Why “Cheap” Merchant Account Fees Could Be Costing You More Than You Think

Why “Cheap” Merchant Account Fees Could Be Costing You More Than You Think

For CFOs and CEOs, optimizing operating expenses is a constant priority. So when a payment processor offers what seems like a rock-bottom merchant fee—say, 1.5%—it’s easy to assume you’ve found a win. But those low advertised rates often mask a more complex, and costly, reality.

At Momentum Growth Partners, we frequently speak with finance leaders who thought they had negotiated a strong deal—only to realize, months later, their effective rate was far higher than expected. This post explores the risks behind “cheap” merchant account fees and how to take a more strategic approach to payment processing.

The Illusion of Low Rates

At face value, a flat 1.5% transaction fee looks appealing. But when you zoom out, that figure rarely reflects what you’ll actually pay. Once you factor in statement fees, PCI compliance charges, chargebacks, and tiered pricing structures, your effective rate can quietly climb past 3%.

In fact, recent industry data suggests that over 90% of businesses end up paying more in processing fees than they initially projected. Even a seemingly minor increase of 0.25% can mean tens of thousands of dollars lost each year for a company processing high volumes.

The takeaway? A low advertised rate isn’t enough. You need to understand the full pricing model and total cost of ownership.

The Problem with Tiered and Bundled Pricing

One of the most common—and costly—structures is tiered pricing. It’s marketed as a simple solution: “qualified” transactions are billed at a low rate, while “non-qualified” or “mid-qualified” ones cost more. But here’s the catch: most of your transactions likely fall outside that qualified tier.

This model gives processors flexibility to shift transactions into higher-cost buckets, and it makes it almost impossible to predict your true cost. It’s a pricing structure that benefits the processor, not your business.

Interchange-plus pricing, by contrast, is far more transparent. It separates the actual card network fees from the processor’s markup. While it may look more complex on the surface, it gives finance leaders much clearer visibility into where their money is going—and often results in lower long-term costs.

Hidden Fees: The Silent Drain on Margins

Many payment processors advertise competitive per-transaction rates but quietly tack on additional fees that erode your margins. Common culprits include:

• Monthly minimum fees: If your total fees don’t meet a threshold, you’ll pay the difference—penalizing you in slower months.
• Statement or service fees: These are often labeled vaguely, but they add up fast.
• PCI compliance fees: Sometimes charged even if you’re already compliant.
• Early termination fees: Contracts may lock you in with steep penalties for leaving, regardless of service quality.
• Chargeback fees: Standard, but can be more expensive than disclosed.

These hidden fees often aren’t part of the initial conversation with a sales rep—but they show up quickly once you’re locked into a contract.

Contract Language Matters More Than the Sales Pitch

In many cases, discrepancies between what’s promised and what’s delivered stem from vague or misleading contract terms. Some agreements allow processors to raise rates with minimal notice—often just a note buried in your monthly statement.

Others auto-renew unless you cancel during a specific window, turning what seemed like a short-term agreement into a multi-year commitment.

If your contract includes the ability to increase fees unilaterally or imposes a high cost to exit, those “cheap” fees become far less attractive. Before signing, insist on reviewing the full terms—and consider having legal counsel weigh in if there’s any ambiguity.

The Case for Expert Negotiation

Here’s the good news: many of these costs are negotiable. While card network interchange rates are fixed, the processor’s markup—and many of the ancillary fees—are not.

A seasoned payment processor negotiator can audit your statements, identify unnecessary fees, and work directly with providers to improve your terms. For businesses processing large volumes, the impact can be significant.

Let’s say your business processes $10 million annually. If your effective rate is 3%, you’re spending $300,000 on payment processing. Reducing that to 2.5% through negotiation would free up $50,000 in profit—without touching your topline revenue.

In many cases, you don’t even need to switch providers. Armed with the right data and leverage, a well-executed negotiation can lead your existing processor to offer better terms to keep your business.

Final Thoughts



There’s nothing wrong with pursuing a lower processing rate—but that pursuit needs to be strategic, not superficial. The lowest headline rate isn’t always the best deal, and in many cases, it’s far from it.

For finance leaders, the goal should be transparency, control, and flexibility. That starts with understanding how fees are structured, what’s negotiable, and how to evaluate your processor’s performance beyond what’s on paper.

If you’re serious about optimizing merchant fees, a thorough review—or a professional negotiation—can yield substantial long-term savings. And that’s a bottom-line win every CFO should be looking for.