Merchant Processing Agreement (MPA)

What to Look for: It’s impossible to cover everything that a payment processor can include in a merchant agreement, but we will list a few most common and important things to watch out for:

  1. Understand Industry Terms. We posted a Glossary of most common terms, if you don’t like ours read others’. But read one so you are competent when talking to Merchant Service Providers. Having a good knowledge base and knowing what you are talking about will go a long way.
  2. Early Termination Fee “ETF” (aka Cancellation Fee)
    • Flat Fee: Processor will charge a set fee if merchant stops processing before the agreement term expires. For example, $500 will be assessed no matter when the agreement is terminated.
    • Liquidated Damages: The amount a payment processor will lose by terminating your agreement. This is calculated by multiplying your monthly average processing fee by the number of months left in the contract. For example: If you terminated on month 10 of a 3-year agreement and your monthly processing fees are $1,000, you multiply the remaining months (26) by $1,000 for a grand total of $26,000 in liquidated damages.
 If your Processor invested a significant amount into your merchant account (free POS terminal, costly gateway integration, etc.) it’s unlikely the ETF will be removed.  However, if boarding your account isn’t costing them, you should demand to remove the ETF [before signing!].

If the contract is already signed, you still have a chance to terminate without penalty:

  • Look for language saying that if fees change the agreement can be terminated.  Processing fees increase often, this change will allow you to terminate the contract without penalty
  • If the Processor is not upholding their standard of service, you should be able to terminate.

Of course, keep in mind that this guide does not provide legal advice and you should consult an attorney

3. Personal Guaranty

Boring but important:  This section states makes you personally guarantee the agreement.  If the business goes bankrupt, is sold, or terminated, the processor will go after YOU personally and collect payment.  As you saw from the example above, the amount can be significant.

Just closing the bank account will not help, the Processor will track down you down.

4. Exclusivity

This is a big one for High Risk merchants. Exclusivity section states that the merchant will not use any other bank or processor for the duration of the agreement.  High Risk merchants often split their processing between several High Risk Merchant Service Providers, sometimes to mitigate the risk of closing and other times to make sure that chargeback ratios don’t get too high in one of the accounts.  This is a Catch 22 because if you ask the processor to remove this section it will immediately raise a red flag, and if you don’t remove it and keep splitting the processing you are violating the processor agreement and Visa rules.

 

5. Bank Payment to Provider

This happens when the Acquiring Bank doesn’t pay your Payment Provider.  There can be many reasons: Visa fines, bank closing, natural or political disasters, fraud, etc.  This happens quite a bit with offshore/international processing.  Your Processor will not remove this section, keep this pitfall in mind and stay aware of the news regarding your processing bank.

 

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