Credit card processing fees may not seem like a lot at first, but after a few months, you start to notice the few dollars here and there start adding up. And what about all that markup that most processors take? What exactly are you paying for altogether every single month? There are monthly minimum fees, markups, transaction fees, gateway fees, PCI compliance fees, annual fees, interchange, and way too much more.
While those credit card processing expenses may seem unavoidable, there are numerous ways to take control and save money on your bill every month. Here are the steps you can take to get the lowest credit card processing fees without sacrificing the services your business needs.
How to Get the Lowest Credit Card Processing Fees
1. Choose The Right Pricing Structure
The first step in lowering your payment processing fees is to get familiar with how credit card processors make money. In the realm of payment processing, there are four main types of pricing structures: interchange-plus, tiered pricing, flat-rate, and subscription pricing.
Understanding each of these pricing models will enable you to figure out the right one for your business. Let’s look at them more closely below.
Interchange-plus pricing – With an interchange-plus pricing model, the payment processor breaks down your fees into two components:
- the interchange (i.e., the fees paid to the banks and credit card networks)
- the markup (which is added on top of the interchange fees — hence the term “interchange-plus”)
With the interchange-plus model, you’re able to see exactly how much of the transaction is paid out to banks and credit card associations and how much goes to your credit card processing company.
Tiered pricing – This refers to a pricing structure wherein the credit card processor categorizes transactions into different tiers — i.e., “qualified,” “mid-qualified,” and “non-qualified.”
Transactions that fall under the qualified category are charged a lower rate, while those that are considered non-qualified incur higher payment processing fees.
Credit card processors that use tiered pricing bundle up the interchange and their markup into these three categories, so you don’t see a breakdown of their fees. While tiered pricing may make your statement easier to read, it offers very little transparency into the processor’s markups.
Tiered pricing is the least favorable pricing structure for merchants. The folks at CardFellow even call it “evil,” and for good reason — it allows payment processors to hide their markups and charge outrageous fees.
As Card Fellow’s Ben Dwyer writes, “By hiding interchange fees, a business is never shown the actual cost of its processing. Thus, the processor has the ability to charge markups that are often exorbitant.”
Pro tip: if you’re looking for the cheapest credit card processing rates, stay away from tiered pricing.
Flat-rate pricing – Credit card processing companies that use this pricing model charge one flat fee for all transactions. This fee typically consists of a percentage plus a transaction cost — e.g., 2.5% + 30 cents per transaction, across the board.
Flat-rate pricing is easy to understand and makes forecasting simpler and more predictable. It may be a good option for small businesses that sell low-ticket items, as it helps keep fees to a minimum. However, if you’re a high-volume merchant that needs to process several credit card transactions per month, you’ll likely see better rates with interchange-plus or subscription pricing (see below).
Subscription pricing – With this pricing model, merchants get access to interchange rates and simply pay a flat subscription fee. This is the pricing model Stax uses. Rather than charging a markup on top of interchange rates (and taking a cut out of your sales), Stax simply charges a flat monthly subscription, and you only pay for direct-cost interchange on your transactions.Learn More
As you can see, not all pricing models are created equal. To maximize your savings, you need to run the numbers in your business and figure out which option makes the most sense for you.
2. Shop Around For Better Rates
When you do the research and look for better credit card processing rates, you’re doing the best possible thing for your business. Chances are, your current processor isn’t giving you the lowest rate, and they’re tacking on ancillary fees to your monthly bill. Make sure that your business is getting the best deals for the services it needs. And never pay a fee if you don’t know what it is or what it does for your business.
Choose a payments partner that offers transparent pricing. When shopping around, ask the processors for a breakdown of their rates and fees so you know exactly how much you’re paying per month.
3. Negotiate with Your Processor
Sometimes you need to make your processor see that your business adds value to their business. You have to make them want to keep you, so convincing them your business is valuable is important. Leverage your transaction volume if it’s high enough and that’ll say enough about your value to them.
If you shopped around for better rates first, then you have even more leverage to negotiate your rate with your current processor. Say, “Hey! This company doesn’t charge a statement fee or a batch fee! I’m going to switch to them.” If your processor doesn’t try to keep your business and make you happy, it’s time to switch.
Note: If your payment processor agrees to lower your rates, make sure to get the new agreement in writing. It’s also best to keep a close eye on your merchant statements in the succeeding months to confirm that they’ve truly lowered your rates.
4. Reduce the Risk of Credit Card Fraud
If you’re considered a high-risk merchant account, your fees are going to be higher. High-risk industries mean that there’s a higher chance that your company will experience credit card fraud. There are two ways you can reduce this risk.
- Swipe as many cards as possible. The rates set by card brands (Visa, Mastercard, American Express) are higher when the cards are keyed in based on fraud risk, so swiping the majority of your card transactions is one way to reduce that risk.
- The other way to reduce the risk of fraud is by providing security information that protects the cardholder and validates their purchase. You can do this by entering the billing zip code and security zip code.
5. Eliminate the Third Party
Most credit card processors (but not all) don’t actually process transactions themselves. Instead, they save on processing fees by signing up with a bank or institution that does the processing. This means that on top of paying your processor’s fees, you’re also paying middleman markups. Ask your current processor if they use a middleman. When searching for a new one, ask the same thing. You’ll notice a difference in fees and markup between the ones that do and the ones that don’t use that third-party processor.
6. Set Up Your Account & Terminal Properly
One simple mistake could lead to higher processing fees, so setting up your account the right way from the start can make all the difference. Provide the correct business information, such as type of transactions, type of business, and frequency of transactions because this matters to many processors (but not all).
It’s the same with the way your terminal is set up and used. Get into the habit of batching transactions within 24 hours to lower the number of transactions for that period and to reduce processing fees. This method is more cost-effective than batching every few days or a couple of times per week. The longer you wait to settle the batch, the higher the fees and rates from the credit card companies.
7. Accept Cards That Work Well For Your Business
Not all credit cards are treated equally. Certain credit cards/debit cards cost more to process than others. You need to choose to accept the cards that work best for your business. To offset the costs of more expensive card types, make sure you’re meeting as many qualifying requirements as possible.
8. Avoid Unnecessary Fees
Too many processors bundle and hide fees within other charges. Some fees shouldn’t even be added at all, let alone hidden. Take a look at your next merchant services bill and ask yourself what these additional fees are actually for.
Merchant account providers are notorious for high markups and hidden fees. With Stax, you’ll never be charged unnecessary fees. Stax offers subscription-based credit card processing at a direct cost. This means zero markups, zero hidden fees, and no contract. Contact Stax to discover how you can get the lowest credit card processing fees.Get Started