OMAHA, NE – Merchant acquirers are paying more than 10% less for authorization costs than they did in 2009, and back-end transaction processing services cost 20% less than they did in 2007, according to a new study by The Strawhecker Group (TSG).   Not surprisingly, big acquirers get the best pricing and new clients of service providers are getting better deals from providers than are acquirers who are older customers of the same providers. Another contributor to the drop may be the ‘great recession’ which may be increasing processors’ willingness to compete via price for new/existing business. “For some time we have observed that the major processors are cutting more aggressive deals with new clients,” said TSG Managing Partner, Kurt Strawhecker.

Those are some of the major findings from the TSG 2011 Merchant Processing Pricing Benchmark Study. (Click here to view an overview of the study / Click here to download the order form.) The new survey, the sixth in a series which was last published in 2009, compares the most common processing line item pricing elements based on portfolio size. The study segments the major front-end authorization line items, back-end settlement costs, compares BIN sponsorship costs and other key operational and marketing management data.  The study provides detailed information to acquirers to compare their relative processing costs to their peers as well as assists them in negotiating new or existing processing contracts.

One new addition to this benchmark study is a category regarding annual merchant fees, used to help capture the evolving trend of processors to charge annual fees – for PCI and other services – on a per merchant basis. “There has been a steady increase by processors and acquirers to pass on the new costs of doing business such as PCI Data Security costs and the new 8050W 1099 requirements mandated by the associations and the federal government,” said Strawhecker.

TSG obtained data in June from acquirers representing 58 separate front-end portfolios and 50 back-end (settlement) relationships. TSG divided the respondents into four groups based on size as measured by the number of monthly transactions. The Small respondents generated up to 250,000 monthly transactions; Medium, 250,001 to 1 million; Large, 1 million to 3 million; and Jumbo, with more than 3 million. In total, more than 80 million monthly authorization transactions were represented in the study.

Another finding TSG disclosed was that merchant on file fees are dramatically higher for medium and large acquirers, continuing a trend identified in the previous two pricing benchmark studies.  “These increases appear to be the result of processors bundling more services into this fee rather than pure price inflation,” according to Mike Goding, TSG Senior Associate, who lead the study.

Other findings uncovered include: in a trend reversal, customer service/terminal help desk support fees are significantly higher, competition for acquirer business leaves new players with lower costs than established ones and annual ‘per merchant’ fees are creeping into contracts but still the exception.

“The main thing that we walked away with was the fact that authorization and transaction-processing costs – the core services used – continue to decrease materially.  This extends the trend we noted in our last pricing study.  The bottom-line is that processors are continuing to compete vigorously on price to win and keep business,” said Goding.