By max May 1, 2023
Credit card processing fees can quickly add up and eat into your bottom line, especially if you run a small business or accept a high volume of credit card payments. However, there are several ways to minimize or even completely avoid these fees. In this article, we will explore the top strategies and tactics for reducing credit card processing fees, whether you’re a business owner or simply a frequent credit card user. From negotiating with processors to using alternative payment methods, we’ll cover everything you need to know to keep more money in your pocket.
Top Ways To Avoid Overpaying Credit Card Processing Fees
Compare Fees Across Different Processors
Credit card processing fees can vary so dramatically between companies that comparing rates is essential for merchants to avoid overpaying. Interchange charges, monthly service fees, setup costs, gateway tolls—fees of all kinds differ from processor to processor, and even small differences quickly accumulate into big savings over time.
Take processors A and B, for example. Processor A hits merchants with $0.25 per swipe plus a $49 monthly charge, while Processor B charges a mere $0.20 per transaction with no monthly fee. On $50,000 of monthly sales and an average ticket of $50, Processor A’s fees come to $1,650 per month versus $1,150 for Processor B—a $500 monthly, or 30% savings. Over a year, switching means pocketing an extra $6,000 or more.
Volume-based discounts and tiered pricing also provide prime opportunities to negotiate lower rates. High-volume merchants have significant leverage to demand volume pricing or bulk transaction rates. Processors frequently offer intro APRs or discounts for long-term contracts too, which can reduce fees for the initial term.
In short, cutting fees by just cents per swipe or dollars per month adds up fast to boost profits and cash flow. Merchants owe themselves comparing all charges across different payment processors to ensure they’re paying not a penny more than necessary. Shopping options and fiercely negotiating the best available terms position businesses to avoid overpaying for credit card processing.
Negotiate Lower Fees
Many credit card processors are willing to negotiate on fees, especially for high-volume merchants with businesses to lose. Businesses that process $50,000 or more per month in credit card transactions have considerable leverage to demand lower interchange fees, reduced monthly service charges, temporary fee decreases, or other concessions.
Negotiating lower fees starts with researching the standard rates charged by potential processors and determining reasonable targets for reduced pricing. Then, the business can reach out to prospects threatening to switch processors unless they match or beat the lower fees. Existing processors can also be contacted, informed of more competitive offers, and asked to either match or beat them to retain the account.
For some merchants, negotiating a lower interchange fee percentage may be most impactful. Every tenth of a percentage point reduction equates to real savings. Other businesses may focus on lower monthly service fees, setup costs, or statement fees. Anything that provides ongoing savings works as a reasonable negotiating target.
Temporary fee decreases or discounts represent another approach. Requests for 3-6 month fee holidays, annual volume-based pricing tiers, or limited-time introductory offers of 10-25% off standard fees can provide short-term relief and a window to potentially switch long-term if no permanent reduction is forthcoming.
Pushed to the brink, processors frequently accommodate demands rather than lose an account. Even if negotiations do not result in a fee decrease initially, it establishes a pattern of demanding fair pricing to avoid overpayment. Come the next rate renewal or if additional fees are proposed, the business can again make its case, feigning willingness to switch providers if necessary.
No fees are set in stone, so persistence and determination pay off. By setting reasonable targets, doing research, threatening to take business elsewhere, and being willing to actually follow through, businesses gain leverage and secure the lowest possible rates. Avoiding overpayment for essential services starts with negotiating, and merchants owe it to profits and cash flow to aggressively advocate for fair pricing at every opportunity.
Reduce Interchange Fees
Interchange fees charged by credit card networks represent a significant portion of processing costs for most merchants. Every transaction run on Visa, Mastercard, American Express, or Discover cards carries an interchange charge, typically 1-3% of the sale amount. These network-mandated fees make up the majority of charges that are eventually passed on to merchants by payment processors.
