pricing

For decades merchant account contracts have called for a simplified rate structure called “tiered pricing.” Also called “bundled pricing,” this model lumps all of the retailer’s sales transactions into a few buckets of general pricing tiers with specified percentage charges. 

Retailers are gradually learning that tiered pricing arrangements are costly because they end up requiring retailers to make payments that are far higher than what is charged by the banks issuing credit cards. Now becoming more common is a much better rate structure in which the ISO charges a specified percentage and flat fee mark-up for each of a retailer’s transactions. Because the ISO’s percentage and fee are added to the bank’s fee, which is passed through as a cost, this arrangement is called “cost plus pricing,” or “pass through pricing.” 

Quotes for cost-plus pricing vary widely. To some extent they are affected by the size of the retailer.  “Processors will often raise or lower certain markup to tailor costs to a business’s specific situation,” says Dwyer. “For example, a processor may quote a business with a low average sale amount a markup of 0.50 percent + $0.04, while it may quote a business with a high sale amount a markup of 0.10 percent + $0.15.” In any event, cost-plus pricing forms the basis for legitimate comparisons between competing merchant account quotes.

“Cost-plus pricing is becoming more and more common for smaller merchants,” says Rianda. Cost-plus pricing can save money over traditional pricing models and should always be a retailer’s preference over the old tiered pricing model.

As attractive as it is, cost-plus pricing adds further complexity when a retailer attempts to compare rival merchant account quotes. You will need to invest some time in studying competing contracts to assess their relative merits. An easier way to make sure competing quotes are working with equivalent terms is to use one of the online merchant account marketplaces. See the sidebar, “Shop the Marketplace.”

Service counts

While landing a merchant account contract with favorable pricing is important, it is not the only consideration. “You need to consider the quality of an ISO’s service,” points out Rianda. “For example, if one of your customers is standing at check out and suddenly your processing equipment goes down, you want to be able to immediately call someone at the ISO to get the machine up and running quickly.”

One way to assess the quality of a processor’s service is to ask for references, then call them. Ask questions such as these: Is someone available 24 hours a day seven days a week? Does someone at the ISO respond promptly to inquiries? Does the organization help you if your equipment fails? 

Also ask current customers about the quality of the ISO’s transaction reports. These should be as detailed as possible. “Reporting is probably the most important quality of an ISO after price,” says Shatz. “Once you have negotiated good pricing, after all, you want to make sure you are getting it. The greater the granularity of reporting the better. This is where cost-plus pricing comes into play, and it becomes more important as you get bigger.” 

Reports should include a detailed list of what you were charged for each sales transaction. These charges take three forms. The first is the interchange rate (a percentage of sale plus a flat fee), paid to the bank that issues the credit card to the consumer. The second is the assessment (a percentage of sale) made to the Master Card and Visa card associations. Third is the processor fee (usually a percentage of sale plus a fixed per-item fee) paid to the ISO which sold you the merchant account contract.

If an ISO’s billing is insufficiently detailed you may not be able to determine if you are getting the great deal you were promised. Also ask current customers if they are ever charged surprise fees for PCI compliance, reporting, paper statements, or any other reason. 

You might also research customer experience reports online. “I suggest doing Internet searches to see what customers are saying about ISOs,” says Adam Pflaumer, president of Electronic Payment Consulting, Inc., Temecula, CA., an expense management firm specializing in electronic payments ( “In addition to a general search using Google, you might visit some sites that specialize in business experience reports.”

One such site,, specializes in merchant account providers. Another,, publishes reviews of many categories of businesses. Finally, the Better Business Bureau ( might have reports on ISOs you are evaluating.

“You might also try calling each ISO’s customer service department to see how quickly someone picks up the phone,” suggests Pflaumer. “Some processors have lousy hold times.”

One final point: You might get the best service from your local bank, the institution this article encouraged you to investigate early in your merchant account search. “A bank where you already do business has a vested interest in making sure your processing goes smoothly,” notes Shatz. While many banks farm out their processing, they will make sure any third party processor is reputable. That processor, in turn, will want to make sure it keeps its client bank happy. It all comes together to encourage good service to you.

While shopping for a better deal is a good idea if managed carefully, there is a point of diminishing returns. Unless they are saddled with an onerous merchant account, smaller retailers in particular run the risk of investing more time than results would justify, according to Shatz. “From a general business sense if I were a retailer with revenues under $2.5 million and if I had a cost-plus agreement with a processor so that my merchant fees were between 2.1 percent and 2.4 percent of sales, I would focus my energies on building up my company rather than waste time trying to find a less expensive processor.”

What to Look for in Merchant Account Contracts:

Once you have received a merchant account quote from an Independent Sales Organization (ISO), you want to make sure it does not have terms that might come back to bite you. Here are some good questions s to ask before you sign on the dotted line:

1. Does the ISO offer “cost-plus” pricing, also known as “pass through pricing?” This pricing model is much more favorable to retailers than the “tiered pricing” model which characterized the merchant account industry for many decades. 

2. Does the contract call for a reasonable termination fee? The charge to cancel a contract should be no more than $300. Be aware that some processors are willing to do away with termination fees.

3. Does the contract have a “liquidated damages clause” which calls for the merchant to pay all of the estimated processing fees for the remainder of a canceled contract? This can be very expensive. You might want to look elsewhere for your merchant account.

4. Does the contract mandate “minimum monthly processing fees?” This can be an unwelcome expense if you go some months without processing credit or debit card payments.

5. Does the contract include the leasing of a credit card processing machine?  “Avoid equipment leases,” says Adam Pflaumer, president of Electronic Payment Consulting, Inc., Temecula, CA., an expense management firm specializing in electronic payments (  “These often call for you to pay a monthly fee of from $39 to $99. They are non-cancelable, sometimes for 48 months, so you end up paying thousands of dollars for equipment that costs about $300.00. It’s better to buy your terminal.” 

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