Merchants have many things to think about – after all, they are business owners first and foremost! Therefore, credit card processing fees might not be high on the priority list to review. Credit and debit card transaction fees may appear inexpensive initially, but the small percentages add up very quickly. Once one combines these transactional fees with other processing costs such as card brand assessments, batch and authorization fees, plus monthly gateway or PCI non-compliance costs, then payment processing costs skyrocket. Unfortunately, merchants cannot avoid paying for this critical service. Therefore, the best thing a business owner can do is carefully review their monthly merchant statements and learn simple ways of reducing processing fees.
1. Understand the Different Payment Pricing Models
Understanding the various credit card processing fees will help you know how your company can reduce costs. There are three significant pricing structures to be aware of:
A flat-rate payment model is where a merchant almost exclusively pays the same rate on all transactions. Your monthly processing invoice will be a fixed percentage based on the payment volume. Typically swiped purchases are assessed a lower flat rate, and a CNP (Card Not Present) payments see a higher flat rate charged. This is due to the higher risk associated with a virtual payment transaction.
At first glance, this model can seem like the best bet for your business. While it’s easy to anticipate the monthly cost for cash-flow purposes, you need to be aware the flat rate is almost always inflated to ensure all the processors’ expenses are covered. A flat-rate model also leaves a small window to negotiate a lower cost. Since all fees and assessments bundle into one flat fee, a business owner can not see specific charges to eliminate.
Tiered pricing often features a set of bundles: qualified, mid-qualified, and non-qualified. The pricing of each bundle differs and is a total of interchange rates and the processor’s markup.
A qualified rate is the lowest cost you will pay to accept a card payment. This tier applies to the standard issued debit or credit cards. A mid-qualified rate is the next lowest rate assessed and encompasses loyalty and membership rewards cards. Finally, a non-qualified rate is the most costly with business and international cards typically associated with this tier.
Interchange Plus Pricing
If looking for a simple credit card processing fee model, interchange plus is a great option. A business pays the associated interchange rate regulated by the card brands plus a processor’s markup. The markup is typically minimal, and one can see what costs are assessed where.
The first step towards reducing payment processing fees is determining which pricing structure best fits your business model. Then partner with a merchant provider willing to help your business reach its goals.
2. Reduce Non-Processing Fees
In addition to interchange fees, there are several other costs associated with accepting payments. These can include monthly or annual account maintenance fees, monthly minimum processing fees, or rental costs if your business is leasing terminal equipment.
The good news is these fees can almost always be negotiated as they are apart from the cost to process a payment. Take a look at your most recent processing statement – if you’re being charged a fee you don’t understand, ask your processor to explain it. Any transparent and trusted provider will be glad to walk you through the costs. Ask for a reduction of the expenses where you feel it’s necessary. As most providers value their clients, they will work with you to ensure you are comfortable with the fees associated with accepting a debit or credit card.
3. Optimize Transaction Types
Some transactions cost more than others. For instance, debit costs are often less than credit card costs. On the other hand, keyed-in sales are higher than swiped transactions. Work on understanding your customer-base to determine where your highest processing costs are coming from. Once you know this, you can create a strategy to reduce payment costs based on where your current spend is the most.
It’s also worth mentioning if your business utilizes physical hardware to swipe payments, make sure it’s capable of processing payments to lower costs. For example, accepting an EMV chip payment is exceptionally cost-effective, but to use this to your benefit, you need to ensure your hardware is capable of processing it.
4. Use an Address Verification Process
An Address Verification System, or AVS for short, verifies a customer’s billing address with their card issuer. It’s an excellent tool for fighting fraud. Plus, AVS can also reduce your processing costs. Many processors offer incentives to merchants who use AVS. For instance, Visa provides a lower interchange rate whenever one performs an AVS check on transactions. Talk to your payment partner to learn how you can add this useful tool to your payment gateway.
5. Reduce Card Not Present Transactions
Avoid entering card details manually, especially those within a point of sale environments. Individuals preferably should swipe cards, enter in a PIN, or use an EMV chip reader to complete their payment. This ensures your business benefits from lower interchange fees and also reduces credit card fraud.
To summarize, reducing processing fees is possible with a little elbow grease on the merchant’s part. However, the time spent is a worthwhile investment when considering the significant savings associated with putting a streamlined payment system in place. Not happy with your payment provider or looking to receive black and white answers on your processing costs? With over a decade of serving clients across the country, Payment Savvy has the knowledge and experience to build a custom and affordable payment solution for your company. Reach out to us today to schedule a no-hassle demo of our payment tools.