For businesses that accept credit card payments, processing fees can quickly eat into profits. Understanding how to minimize these fees is essential to maximizing your bottom line. Whether you’re a small business owner or a larger enterprise, here’s a guide to help you reduce your credit card processing costs while maintaining smooth payment transactions.
1. Understand Your Current Fees
Before you can reduce fees, you need to understand what you're currently paying. Credit card processing costs are typically made up of three main components:
- Interchange Fees: Charged by the card-issuing bank, these are non-negotiable fees that vary by card type (e.g., rewards cards often have higher interchange rates).
- Assessment Fees: Charged by credit card networks (Visa, MasterCard, etc.), these are also non-negotiable but typically lower than interchange fees.
- Processor Markup: The additional fee charged by your payment processor for handling the transaction. This is where you have the most room for negotiation and savings.
2. Negotiate with Your Processor
One of the most effective ways to reduce credit card processing fees is to negotiate with your current payment processor. If you’ve been with the same processor for a while and have a good payment history, you may be able to negotiate lower rates. Here’s how to approach it:
- Ask for a Fee Review: Request a detailed breakdown of all fees and ask if there’s room for a reduction, especially on processor markup fees.
- Leverage Competition: If you’ve found better rates elsewhere, use that as leverage in your negotiations. Many processors will match or beat competitor pricing to retain your business.
- Bundle Services: Some providers offer lower fees if you bundle services like POS systems, online payment gateways, and mobile payments.
3. Use Interchange-Plus Pricing
Many businesses are on a “tiered pricing” model, where transactions are categorized into qualified, mid-qualified, and non-qualified tiers, with each tier having different rates. Unfortunately, this model often results in higher fees because certain types of transactions (e.g., online or rewards cards) are automatically categorized into higher tiers.
Interchange-plus pricing, on the other hand, is a more transparent and cost-effective option. With this model, you pay the actual interchange fee plus a fixed markup, allowing you to better control and understand your processing costs.
4. Minimize Risk of Chargebacks
Chargebacks can lead to hefty fees and increased processing costs over time. To minimize chargebacks:
- Provide Excellent Customer Service: Make sure your customers can easily reach you to resolve any issues before disputing a charge.
- Clearly Display Policies: Ensure your return, refund, and shipping policies are clear and accessible, especially for online purchases.
- Use AVS and CVV Verification: Address Verification System (AVS) and Card Verification Value (CVV) are two simple tools that can reduce fraud and chargebacks by verifying the cardholder’s information during the transaction process.
5. Avoid Downgraded Transactions
Some transactions are “downgraded” to higher fee levels because they don't meet certain criteria, leading to higher processing costs. Common causes of downgrades include:
- Manually Entering Card Information: Transactions where card information is manually entered (e.g., over the phone) often have higher fees. Encourage customers to use chip cards or contactless payments whenever possible.
- Delayed Settlements: Ensure that you settle (or “batch out”) your transactions daily. Delays in settling transactions can result in downgrades and higher fees.
- Missing Information: Make sure all necessary transaction details (e.g., billing address, zip code) are provided, especially for online transactions.
6. Encourage Use of Lower-Cost Payment Methods
Not all credit cards are created equal—some cost more to process than others. Here are a few strategies to encourage the use of lower-cost payment methods:
- Encourage Debit Card Use: Debit cards generally have lower interchange fees than credit cards. You can offer small discounts or incentives for customers who choose to pay with debit.
- Offer ACH Payments: Automated Clearing House (ACH) payments, which are direct bank transfers, are typically much cheaper than card transactions. For recurring payments or large transactions, encourage customers to use ACH.
7. Review and Switch Providers If Necessary
If your current processor isn’t willing to negotiate or provide better pricing, it may be time to switch providers. When shopping for a new processor, consider:
- Transparent Pricing: Look for providers that offer interchange-plus pricing or other transparent fee structures.
- No Hidden Fees: Avoid processors with unnecessary fees, such as PCI compliance fees, statement fees, or batch processing fees.
- Support and Reliability: Ensure the provider offers reliable customer support and a platform that works well with your business needs.
8. Use a Payment Processor That Supports PCI Compliance
Payment Card Industry (PCI) compliance is a set of security standards that ensure your business is handling customer card data safely. Not only does PCI compliance reduce the risk of fraud and data breaches, but it can also help you avoid costly non-compliance fees.
Make sure your payment processor provides tools and guidance to help you meet PCI compliance standards, which can include things like encrypting sensitive data, maintaining firewalls, and regularly monitoring network security.
9. Limit Non-Essential Features
Some processors charge for add-ons that your business may not need, such as advanced reporting features or additional hardware. Review your contract to see if you’re paying for extra services that aren’t essential, and remove them to cut costs.
10. Educate Your Staff
Ensuring that your staff is properly trained on how to handle payments can reduce the risk of errors that lead to increased fees. For example, employees should know how to process transactions correctly to avoid manual entries or data entry errors that lead to downgraded transactions.
Reducing credit card processing fees is a smart way to maximize your profits without sacrificing the convenience of accepting credit and debit cards. By understanding your fees, negotiating with your processor, and taking steps to avoid unnecessary costs, you can significantly lower your processing expenses and improve your business’s financial health.
For more tips and a free cost analysis of your current processing fees, contact us at InfoMerchant today. Let us help you find the most cost-effective solution for your business!
