Is Your Merchant Processing Agreement Causing You Headaches?

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March 3, 2016

merchant-processing-agreementIn today’s technology-driven economy, it is almost impossible to operate a successful business without the assistance of a merchant processing company to facilitate customer and/or client payments. This is true whether payments are initiated at brick-and-mortar stores, on e-commerce websites or via mobile-based applications. Given merchant processors’ integral role both in sustaining a business’ viability and helping it grow, the payment processing agreement is one of the most important, if sometimes overlooked, contracts that a business will enter into throughout its existence. Overlooking the importance of these contracts can often lead to a business encountering various problems with its merchant processing agreement, which are otherwise easily avoidable.

What is the nature of some of the problems caused by merchant processing agreements?

Payment processing agreements typically are presented to a business on a take-it-or-leave-it basis. One such example of how merchant processors benefit from such arrangements is in connection with the reserve account. The typical merchant processing agreement will often provide the merchant processor with unfettered discretion over how to set reserve account levels, the sources from which to fund such reserve accounts, and the length of time that the reserves can be held before being released back to the business. After the payment processing agreement is signed, a business may often find it difficult to negotiate with the merchant processor for the release of funds from the reserve account. Merchant processors may cite as a reason for maintaining (or even increasing) the funds held in reserve their own need for security when faced with increased merchant-specific chargeback activity. The resulting risks associated with loss of access to operating funds when reserves are held or increased, however, may prove to be catastrophic for a business.

How Best to Avoid Merchant Processing Agreement Issues

The foregoing is only one example of a potential merchant processing agreement crisis. Engaging knowledgeable counsel experienced with the nuances attendant to a business’ relationship with its merchant processor can go a long way towards mitigating such risks, or the effects thereof. In particular, experienced counsel can oftentimes negotiate much more favorable contract terms for the business before the payment processing agreement is signed, as well as assist in negotiating arrangements with the merchant processor in order restore the business’ access to its operating funds, where applicable, after the merchant processing agreement has been executed. A business’ relationship with a merchant processor is too important for the sustainability of the business to cede all leverage to the processor. As such, working closely with skilled counsel is critical in order to reasonably minimize the risks associated with the relationship.

If you are interested in this topic or if we can be of assistance in connection with your payment processing relationship, please e-mail us at, or call us at (212) 246-0900.

The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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