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Insights and Expertise
Negotiating merchant processing agreements
• Other fees: The agreement should also address any
additional fees, such as monthly fees, statement
fees, chargeback fees and early termination fees.
Ensure that these fees are reasonable and clearly
communicated to avoid future conflicts.
2. Risk management and chargebacks:
• Chargeback procedures: Chargebacks can be a sig-
nificant risk for your business, as they may result
By Leo Arzumanyan in financial losses and reputational damage. The
Global Legal Law Firm MPA should include detailed chargeback proce-
dures, outlining the merchant’s responsibilities for
erchant processing agreements (MPAs) are dispute resolution and the timeframe for respond-
the cornerstone of relationships between ing to chargebacks.
payment service providers (PSPs) and mer- • Reserves and holdbacks: To mitigate the risk of
M chants. These contracts outline the terms chargebacks, you may require merchants to main-
under which merchants will process credit card transac- tain a reserve or agree to holdbacks. These funds
tions, as well as the fees, obligations and risks associated act as a buffer against potential losses. The terms
with the service. and conditions for reserves and holdbacks should
be explicitly stated in the MPA, including how and
For PSPs, negotiating MPAs effectively is crucial to build- when these funds will be released.
ing a profitable, sustainable partnership with merchants.
This article explores the key considerations for PSPs when • Fraud prevention: Given the increasing prevalence
negotiating MPAs and offers strategies to protect their in- of payment fraud, the MPA should include provi-
terests while fostering strong merchant relationships. sions that require merchants to implement fraud
prevention measures, such as using secure pay-
A Merchant processing agreement is a contract between a ment gateways, complying with PCI security stan-
PSP and a merchant, detailing the services provided, in- dards, and regularly monitoring transactions for
cluding payment processing, settlement and support. The suspicious activity.
agreement covers various aspects such as pricing, respon-
sibilities, liability and termination rights. Given the com- 3. Compliance with legal and regulatory require-
plexities of payment processing and the varying needs of ments:
merchants, MPAs must be carefully tailored to each rela-
tionship. • PCI DSS compliance: The Payment Card Industry
Data Security Standard (PCI DSS) is a set of secu-
Key considerations when negotiating MPAs rity standards designed to protect cardholder data.
Following are six essential factors for you, as PSPs, to con- The MPA must require merchants to comply with
sider when negotiating MPAs. PCI DSS requirements and outline the consequenc-
es of non-compliance, including potential fines or
1. Pricing and fee structures: termination of the agreement.
• Interchange fees and markups: One of the most • AML and KYC requirements: Ensure that mer-
critical elements in an MPA is the pricing structure. chants comply with anti-money laundering (AML)
Clearly define the interchange fees (set by card net- and know your customer (KYC) regulations. The
works like Visa and Mastercard) and the markups MPA should include clauses that require merchants
they apply. Transparency is key; hidden fees can to provide accurate and up-to-date information,
lead to disputes and damage the PSP-merchant re- and to implement appropriate measures to prevent
lationship. money laundering and fraud.
• Discount rate and transaction fees: The discount • Data protection and privacy: With increasing
rate, typically a percentage of each transaction, scrutiny on data protection, the MPA must address
and additional transaction fees must be negoti- how merchant and customer data will be handled,
ated based on the merchant’s processing volume, stored and shared. Require merchants to adhere to
industry and risk profile. Consider offering tiered data protection laws and include indemnity claus-
pricing or volume-based discounts to attract high- es for any breaches.
volume merchants.
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