How to negotiate with an acquirer
Before signing with an acquiring processor, read this
At the center of many conversations between merchants and acquiring processors are the fees.
But as important as understanding and managing that aspect of your agreement is, it’s equally (if not more) important to protect your business through the structure of your contract.
Think about it this way: little details such as, “does the contract include a personal guarantee?” Even if you close your business you would still be liable. Such scenarios are not something the processor is going to highlight for you.
So we’ve taken the time to outline the key aspects of your contract that you want to purposely structure in a way that’s advantageous to your business.
- Purpose of this article: The purpose of this article is to give information for large merchants (or payment facilitators) to use when discussing an agreement with a processor. Let’s get beyond fees and talk about the contract.
11 Things to check in your acquirer agreement
Let’s frame the contract from the merchant point of view. Of course, there are fees.
But beyond the fees, let’s take a look as some other things:
- Value the acquirer adds (Scope and Performance) in the contract
- Fair allocation of risk
- Implementation commitments
- Compliance with network and acquire/processor rules
- Performance warranties
- Service levels
The Acquiring Processor is a service provider. (This third-party entity is sometimes an arm of the acquiring bank.) As a service provider you can negotiate with them for their service. And, just as you would expect, the more transactions/dollars you move, the more influence you have.
It is typical for an acquirer to have template agreements. These agreements will be different for small, medium, large and extra-large merchants. Here we will discuss L-XL size enterprises. You need to have a discussion that is appropriate for your expected revenue.
When reading the contract be attentive to everything, but here are a few noteworthy items.
- Can they change fees with 30-day notice? How would you manage that in your business? You probably need to count on a rate for a more reasonable period.
- What about third party fees? Can these be held constant for the initial term (or entire term)? The processor may not have control over these, but you don’t want merchant fees to increase.
- Can they terminate for Convenience? If so, you should have the same capability. Make sure you know your rights as a merchant and processor’s termination notice.
- Data breaches can be a huge expense. So, check the indemnity terms.
- Consider that the number of U.S. data breach incidents tracked in 2017 hit a new record high of 1,579 breaches, according to the 2017 Data Breach Year-End Review released by the Identify Theft Identity Resource Center® (ITRC) and CyberScout®. The Review indicates a drastic upturn of 44.7 percent increase over the record high breaches reported for 2016.
- You should also note, “the business category topped the ITRC’s Data Breach list for the third year in a row with 55 percent of the overall total number of breaches (870).
- The Appeal of Credit and Debit Card Numbers Continues to Increase Year Over Year
- Nearly 20 percent of breaches included credit and debit card information, a nearly 6 percent increase from last year. The actual number of records included in these breaches grew by a dramatic 88 percent over the figures we reported in 2016.”
- Data breaches don’t affect just one record. The number of records breached is rising. The 2017 Data Breach Year-End Review report estimated the average cost paid for each stolen record containing confidential information is $141.
- Now, considering you are sharing card data with processor, be sure you understand your liability. (Smaller merchants beware as they may try to move liability to you.)
- Yes, there are a few more key indemnities beyond data breaches. Also check for:
- Breach of confidentiality
- Violation of law, PCI or network rules
- Not everything is negotiable: the acquirer cannot change everything in the agreement. This is because some items are mandated by networks, and/or are needed to comply with PCI, and all laws. But it’s helpful to know which aspects are out of anyone’s influence to adjust.
- Pay attention to other documents noted by reference. Often they refer to a summary of network rules. This is certainly needed, but the processor may also have rules. Get a copy of (and review) all documents referenced. Also check for addendums for ancillary services such as:
- Fraud mitigation
- Check out the processor Service Level Agreement (SLA)
- Ask for uptime history
- What about the remedy for failed SLA.
- Do you have the right to assign the agreement? Consider this particularly if you are a startup in tech space. Summary: Great idea, have good contracts and now you want to sell it – you need the right to assign the agreement.
- Does the agreement include exclusivity to the processor? Recently we have seen some movement to monthly minimum instead of exclusivity.
- What if you find yourself in a position where you need to terminate the agreement early? In addition to the termination rights, does your agreement include liquid damages?
- Liquid damages? This means that if you promise 3 years of processing and stop short, the processor can charge the amount of revenue it will lose because of you closing your account.
- Don’t just close the bank account. Determine what needs to be done and document.
Compliance is a dense topic, we know. But we took the time to outline the basics for you.