Credit card processing fees seem like small expenses for business owners, but they add up. This is especially true if you accept recurring payments or high-ticket items.
Fortunately, there are ways to reduce these fees without sacrificing customer satisfaction or compromising your PCI compliance status. Here are five strategies to cut your credit card processing fees:
- Negotiate with your processor.
- Opt for a flat-rate pricing model.
- Optimize your payment processing setup and avoid high-risk transactions.
Negotiate with your processor
While credit card processing fees are unavoidable, there are ways to keep them from eroding your bottom line. Negotiating with your processor is one of the best ways to reduce credit card processing costs without sacrificing other services your business relies on.
Start by reviewing your past monthly statement and calculating your effective rate (total credit card processing fees / total sales volume). This will help you determine whether there is room for negotiation. Then, find out if you have an interchange-plus or subscription pricing model. These models are typically negotiable because the transaction and markup fees are separated.
When negotiating with your processor, understand the nuanced details of your fee schedule and the industry’s current state. Be clear about what you’re willing to pay, and don’t be afraid to ask for a better deal. If you’re unhappy with your rate, consider switching to a new payment processor offering a more transparent pricing model. Also, look for a company with no minimum contract length or early termination fees.
Look for a simple pricing model
Many credit card processing providers charge multiple fees and have complicated fee structures. Merchants must understand the different types of credit card transaction fees to find a processor with an affordable and transparent pricing model.
One of the most common types of credit card processing fees is the flat rate transaction fee, which is charged on every purchase using a credit or debit card. This is a simple and cost-effective model that can help merchants anticipate their processing costs each month.
Tier pricing models take the interchange rates set by the card-issuing banks and then apply them to various tiers, like qualified, mid-qualified, and non-qualified. The problem is that determining which cards will be classified into each tier is often difficult so mismatching can lead to overcharging.
With the blended approach, the processor adds interchange and card brand fees on top of the flat or tiered transaction fee. This can make it difficult to determine which components are being applied to each transaction, and it could be more cost-effective for small or new businesses.
Optimize your payment processing setup
Credit card processing fees are necessary to accept payments but can add up quickly and into your profits. You can save on these expenses by negotiating with your processor and taking steps to minimize risk.
When a customer pays with a credit or debit card, data from the card travels to the point of sale and is sent through a payment gateway to be processed by a merchant’s bank. This process can involve multiple parties, including the card brand, the payment gateway, and the merchant’s processor. Each of these parties takes a cut of the transaction fee.
Various factors can affect credit card processing fees, including the type and amount of transactions you process. Suppose you avoid high-risk transactions (such as recurring payments or international purchases) that are more likely to result in chargebacks and other costly fees. Additionally, ensure that your card readers are up-to-date and capable of performing EMV transactions, which can save you money on fees by reducing the likelihood of fraud.
Set a policy minimum for credit consumers
Credit card processing fees can be unavoidable, but you can take steps to reduce them. For instance, maintain PCI compliance and limit high-risk transactions, such as international payments or recurring charges. These types of transactions are more likely to result in chargebacks, leading to higher fees for your business.
You should also set a policy minimum for credit consumers, such as a monthly payment amount or a maximum transaction value. This will help you reduce the number of outstanding balances in your business. Also, you should ensure that credit card payments made by credit consumers are applied to the highest-rate balances first.
Merchants should choose the right pricing model for their business based on their growth projection, transaction type, and volume. Many options are available, including flat-rate pricing, interchange-plus pricing, and subscription models. Each option has its advantages and disadvantages. You can also use a credit card processing calculator to compare your rates and find the best deal.
Reduce the risk of chargebacks
Credit card processing fees are necessary for businesses accepting card payments. However, there are strategies that business owners can implement to reduce these costs and maximize profitability without sacrificing convenience and security.
A chargeback is a dispute between a customer and the retailer over a fraudulent or incorrectly processed transaction. This can lead to lost sales, fines, and higher reserve requirements for your merchant account. Implementing strict fraud prevention protocols and ensuring your point of sale staff understands these policies is the best way to reduce chargebacks.
Another way to reduce chargebacks is to offer customers a credit card payment plan or financing option, which can reduce the risk of unauthorized transactions and prevent chargebacks. Finally, you can avoid chargebacks by switching to an account-to-account (A2A) payment model, eliminating the need for credit cards by transferring funds directly between the customer’s bank account and your business. This can help you minimize your risk of chargebacks and other costly fees. In addition, it can reduce your processing fees by eliminating the need for a card reader.