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7 Ways to Lower Credit Card Processing Fees

June 4th, 2021 Reducing Fees Cash Back Processor
7 Ways to Lower Credit Card Processing Fees

Today, accepting credit cards is a necessity for every business. However, it also brings in some additional expenses.

The small fees you pay to your credit card processing company for every transaction can snowball and make a significant dent in your margins. There are also underlying costs coming into the play that could cause your business to leak serious money.

Even though processing fees are complex and lead to many businesses getting overcharged, the good news is that you can do something about it. In fact, you can do a lot if you’re aware of certain things. 

So, here are seven effective ways to lower your credit card processing fees so that you don’t lose money on transactions: 

  1. Analyze your current processing plan

It’s crucial to look at your current payment processing plan first. Knowing the pros and cons of the available pricing models will help you determine whether you’re overpaying. The three common pricing models the credit card processing companies use are:

  • Flat-rate: On every transaction, you pay a processing fee that consists of what the processor, the bank, and the card company charge. While flat-rate can be more expensive than some of the other models, you will always know which rates apply.
  • Tiered: On the surface, the tiered model is similar to flat-rate as it has a fixed processing fee. The difference is that the fixed rate varies according to the tiers the transaction falls under. The three tiers are: non-qualified, mid-qualified, and qualified.
  • Interchange plus: In this model, you pay for a markup set by your processor plus the interchange fee set by the credit card companies. 

The choice of which model is the best depends on the needs of your business. A flat-rate pricing plan is best suited for businesses with a smaller volume of transactions, while mid-sized businesses can benefit from interchange plus. 

With tiered pricing models, the processor decides which tier your transaction falls under. Oftentimes the criteria between different tiers aren’t disclosed, which makes it difficult for you to understand your rates and fees. As such, this often ends up being the most expensive option.

It is also notorious for having many hidden fees, so if you are still using a tiered pricing model, switch to a more transparent credit card processor.

  1. Negotiate the fees with your provider

While it’s impossible to negotiate the interchange or the assessment fee, the processor markup fees are up to the provider. This means that depending on the pricing model you’re aiming at, the cost of processing is up for negotiation.

First, you need to figure out your effective rate which consists of all of your processing costs, not just the processor’s markup. Your provider’s markup is possibly too big if your effective rate is higher than 3.25%.

Remember that the processor’s fee should ideally take up less than 30% of your entire processing costs. If that’s not the case, renegotiate or switch providers altogether.

Now that you know what effective rate you need to aim for, it’s also important to know what you should negotiate, depending on the volume of the transactions you are dealing with.

If you have a large average transaction size, you can save the most money by lowering the percentage markup. Negotiating a fixed fee is a better idea if your business has a small average transaction size.

Ultimately, credit card processing companies will lower their rates if you can make them money. In other words – if you are a valuable client.

  1. Look for alternative payment processing solutions

Unfortunately, not every business is able to leverage their sales to lower the processing fees from their provider. This can be also said for businesses that are just starting.

There is no shortage of pitfalls to avoid that come with traditional credit card processing models. Even the most transparent companies can hit you with a lot of extra fees such as:

  • Statement fees
  • Annual or monthly fees
  • Monthly minimum fee
  • PCI compliance fee

Similarly, you may want to avoid signing a long-term contract entirely. 

If that’s the case, you’re better off looking for a credit card processing solution that won’t lead to you getting ripped off down the line. Check out some offerings that rely on alternative business models such as CashBack Processor that integrate with online or brick and mortar payment systems.

For example, this company won’t lock you in a year-long commitment, as it operates month to month only (you can de facto trial it for a month). You are safe as there are no hidden fees, the rates always stay the same, and there isn’t even a sign-up cost.

Most importantly, CashBack Processor writes you a check every month where you will receive 50% of the money they earned on credit card processing.

If you’re wondering if there’s a catch, there isn’t. You can use any POS system or a mobile processing device and every e-commerce platform, without losing any of the functionality offered by the traditional credit card processors. 

The bottom line is that alternative solutions might suit you better than the traditional ones. Take the time to explore the possibilities – after all, you’ve got nothing to lose.

  1. Avoid security risks

We previously mentioned how you can’t negotiate interchange costs. No one said that interchange fees can’t be lowered.

In order to do so, reduce your business’s risks of credit card fraud, since the bigger the risk, the higher the fee. You have two options:

  • Employ an address verification service (AVS): This allows your customer to enter their address during checkout, which is then compared to the one registered in the issuing bank. If everything checks out, the bank sends the AVS code to the seller who can authorize the sale using that code. This process reduces the risk of credit card fraud, thus, credit card companies reward businesses that perform AVS checks with lower interchange costs.
  • Avoid keyed-in transactions: The most potential for fraud is associated with keying in cards, and this results in credit card companies raising fees for this particular paying method. Save money on each transaction by swiping your customers’ cards if possible.
  1. Avoid the PCI non-compliance fees

Complying with PCI DSS standards is the best way to avoid paying a PCI non-compliance fee. For this post, we are going to focus more on what to do if you ever become non-compliant because this penalty can end up taking a lot out of your monthly costs.

Let’s assume you are already receiving the PCI compliance services from your provider. If you aren’t, you should, as this service can help protect you from a potential data breach

But what if you end up becoming non-compliant? 

The problem with this fine is that it does nothing to help you become compliant again. Some providers might not even notify you that your account has become non-compliant, but you will still pay around $30 until you bring your account into compliance.

It’s best to avoid this occurrence altogether by updating the Self-Assessment Questionnaire annually, ensuring that your processing equipment is secured according to the PCI SSC standards, performing quarterly security scans, and implementing and documenting additional security requirements identified in your SAQ.

  1. Incentivize more cost-effective payment methods 

Certain transaction methods will always cost more, so knowing what to look for will help you save a lot of money in processing. 

We briefly mentioned how keyed-in transactions are not recommended because of the larger interchange fees. You can take this step even further by incentivizing EMV transactions that have finally become commonplace in the US.

You should make further investments towards new payment equipment, particularly an EMV card reader. It’s going to be worth it in the end because EMV transactions have lower interchange fees than swiped cards.

Another factor in lower interchange rates is the type of credit cards used. Debit cards have a better rate than credit cards. But what can you as a business owner do about it? It’s not like you can affect what type of card your customers use, right?. 

Well, you can ask nicely, for starters. If that doesn’t work, you can give a gift for using your preferred payment option, offer a small discount, or even give a limited-time offer for the customers who pay with an EMV card.

Pro tip: the option we don’t recommend is surcharging your customers. Passing on the processing fees to the customer who pays with a credit card works in theory (if your state allows it) but it’s a shady tactic that won’t incentivize your customers to use preferred paying methods in the long run.

  1. Settle transactions fast

The sooner you settle your transaction means you will receive a reduced interchange fee. With most cards, the clearing call has a time window of 24 hours.

This gives you plenty of time to settle transactions and lower interchange downgrades, so don’t put this off for longer than needed and always settle your transaction on the day you process the sale.

Your customers will also appreciate it and you will avoid the possibility of chargebacks

Savings made simple

Processing fees are complex. Now that you are aware of the steps you need to take to save money, you can avoid being taken to the cleaners. 

Knowing which types of pricing models to avoid is a good start as it will give you the knowledge to make the right decision if you’re unsure whether you need to change your provider or attempt to renegotiate the pricing with the current one.

The goal is to save money in the long run, so if you want to stay competitive and get a little extra at the end of the month, you better get on it ASAP.


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