Reducing interchange fees starts with encouraging alternative payment methods that provide lower network charges. Processing debit cards, for example, carries interchange rates of 0.5-2% per transaction versus credit cards. Currency, checks, wire transfers, or other non-card payments eliminate network fees altogether. Providing cash discounts or rebates for non-card payments encourages customer choice of less expensive options.
Merchants can also negotiate for tiered interchange rates based on volume or selector billing and recoup higher costs from lower interchange tiers. For example, securing a lower interchange rate on the first $50,000-$100,000 of monthly interchange charges provides relief on a major portion of overall costs since interchange fees diminish at higher sales volumes. Processor-tiered models may also be customizable, allowing a business to qualify for a favorable rate on all transactions under $50 or $75, again with normal rates only charged on amounts over the limit.
Some businesses find opportunities to reduce interchange costs through specially branded rewards credit cards and merchant-branded cards. These cards provide payments with interchange rates of 1.5-2% versus standard credit cards, a full percentage point reduction. They attract customers through cash back, purchase mileage, or other rewards, with the lower interchange charge passed along as savings to the merchant.
Negotiating volume-based caps represents another tactic. Demanding a cap of 2-3% on all interchange charges ensures maximum rates do not continue indefinitely on increasing volumes. Volume caps secure the potential for savings growth even as business expands.
Limit Additional Fees
Additional fees like batch fees, statement fees, chargeback fees, authorization fees, and PCI compliance charges represent extra costs layered on top of base interchange and monthly service fees. While not as large as network interchange rates, additional fees still inject unnecessary expenses into a business’s financials and reduce overall profitability if left unaddressed.
Limiting additional fees starts with evaluating the options and understanding what additional costs will apply based on chosen processors and services. Determine reasonable caps or maximum acceptable fees for batch processing charges, statement fees for paper or email statements, surge pricing fees, and more. Then, request these caps be put in writing as part of any long-term contract.
Some businesses find value in batch processing multiple transactions at once to avoid repeated batch fees. Using automated payment processing via ACH or wire transfer minimizes fees when possible. The choice of an e-statement versus paper billing reduces or eliminates statement fees for most merchants. Beyond caps, these types of operational changes help limit additional long-term costs.
Fee schedules that bundle multiple additional services under a single, lower combined fee provide another approach. For example, a fee that covers all statement, batch processing, and chargeback charges for under $50 per month versus à la carte pricing of $0.25 per statement, $0.10 per transaction batch, and $5 per chargeback. Bundled, simpler fee structures with lower combined charges prove easier to budget for and negotiate.
If flat refused by potential processors, demands to reduce or wave additional fees for an initial 3-6 month trial period work as a reasonable compromise. New businesses especially benefit from temporary fee forgiveness or holidays while finding their footing. If implemented, close monitoring ensures fees do not abruptly reappear after the trial ends without prior warning.
Beyond initial negotiations, continual evaluation of fees charged helps limit the overpayment of additional costs. Review statements regularly for any unauthorized or unexpected additional charges. Track pricing relative to other processors and re-negotiate if fees seem unjustified compared to competitors or original commitments. Getting caps or reductions in writing provides leverage during any future disputes.
Consider Alternative Payment Methods
Alternative payment methods like PayPal, Venmo, Square, or Affirm provide alternatives to traditional credit card processing with significantly lower costs. Rather than charging network-mandated interchange fees of 1-3% per transaction, these payment providers typically charge flat fees of around 2-4% of total sales. Some charge only for payment processing services rather than ongoing monthly or setup costs as well.
Determining if alternative payment methods make sense for your business starts with evaluating your transaction types, sales volumes, and target customer demographics. Businesses with high ticket sales, income from reoccurring billing or membership charges, or those catering to younger generations may benefit most from Venmo, PayPal, or other payment app acceptance.
In-person businesses, pop-up shops, or food trucks will likely find the most value from Square or a similar mobile payment terminal. Companies with installment billing may achieve cost-effective financing offers through partnerships with services like Affirm. Consider if your ideal customer favors a particular payment method and if significant savings translate to a potential competitive advantage.
