As credit card balances continue to rise and match pre-pandemic highs, every business needs to be able to accept credit card payments. According to the Federal Reserve’s G.19 report, card balances increased 11% between April and May of 2021, recording the highest rise in five years.
With cash payments on the decline and contactless payments on the rise, your small business needs to be able to support a variety of payment methods. However, credit card processing fees can turn out to be a significant expense.
The good news is that you can cut down on these costs substantially if you know a few useful tips. In this article, we’ll take a look at some of the best ways to lower your credit card processing costs. Here are the 8 cheapest ways to accept credit card payments.
1. Choose a Payment Processor with a Favorable Pricing Structure
Before you choose your payment processor, make sure that they offer a pricing structure that best suits your unique business needs. The right structure can potentially save you thousands of dollars in credit card processing fees every month. So, it would be well worth your while to understand the different pricing structures that are available.
In this structure, credit card processing companies bundle the assessment fee, interchange fees, and markup into three buckets or tiers depending on the type of credit card or payment method used.
- Qualified: For non-reward and debit cards
- Mid-qualified: For standard reward cards
- Non-qualified: For card-not-present transactions and premium cards
Tiered pricing is almost always a red flag because even though many processors might advertise their low qualified rates, most of your credit card transactions will end up falling in the other two buckets (with much higher rates). Your processor is the one who will be categorizing your transactions, and since the fees are all blended, you’ll have no way of knowing just how much they’re charging you.
In this structure, credit card processors clearly demarcate the interchange rate and the markup that they charge you. The model is fair and transparent because you know exactly what you are paying them over and above the interchange rates set by credit card networks (Mastercard, Visa, American Express, and Discover). Regardless of the type of transaction or card used, the markup remains the same.
Because of its simplicity, many small business owners and startups prefer to start off with a flat-rate pricing structure. In this model, your processor will charge you a fixed percentage for all transactions — regardless of the card type. There might also be an additional per-transaction fee depending on whether it’s a card-present or card-not-present transaction.
In this pricing model, your payment processor will charge you an annual membership or subscription fee to access their wholesale processing rates. Payment processing is simple and transparent since they don’t markup assessment and interchange fees or eat away any portion of your sales.
Stax, for example, offers subscription-based pricing without any markups, hidden charges, ancillary fees, or long-term contracts. Businesses pay only a monthly fee in exchange for wholesale processing rates and the direct cost of interchange.
2. Integrate Your Payment Processor With Your POS
Credit card processing costs usually turn out to be more affordable if you use a point-of-sale system that integrates with your payment processing platform. If your POS system is independent of your merchant service provider, you may pay several additional fees (like fraud prevention fees, account fees, etc.), over and above the processing and transaction rates.
Besides paying lower rates, you may also benefit from a lower upfront equipment cost when you choose a payment processor that integrates with your POS. For example, some processors may set you up with free credit card readers. So, make sure to check with your POS provider about the payment processing platforms they partner with. Doing so may just help your business save money.
3. Consider “Zero-Cost” Credit Card Processing for Your Small Business
One of the simplest ways to lower your card processing fees is to influence customers to pay cash for their transactions. This is also known as zero-cost or zero-fee credit card processing and can be done in two ways.
Cash discounts – In this model, you’ll be marking up all prices in your store with credit card processing costs. However, a customer who chooses to pay by cash will receive a discount on their purchases.
Surcharging – In this method, you’ll simply tack on a surcharge or fee on top of the sale price if a customer chooses to pay by credit card at checkout.
Either way, you pass on the costs of credit card processing to your customers. However, when using any of these programs, make sure to check the applicable laws in your state/area. Cash discounts are legal in all 50 states but surcharges have limited scope/are illegal in some states.
4. Go with a Payment Processor That Doesn’t Charge Additional Fees
Many payment processors charge a number of additional fees (besides processing fees) that can quickly add up to hundreds of extra, unnecessary dollars if you’re not careful. Here are some types of hidden fees that you should definitely avoid paying:
- PCI compliance or PCI non-compliance fees
- Application/Setup fees
- Batch fees
- Statement fees
- Early termination fees
- Monthly (or annual) minimum fees
Make sure to look for a payment service provider that’s transparent about their fees and charges. If your processor currently charges you for any of these, work with them to get rid of those charges or switch to another processor that doesn’t charge them. With Stax’ transparent pricing, for example, you never have to worry about any hidden charges or ancillary fees.Learn More
5. Lower Your Fraud Risks and Chargebacks
Chargebacks and fraud can cost your business a lot — both in terms of lost revenue and unnecessary stress. With every dispute, you may end up losing twice the sale value as chargeback fees (plus, the loss of the sale).
What’s more, your payment processor may even classify you as a “high risk” merchant (with higher processing rates) if you have too many chargebacks. Here are some things you can do to cut down on fraud:
- Favor card-present transactions over card-not-present transactions
- Ask for a photo ID to verify the customer’s identity
- Ask customers to enter the CVV code whenever possible
- Use an address verification service to make sure that the customer’s billing address matches the one on file with the card issuer
6. Go with a Merchant Service Provider Instead of a Bank
A merchant service provider will set you up with a merchant account — a special type of bank account where payments are deposited before being transferred to your business bank account.
Merchant service providers allow you to process credit card payments securely. They also enable your business to accept credit card payments online without the need to redirect your customers to third-party sites.
Besides your merchant account, you’ll also get access to services like fraud protection to ensure safe and secure card transactions.
Banks, on the other hand, generally don’t offer merchant services. They would typically employ the services of a third party to process your card transactions. Needless to say, this would incur an additional cost, which would translate to higher credit card processing fees.
This is why you should choose a merchant service provider instead of a bank as it will lower your overall credit card processing costs.
7. Negotiate Better Terms to Get the Cheapest Credit Card Processing Rates
The great thing about using a membership-based service is that you might be able to negotiate lower processing rates. You might not be able to change the interchange fee since it’s set by card networks. However, if your sales volume is high enough, you could ask your payment processor to lower the fee that represents their cut.
That said, the best way to score favorable processing rates is to choose a provider that offers low rates right from the start. For example, using a payment processor like Stax, which gives you access to direct costs of interchange, means you won’t have to go through the hassle of negotiating to begin with.
8. Be Selective with the Credit Cards You Accept
It isn’t a coincidence that retail and e-commerce businesses widely accept credit card payments through Mastercard and Visa, while Amex or Discover cards find fewer takers. This is because Amex and Discover charge higher processing fees to merchants — since the rewards they offer customers are greater.
Naturally, you could lower your credit card processing costs by choosing not to accept credit card payments from these networks. However, doing this could potentially result in the loss of some customers who prefer these payment options.
Final Words on the Cheapest Ways to Accept Credit Card Payments
While it may be impossible to completely eliminate credit card processing costs, following the tips mentioned above can certainly help to reduce them significantly. Make sure to choose a payment processor that offers the lowest fees for the services you need.
Stax’ low transaction fees, free virtual terminal, user-friendly software, and integrations make it a perfect choice for growing businesses. With support for recurring payments, ACH, and level 2 and level 3 processing, Stax’ proprietary software can also help you with invoicing, customer management, reporting, and text-to-pay options.
Our transparent subscription-based pricing with 0% markup, makes us one of the best credit card processors in the market today. Contact our award-winning customer support team today to learn how we can help you level up your business.