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Merchants and Billers: Leverage = Options x Time!

Every three years or so, merchants and billers have an opportunity to reconsider their card processing agreements with their acquirers. This is an opportunity to negotiate lower rates — especially if business is booming – and also the time that a merchant or biller could consider changing to another service provider.

Sadly, many merchants and billers miss this rare opportunity.

Why? I think there are a few reasons:

1. They had other things to do: Understandable, I guess, but how hard is it to have a conversation with your acquirer, even if you don’t plan on switching?  With new entrants in the field, from Square on the small end to Cielo on the high end, every merchant or biller should take the opportunity to see if they can reduce payments processing costs.

2. They didn’t notice: The contract expiration date came and went, meaning that their existing contract either rolled over or rolled into a year by year extension, with no improvement in business terms.  This is an even worse excuse than the first one — what, you can’t manage a calendar reminder??

3. They noticed too late: This is the one that pains me the most.  Merchants and billers need to be thinking about acquirer contract expiration 9 to 12 months before the end of their contract if they want to maximize their leverage with their acquirer.  Why?  Because the best leverage is when you can credibly switch providers… and that’s a multi-month initiative in most shops.  So looking at your acquiring contract four months out — when your contract states you have to give three months notice— gives a merchant or biller little leverage in contract negotiations, since your acquirer knows you probably can’t complete an RFP and implementation process that quickly.

Now you can understand why you don’t get that call from your acquirer sales rep about your contract until a few weeks before your contract due date… if then!

So looking at your acquiring contract four months out — when your contract states you have to give three months notice— gives a merchant or biller little leverage in contract negotiations, since your acquirer knows you probably can’t complete an RFP and implementation process that quickly.

The solution to these situations simple: figure out when your acquirer contract expires, and get it on your planning calendar so you’re teed up to begin negotiations 6-12 months before contract term.

When you’re ready to consider your acquiring contract, it’s time to sit down and ask yourself:

  • How much money can I save by switching processors given my recent and projected business growth? An RFP can be a great tool for answering this, or you can do some informal benchmarking among peers.
  • How much would it cost me to switch acquirers?  You need to consider both implementation costs and costs to change back office and reporting processes.  If you have an in-house payment switch, it can be a lot easier.
  • Do I have the organizational will to change acquirers?  Or are there too many other competing priorities for resources?

Your answers to these questions will drive your negotiation process and dictate your subsequent steps including an RFP exercise.

I think it all boils down to this formula: Leverage = Options x Time.  You maximize your leverage in acquirer contract negotiations by having a variety of options and adequate time to fully explore and execute upon those options.

Having no options or leaving yourself no time works the other way — you’re pretty well sunk until your next contract renewal comes along.

At Glenbrook, we help merchants through the acquirer RFP process.  We also help merchants benchmark their payments operations against peers, helping them to understand how they can improve the costs, operational efficiency and organization of their payments unit.

Contact us about your situation – and we’ll help you think through your options and timing! We look forward to hearing from you!

This PaymentsViews post was written by Glenbrook’s Jay DeWitt.