As a business owner, you know that every dollar counts. High credit card processing fees and merchant fees can eat into your profits, leaving you with less money to reinvest in your business or to take home as income.
Fortunately, there are some easy ways to lower fees from credit card companies. These are definitely worth pursuing – each reduction in these expenses translates into pure profit.Â
In this post, I’ll run through 13 simple strategies to reduce your credit card processing and merchant fees.
How can I lower credit card processing fees?
This post is part of a series on how to improve cash flow and operational efficiency while reducing expenses (taxes and labor costs).
Before we get into the strategies, I recommend reviewing your statement regularly.
One of the best ways to catch errors and overcharges is to review your credit card processing statement every month.
This way, you can catch any mistakes and disputed them before they do too much damage. Keep an eye out for any hidden fees from the credit card company as you process payments.
If you see any changes that you don’t agree with, be sure to call your processor and ask about them.
With that said, let’s dive in.
1. Negotiate lower rates with your current credit card processor
Are credit card processing fees negotiable?
This is the first question most people ask, so let’s cover it early.
Here’s the punchline: credit card processing fees can sometimes be negotiable, but it depends. Based on your business type and volume, you may be able to negotiate a lower rate with your credit card processor or merchant services provider.
Many credit card processors are willing to work with their customers to lower their fees, especially if the customer has a good track record of processing a high volume of transactions.
When negotiating with your card processor, be prepared to provide data on the following:
- Transaction volume
- Monthly fees (service related)
- Average transaction size
- Rate type
- Chargeback costs
- Any equipment costs
This will help the processor understand your business and make an informed decision about whether to lower your fees. It’s also worth researching the average market rate for various types of payments so that you know what constitutes a fair deal.
What is a good merchant processing fee?
There is no one-size-fits-all answer, as the fees that are considered “good” can vary quite a bit depending on the type of business you’re in and the payment provider you’re using.
On average, merchant processing fees range from 1.5% to 3.5%, so generally speaking, a good fee for merchant accounts should be on the lower end of this range.
Which fees are negotiable?
While interchange fees (also known as interchange plus pricing) and assessment fees are non-negotiable, you can negotiate any processor markup fees.
The negotiable fees include the your payment processing costs for each transaction, PCI compliance fee, cancellation fees, and monthly fees.
2. Shop around for a better credit card processor
One of the best ways to lower your payment processing fees is to shop around for a better deal. Different credit card processors offer different rates and pricing structure, so it pays to do your research for each merchant account provider and compare offers.
When shopping for a credit card processing company, there are a few things to think about:
- Interchange rates: Interchange rates are the fees that credit card issuers charge merchants for processing transactions. These fees vary depending on the type of card being used, the type of transaction, and other factors. You can typically find interchange fee details on the card processor’s website.
- Pricing structure: flat rate pricing (flat fee each transaction), interchange plus pricing, tiered pricing, and subscription pricing are the common models.
- Markup fees: In addition to the interchange rates, processors also charge their own markup and assessment fees. These fees can vary widely, so be sure to compare them when shopping around for a card processor.
- Monthly and annual fees: Some credit card processors charge an annual or monthly fee in addition to the fee per transaction. Be sure to factor any hidden merchant account fees into your calculations when comparing offers from different providers.
- Equipment and setup costs: If you need to purchase new card processing equipment or pay for setup or installation, these costs can add up. Be sure to factor these costs into your decision when choosing a card processor.
3. Use a payment gateway that allows you to pass fees on to customers
Using payment gateways that allow you to pass credit card fees on to customers can be an effective way to lower your card processing fees.
With this type of payment gateway, you can set your prices to include the cost of the transaction fee, so that your customers, rather than you, bear the cost of the fee.
This can be a particularly attractive option for businesses that have a high volume of transactions, as the cost of the fees can add up quickly. This way, you can still offer the flexibility to accept card payments, but help your bottom line.
4. Get more data from customers to save on interchange fees
One way to save on interchange fees is to collect more data from your customers when they make a purchase.
By adding additional fields to your checkout page, such as the cardholder’s billing address, you can qualify for a lower interchange rate.
The logic here is that providing extra data can help reduce fraud and minimize the risk of chargebacks.
5. Switch to ACH payments
ACH (automated clearing house) debit card payments are processed through the bank networks and go straight to your business bank account, rather than through the credit card networks.
Switching to ACH payments from debit cards can reduce your credit card processing fees in a few ways:
ACH is significantly cheaper
ACH transactions have the lowest costs associated with any payment system, and can be up to 90% cheaper than credit cards. As you can imagine, this alone is a major advantage.
Help you avoid transaction minimums and maximums
Many card processors have minimum and maximum transaction amounts, and if your transactions fall outside of these ranges, you may be charged higher fees.
