If you accept credit or debit cards at your business, you will come across a merchant agreement at some point. It’s a simple agreement between you and your payment processor that allows you to accept payments. And while you may think that a quick glance is enough, that isn't always the case.
This agreement can be deceptively complex, which is why you should take the time to ensure you know exactly what you are signing up for. Whether you’re looking at your first (or tenth) merchant agreement, it’s not too late to learn more about it.
In this comprehensive guide, we'll walk you through what a merchant agreement is, what your processor should include in one, things to look for, and what you should be cautious of. Let’s dive in.
A merchant service agreement, often abbreviated as MSA or MPA (merchant processing agreement), is a formal contract that lays out the terms and conditions between a merchant and a payment processing provider. It serves as a roadmap for what you can expect throughout your relationship and ensures transparency and alignment between both parties, with many layers involved. These include things like legal compliance, payment safety, and relationship expectations.
On the other hand, if this isn't fully realized, it can lead to unpleasant surprises down the road. Larger issues such as potentially impacting your company's financials can lead to account closures, or more on the minor side, it can affect your relationship with your processor.
What sections are included in an agreement?
There are many sections and line items that should be included in your merchant services agreement. To make sure your business is safe and secure, we recommend looking out for this checklist of items in your MSA and ensuring you’re comfortable with what they mean:
As previously stated, merchant agreements are a part of a careful relationship between you and the processing bank. This company stands between you and your funding, so you want to make sure that you trust them to handle your business with care.
The agreement is a legally binding document that operates by proactively addressing potential scenarios that may arise during your partnership, while also establishing a clear and standardized protocol. This sets the foundation for what you can expect.
A merchant processing agreement serves as the cornerstone of any business's ability to accept electronic payments. Like any business decision, it comes with its share of advantages and disadvantages. As your business navigates the world of MPAs, weighing these pros and cons is essential to making an informed decision that aligns with your unique needs and anticipated growth.
In the pros column, these agreements outline a streamlined and secure way to handle credit and debit card transactions, allowing your business to tap into a wider customer base and improve sales safely.
Merchant processing agreements typically involve fees, which can vary widely by payment processor and on an individual level. Contract terms may also include binding agreements and early termination fees, limiting flexibility to switch providers.
Common Elements of a Merchant Agreement
A merchant agreement will list you, the “merchant,” and your provider, the “payment processor” as the two parties to the agreement. Here’s an example of a merchant agreement:
Be mindful that this list is not comprehensive and may not account for all the standard components found in a typical merchant agreement. One way to ensure a merchant agreement is best for your business is to discuss it with your own legal counsel and the payment processor.
When trying to review the rules and regulations that guide and safeguard the payments industry, there’s an acronym you’ll want to be aware of: PCI DSS.
PCI DSS stands for Payment Card Industry Data Security Standards, and they set the basis for the requirements you’ll be expected to adhere to as you process payments. Here are some examples of things they set the bar on:
The payment processor typically sets the terms in a merchant agreement, usually in some kind of collaboration with card associations like Visa, Mastercard, or other electronic payment networks. But there’s always room for your input if you feel the terms aren’t fair and/or don’t reflect your business use cases.
These terms are established based on things like your industry, regulatory requirements, and your payment processor's offered services. While there may be some negotiation room for certain terms, they standardize many aspects of the agreement because of the need for consistency and compliance within the payment industry. These terms can cover various aspects, including transaction fees, chargeback procedures, and data security requirements.
As the merchant, you have the responsibility to carefully review and understand the terms presented by the payment processor before agreeing to the contract. It's important to ensure that the terms align with your business needs and practices, as your merchant agreement will govern how transactions are processed and managed.
Now that you understand the agreement, its purpose, and why you should thoroughly read it, let’s talk about what to look out for:
We’ve touched on it already, but make sure you know and are comfortable with the duration of the contract you’re signing. The industry standard for a processing agreement is three years. If you cancel early without an approved reason, you may be subject to an early termination fee. You can check to make sure that if your business closes, for example, you won’t be charged. Here, the industry standard tends to be $500, but it can vary. Review this information thoroughly so you know what to expect.
Payment service providers (PSPs) such as Square, Stripe, and Paypal streamline the account setup process through a concept known as aggregate payment processing. To illustrate, think of it as your business having its own dedicated line on a family phone plan, simplifying and optimizing your payment management. The pros are that your account is quick and easy to set up (because the plan already exists), but the cons are that you have little control over the terms (because, well, the plan already exists) and the main account holder (Square, Stripe, Paypal, etc.) can kick you off or withhold funds at any time for any reason.
Instead, we recommend setting up your own merchant processing agreement where you’re in the driver’s seat. You'll have a one-on-one relationship with the processor who will route your funding for you. This is important from both a consistency of service and quality of service perspective.
Finally, make sure you understand any indemnity clauses you’ll be subject to. An indemnity clause outlines the responsibilities and liabilities of the parties involved regarding certain legal issues or losses. It defines how one party (the indemnifying party) will compensate or protect the other party (the indemnified party) in case of specific events or claims. In this context, make sure you’re familiar with what your responsibilities are in the event of losses or damages resulting from or affecting your business.
As you’ve probably realized by now, ensuring that your merchant contract is beneficial to your business and aligned with its interests requires careful consideration and diligence. Let's go over some helpful tips to help you get there:
In a nutshell, it's important to know the ins and outs of your merchant agreement to avoid getting stuck in unfavorable terms. Skipping the fine print can lead to unexpected troubles, but here's where EMS comes in. Our merchant accounts come with a dedicated account manager who will walk you through each part of your agreement. This personalized help means you'll receive more than just what's written on paper so that you can make smarter choices that fit your business's needs. By teaming up with us, you'll navigate the complexities of merchant agreements with ease, with the assurance that your best interests are well protected.
