Credit and debit card processing fees are a cost of doing business, but reducing them doesn’t have to feel impossible. For merchants, lowering these fees can mean significant savings, allowing more money to stay in their pockets.
Let’s dive into practical ways to minimize these expenses and keep more of your earnings.
What are Merchant Fees?
Merchant fees are the costs businesses incur when accepting credit card payments. These fees come in different forms, like a flat fee per transaction or ongoing charges, such as a monthly fee. A significant component of these costs is the credit card processing fee, which varies based on factors such as payment networks, types of credit cards, and merchant category codes. At the core, payment processing fees cover the work involved in transferring funds securely from a customer’s bank to the merchant’s account.
Breaking it down, these fees include:
- Interchange Fees: Paid to the banks that issue credit cards.
- Payment Processor Markups: The additional charges applied by your payment service provider.
- Other Costs: Expenses related to technology, fraud protection, and more.
What Makes Transaction Fees High?
Interchange Fees
Interchange fees are the rates banks charge to process credit card transactions. They typically depend on the type of card being used (like rewards or corporate cards) and the transaction method. For instance, card-not-present transactions, such as online purchases, usually have higher interchange fees compared to in-person card payments. These fees aren’t negotiable, so merchants often have to adapt by keeping their own costs under control.
Payment Processor Markups
Payment processors, including credit card processors, charge for the service of handling credit card payments, and these markups can vary significantly. Some providers charge a flat fee per transaction, while others tack on additional costs. Others might offer a plan with a fixed monthly fee, which can be beneficial for businesses with a high volume of credit card transactions. However, hidden fees can be common, so it pays to compare providers to ensure you’re not overpaying carefully.
Technology and Security Costs
Businesses also face costs for the technology and security needed to accept credit or debit card payments safely. This includes advanced fraud prevention systems and compliance with security standards. While these are necessary to protect both you and your customers, they can add up over time. Older technology may come with higher processing costs, so upgrading to newer systems can sometimes save money in the long run.
Tips to Cut Down Processing Fees
Negotiate With Your Processor
When it comes to payment processing fees, everything is negotiable—well, almost everything. If your business processes a large volume of credit card payments, use that as leverage. Contact your payment processor and ask if they can lower your per transaction fee or reduce that recurring monthly fee. Think of it like haggling at a market: every small cut makes a difference, and the worst they can say is no.
Pick a Low-Risk MCC Code
Not all Merchant Category Codes (MCCs) are created equal. If your business is tagged with a high-risk MCC, you'll likely face steeper credit card transaction fees. For instance, a new e-commerce retailer may be charged higher fees compared to a long-established retail store. Take a closer look at the available MCC codes, and select one that keeps you in the low-risk category while still accurately describing what you do. It’s a little bit of paperwork, but the savings are worth it.
Minimize Chargebacks and Fraud
Chargebacks are more than just annoying—they can jack up your processing costs. If your business racks up too many disputes, you’ll look risky, and that risk comes with a price. To fight back, use tools that detect and prevent fraud and be proactive with customer service to resolve issues before they turn into chargebacks.
Assess Statements Regularly
Ever feel like your processing statements are written in code? You’re not alone. Hidden fees and sudden rate increases are more common than you’d think. Take the time to go over your statements each month and make sure nothing looks suspicious. If your flat fee or monthly fee unexpectedly increases, don’t just shrug it off—call your provider. Sometimes, the simple act of noticing and speaking up can save you money.
Use Secure Payment Methods
Investing in security doesn’t just protect your customers; it can also lead to lower fees. If you’re still using outdated payment systems, consider upgrading to EMV chip readers or adopting technologies like tokenization and encryption for online transactions. The more secure your business appears, the lower the risk, and the better the rates. It’s like insurance for your processing fees.
Ensure PCI Compliance
PCI compliance might sound technical, but it boils down to protecting your business and your customers. If you’re not compliant, expect penalties and higher payment processing fees. Make sure your systems meet PCI standards and stay up to date. Compliance isn’t a one-and-done task, but the savings and peace of mind are worth the ongoing effort.
Other Important Terms Merchants Should Know
There is a lot of jargon that can confuse understanding merchant fees and processing fees. Here’s a breakdown of other important terms to help make sense of your processing fees.
Assessment Fees
Assessment fees are charged by credit card networks, like Visa or Mastercard, and are separate from interchange fees. These fees are usually calculated as a small percentage of your total credit card sales volume. Think of assessment fees as the price you pay to use a network’s infrastructure. While you can’t avoid them, knowing what they are can help you understand your overall processing costs.
Processor Fees
Processor fees are what you pay your payment processor for handling transactions on your behalf. These fees vary and can include a flat fee per transaction, a monthly fee for account maintenance, or other charges. For example, some processors might offer a pricing model with a fixed monthly cost if you process a lot of payments, while others charge a per-transaction fee. Always read the fine print to ensure you’re getting a fair deal.
Batching
Batching refers to the process of closing out your day’s transactions and sending them to the bank for settlement. When you batch out at the end of the day, your funds are processed and then deposited into your account. Failing to batch daily can result in higher fees or delayed deposits, so it’s worth making this part of your routine.
NFC
NFC, or Near Field Communication, is the technology behind contactless payments. When a customer uses their smartphone or tap-to-pay credit card, NFC allows the transaction to happen in seconds. With the rise of digital wallets like Apple Pay and Google Pay, having an NFC-enabled payment system is becoming more of a necessity. Not only does it speed up transactions, but it can also reduce the risk of fraud.
Final Thoughts
Getting a handle on these credit card processing terms can make a real difference in how you run your business. The more you know about where your money is going and how transactions work, the better you’ll be at cutting costs and keeping more of what you earn.
If chargebacks are eating into your profits, Chargeblast is here to help. With automated chargeback management and real-time alerts, we make sure your disputes are intervened early on before they turn into chargebacks. Sign up today or book a demo!