Before transitioning costs away from your existing credit card processor, compare side-by-side pricing including interchange charges, monthly and setup costs, flat transaction fees, percentage fees, financing charges, and payment plan pricing. Calculate costs at different monthly sales volumes to ensure savings at the levels you operate. Don’t forget additional fees for paper statements, chargebacks, or international transactions which some providers handle at lower rates.
Transition costs from your existing payment gateway to an alternative method need to be considered as well. Many providers cover free gateway setups or charge minimal setup fees versus traditional options but not always. Make sure any costs to migrate transaction processing and update payment pages or POS systems don’t outweigh potential long-term savings. Ongoing costs of separate payment processing for more niche methods versus full account management may also depend on the provider selected.
For some businesses, acceptance of multiple alternative options rather than transitioning fully away from traditional credit cards provide the ideal solution. Splitting payments across payment apps, credit cards, and cash helps ensure no single customer is unable to transact due to a lack of payment method acceptance. It also adds security by reducing reliance on any one provider. Comparing all costs and deciding how much effort to dedicate to managing more than one payment gateway depends on available resources, accounting costs, and customer dynamics.
Careful consideration of alternative payment methods helps you avoid the overpayment of expensive credit card fees when more affordable options exist. Lower interchange charges, flat fees, or limited monthly costs may be your ticket to higher profits and a more cost-competitive business. While not an option for all merchants, alternative payments can deliver significant savings, especially for higher-volume sales. With the interest of millennial consumers only growing, the choice of payment method affects today’s business bottom line. Some research may provide an easy path to optimization.
Conclusion
In conclusion, reducing credit card processing fees means adding money back into a business’s bottom line and improving overall profitability. By comparing rates across different providers, negotiating lower interchange and monthly service charges, limiting additional fees, and considering alternative payment methods, merchants gain opportunities to keep costs under control rather than accepting standard pricing.
Every dollar saved on processing payments translates directly to improved financial performance. Whether searching for healthier margins, funding operational growth, reinvesting into key business areas or building business reserves, lower processing fees provide more money available to make important things happen. With keen rate management and cost control, significant savings become attainable even on essential services.
While payment processing remains a necessity, that doesn’t mean associated expenses must be neglected. Vigilant management of fees prevents firms from overpaying for an important business function due to a lack of awareness, inflexibility, or inadequate negotiation. Keeping an eye on the bottom line costs of receiving and sending payments helps ensure long-term financial viability and success.
Rather than viewing fees as fixed and inevitable, businesses can achieve meaningful impacts through new perspectives and different approaches. Alternative payment methods may unlock affordability for some service-based companies or e-commerce merchants, while volume-based pricing provides relief for higher-volume retailers or subscription services. Customized solutions and tailored pricing arrangements develop through active engagement and willingness to challenge standard rates.
No business thriving in today’s competitive markets can afford to fail to optimize costs wherever possible. Reducing fees isn’t about doing without payment processing; rather, it’s about gaining control over expenses to supplement an already tight budget. Additional funds granted through lower costs provide opportunities ranging from improved marketing investment and hire expansion to equipment updates, charitable contributions, and retirement savings contributions.
By diligently comparing rates, negotiating ruthlessly, limiting additive fees, and considering options outside standard practices, businesses avoid overpaying for credit card processing. Every dollar saved through improved management of payments adds to operational potential and long-term success. Keeping an open and proactive mindset toward controlling costs leads to greater financial strength, growth, and independence. Lower processing fees aren’t about sacrifice; instead, they represent an achievable win-win.
Overall, reducing expenses where possible and gaining control of costs have never mattered more to business prosperity. Leaving money on the table in the form of overpaid fees is a mistake few companies can afford in today’s competitive business environment. Compare, challenge, and optimize payment rates and terms at every opportunity to ensure fees never again contribute to holding a business back from its full potential.