ACH payments do not have these minimum and maximum transaction amounts, so you can avoid these higher fees by switching to ACH.
Help avoid chargebacks
A chargeback occurs when a customer disputes a charge on their credit card, and the card issuer reverses the transaction. This can result in fees for the merchant account, as well as the loss of the transaction amount.
Unlike CC payments, ACH payments are not reversible, so there is no risk of chargebacks. By switching to ACH payments, you can avoid the fees and lost revenue associated with chargebacks.
6. Use a mobile credit card processor
If your business accepts card payments in person, you may be able to save money by using a mobile processor. Mobile processors allow you to accept CC payments using your smartphone or tablet, eliminating the need for expensive credit card terminals and other equipment.
Mobile processors typically charge lower fees than traditional processors, and many of them offer flat-rate pricing, making it easy to budget for your credit card processing costs. In addition, mobile processors are often more flexible and easier to work with than traditional processors, so they can be a good option for businesses that want to save money and simplify their credit card processing.
7. Maintain PCI compliance
PCI compliance (Payment Card Industry) is a set of security standards that merchants must follow in order to accept CC payments.
These standards are designed to protect customer data and reduce the risk of credit card fraud. By becoming PCI compliant, you can show card processors that you take security seriously and that your business is a low-risk merchant.
Here are a few big benefits to maintaining PCI compliance:
- Can qualify for lower processing fees, as many card processors use risk-based pricing (merchants with a lower risk of fraud are charged lower fees)
- Avoid sizable penalties, fines, and PCI compliance fees
- Reduce chargeback fee risk
8. Set a minimum threshold for accepting credit cards
If your business processes lots of small transactions, you may be able to save money by setting a minimum threshold when accepting credit card payments.
Setting a minimum threshold essentially means that customers must spend an amount in order to use their credit cards (i.e. $10). This can help reduce the number of small transactions and lower processing fees.
9. Offer discounts for cash payments
Another way to reduce your card processing fees is to encourage your customers to pay with cash. While you can still accept credit cards, you can offer discounts for cash payments, or by simply making it clear that you prefer cash payments.
Offering discounts for cash payments can be an effective way to incentivize your customers to pay with cash, reducing the number of credit card transactions you need to process.
Be sure to check with your state and local laws before implementing any kind of cash-only discounts, as it may be prohibited in some jurisdictions. Also be sure that you clearly communicate any cash discounts to your customers to limit any confusion.
10.Reduce the risk of credit card fraud
Reducing the risk of fraud can also help you avoid being placed in a higher risk category by your card processor. Many card processors use risk-based pricing, which means high risk merchants are charged higher merchant fees.
One way to reduce fraud risk is to use Address Verification Service – a tool that enables merchants to detect suspicious credit card transactions and prevent credit card fraud.
Here are just a few advantages to reducing the risk of fraud:
- Lower likelihood of chargebacks, saving you money on fees and lost revenue
- Improve your risk profile and potentially qualify for lower processing fees
- Help avoid penalties and fines from credit card networks
11. Avoid keyed-in transactions whenever possible
Keyed-in transactions are transactions that are manually entered into a credit card processor — as opposed to swiped or inserted.
Keyed-in transactions can be costlier than other types of transactions, since they involve more manual work, and there is also a greater risk of error and fraud with keyed-in payments.
According to Payment Depot, this savings for swiped or inserted cards is significant: about 0.5% cheaper.
Whenever possible, try to avoid keyed-in transactions by utilizing other payment methods such as swiping or inserting the card into a card reader, and encouraging customers to use digital wallets like Apple Pay or Google Pay.
12. Ask your payment processor for help
Don’t be afraid to ask your payment processor for help optimizing your fees.
Although typically not common knowledge, credit card payment processors often have programs and services that can help merchants reduce their fees. These might include interchange optimization, fraud prevention services, or other technologies that can help improve efficiency.
13. Batching payments
Batching CC payments means grouping multiple transactions together and processing them as a single transaction.
By sending all of the payments at once, a business can avoid paying multiple transaction fees and potentially save time as well. By doing this, businesses can effectively reduce their overall costs associated with processing CC payments.
A couple other added bonuses:
- Batching can help you avoid transaction minimums and maximums
- You’ll also simplify and streamline your accounting processes
Wrap Up
Regardless of how you accept payments, implementing just a few of the strategies we walked through can limit what you pay to payment service providers (and increase your bottom line).
I hope this post helped you learn about the payment processing industry and get you ready for future negotiations with credit card processing companies. Implementing these tips will allow you to lower your credit card processing fees and keep more of your hard-earned money each month.
Let me know in the comments below if you have any other tips for lowering credit card transaction fees.
