Credit card processing fees are unavoidable, but they don’t have to eat into your profits. Many companies have reduced their rates by minimizing chargebacks and fraud, performing address verification for all transactions, and more.
Most businesses use the interchange-plus pricing model, which is transparent and easy to compare from provider to provider. However, several strategies can minimize these fees even further.
Set a Minimum Purchase Amount
Credit card processing fees aren’t always set in stone, and it may be possible for your business to negotiate lower rates with your processor. This can be easier if you’ve been a loyal customer or have high transaction volumes. Sometimes, reducing fees by minimizing chargebacks or increasing in-person sales is also possible.
A common way to minimize credit card processing fees is by establishing a minimum purchase amount for each transaction. This can help offset the cost of paying the interchange fee on low-value transactions, resulting in savings for your business.
Additionally, you can also reduce credit card processing costs by choosing a payment processor that uses an interchange-plus pricing model. This fee structure lets you see exactly how much each transaction costs, so you can be more confident that you’re not getting ripped off.
However, imposing a minimum purchase amount isn’t without its risks. You’ll need to be mindful of state laws and regulations and any card association rules that may prohibit the practice.
Also, you’ll need to be careful not to impose different minimums for different types of cards, as this can lead to confusion and customer frustration. Instead, look for a credit card processing company that offers transparent pricing and makes it easy to calculate your transaction fees.
Negotiate Lower Rates
Credit card processing fees might seem inevitable, but they aren’t set in stone. Many of these fees are negotiable, and while fractions of a percent might not seem significant on an individual contract, they add up quickly for businesses with larger transaction volumes.
Most of these costs are interchange fees, which are charged by the banks issuing consumer cards. These fees remain the same regardless of which processor you use and are only updated by Visa, MasterCard, or Discover.
However, various other factors impact your specific processing fees, including whether you have a flat or tiered pricing model. Ultimately, you want to reduce your markup above the cost of interchange and assessments.
Tiered pricing models are complicated to negotiate because they commingle interchange and markup, making it difficult to see how much you pay over cost.
Additionally, negotiated savings often only last a few months until another fee or tier is implemented. For these reasons, it’s usually best to go with a processor that offers flat-rate pricing, making identifying and reducing credit card processing fees much more accessible.
Take a Proactive Approach to High-Risk Transactions
Credit card processing fees are an unavoidable business expense. But they don’t have to be a big deal for businesses that make intelligent choices and negotiate the best possible rates.
When minimizing credit card processing fees, the most crucial step is taking a proactive approach to high-risk transactions. These include online, keyed-in, or phone-based purchases (known as CNP or card-not-present transactions).
These are more susceptible to fraud and can result in higher processing fees due to a higher risk of chargebacks. To minimize this risk, businesses can implement strict security protocols and take steps to prevent fraud.
It’s also helpful to reduce reliance on CNP transactions by providing alternative payment methods, such as cash or checks. Then, if the need arises to accept CNP transactions, it’s easier to ensure they meet rigorous security standards.
In addition to the transaction fees mentioned above, merchants pay various other costs when they process credit cards. These can include PCI noncompliance fees, annual account fees, and monthly minimum fees. Moreover processors may charge a markup on top of interchange fees to cover their operating costs and profit.
The markup fee is negotiable, and some processors charge it separately from interchange and assessment fees to make it easier for businesses to see the entire fee structure. They can seek alternatives or negotiate a better deal with their current processor.
Optimize Your Payment Processing Setup
Credit card processing fees are a necessary part of doing business, but they don’t have to be unavoidable. By negotiating with providers, shopping around for deals, and following strategies to avoid high-risk transactions, you can save your business thousands of dollars in monthly credit card processing fees.
Tiered pricing models often have different rates for various transaction types based on the risk assumed by the processor and bank. For example, use an address verification system for all your in-person (POS) transactions and limit the number of not-present sales. You’ll minimize the risk assumed by the bank and could qualify for lower interchange fees.
Likewise, merchants frequently encountering chargebacks when customers dispute a transaction may see higher card processing fees. If possible, reduce your chargeback rate by having clear refund policies, resolving disputes quickly, and satisfying customers. Additionally, if your customers prefer to pay online or with invoices, use a terminal to reduce fraud and avoid higher fees.
Lastly, look for processors with transparent and straightforward pricing schemes that allow you to scale your fees as your business grows. Many small businesses don’t realize there are a variety of pricing structures within the credit card processing industry, so they hear the lowest rate come out of the mouth of a sales rep and go with that provider without doing their research.
