The majority of merchants are looking for various merchant services to offer convenience to their customers. These are like credit card processing, debit cards, mobile payment etc. But merchants have to pay charges for these services which reduces their operating profits. One the charges are early termination fee (ETF). Some of these are fixed and come to hundreds of dollars, in other cases it is quite heavy and may cross thousands of dollars.
The merchant many times enters into a contract with the card processing company without being aware of the early termination fee clause and when they want to terminate they are faced with the fees which could be quite high. The merchant is in a dilemma whether to pay this fees or continue with the service.
Let us understand more about this and see how it can be resolved. Why do card processing companies levy early termination fee?
Reason for Early Termination Fee
- One of the reason is the amount of effort that goes into creating an account. As soon as the processing company enters into a contract with the merchant, there is a great amount of work to be done at the backend like programming terminals with a new merchant identification number, underwriting the account, sometimes adding additional options, for example offering an additional payment option towards tip in a restaurant.
- A good share of the fees collected during transactions go the banks, card issuing institution, transaction processors like Visa or MasterCard and the processor get only the markup fees.
- The processing company is at a loss until a certain volume of transactions are achieved, if the merchant terminates the contract before that there is no way to recover the losses, hence the early termination fee.
Options Available to the Merchant
- Many merchants are not aware of the early termination fees till they decide to terminate the contract early. It is essential that the merchant should ask and go through the contract terms in detail to avoid such situations.
- Card processing companies sometimes give an option to opt-out within 30 days if the rates are prone to raise.
- Sometimes it may be possible to make up the amount that the merchant pays towards ETF through savings if the business volume is significant.
- The merchant may depending on the contract, enter into a fresh contract with a processing company that has lower fees structure and let the existing one go dormant till the ETF expires. Many processing companies do charge a monthly fee if the specified minimum volume of sales is not achieved. This fee has to be factored in when taking the decision.
It is imperative for the merchant to go through the terms of the contract in detail before signing it. Certain Credit Card Payment Processing contracts require the merchant to give advance intimation failing which they renew automatically at maybe same or higher rates. It is better to sign up an alternate contract before informing the processor about your decision to terminate the contract. This will ensure that the merchant is not stranded being unable to accept cards for payment.