ETF (Early Termination Fee)

An ETF is an early termination fee that many credit card processors charge for ending a contract early.
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What Is An ETF?

An ETF is an early termination fee that many credit card processors charge for ending a contract early.

ETF Explained

It’s very common to have an ETF included in a contract with a credit card processor.

When a processor agrees to a contract with a business, they expect to make money from the agreement. Processors also invest money into the underwriting and boarding of a new account.

If you own a business and you’re shopping for a merchant services provider, ETFs are crucial to understand.

Some ETFs are flat fees of around $250 to $350. These flat fees might or might not be prorated based on the time remaining on your contract.

Other fees are based on the transaction volume that you process.

It’s especially important to understand fees that are based on your monthly processing amount. If your business grows and you begin processing a higher volume, your potential ETF will rise.

How an ETF may affect your business also depends on the contract length. Many merchant contracts are three years. Five and seven-year contracts are also possible. Some processors offer month-to-month contracts, which don’t include ETFs but may have higher monthly fees.

Some contracts begin with an initial term, such as three years, and then automatically renew. In this scenario, pay attention to what you need to do if you want to cancel after the initial term expires.

ETF Examples

There are many reasons you might decide to end a merchant services contract early. One is that you find a different processor that offers lower fees. You could be unhappy with your provider’s service. Or, you might choose to close your business or stop accepting credit cards.

Regardless of the reason, if you need to end your contract, you might find yourself facing an ETF.

If your processor charges a flat ETF and you close your account early, you’ll be charged the amount listed in your contract.

If your contract includes a prorated ETF, the amount you pay will depend on how far into your contract you cancel. For example, if you cancel during the first year of a three-year contract, you could be charged $300. If you cancel during the second year, you pay $250. And if you cancel during the third year, you pay $200.

Some ETFs are based on a processor’s “lost profits.” The processor charges you based on what they could have earned in processing fees if your account remained open.

Different processors calculate this type of fee differently, but here is one example. Let’s say your average monthly processing fees are $200, and you close your account 12 months early. The ETF would be $2,400, based on the $200 monthly fee average times 12 months.

As you can see, this type of ETF can be costly. It’s also harder to predict since your fees can vary each month.

It’s important to be aware that in some cases, processors can reduce or waive ETFs. Contact them if you don’t see this fee in your contract, or you’re being charged more than you agreed to.

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