As a business owner, every coin counts, and you should aim to save as much as possible. One way to save money for your business is to save money you spend on credit card processing. If most of your customers are paying using their cards, the fees can easily add up, meaning that if you come up with a way to lower the fees, you can save a lot of money in the long run.
The beauty is there are plenty of tricks you can use to lower your credit card processing fees. Here are some of these ways:
Negotiate the fees with your processor
Did you know you can negotiate down the processing fees with your credit card processor? And it doesn’t have to be complicated as all you need to do is to set up a meeting.
When you accept a credit card payment, plenty of players are involved. There is the issuing bank (the bank that has issued the card to the customer), the acquiring bank (the bank that accepts the funds on your behalf), a payment processor (which communicates on behalf of the acquiring bank), and the payment network (such as visa, MasterCard and others that connects to all parties).
Each player is in business, so they get a portion of the processing fee. The processing fee is often broken down into different categories that include:
Authorization costs: This is the cost of authorizing and charging a card
Discount rates: The margin that the processor charges to make a profit
Assessment fees: This is the fixed percentage paid to the payments network
Interchange rates: The base cost the merchant accepts for each card type
Fixed monthly network fees: This is the fee paid to the network every month
You can negotiate some fees while you can’t negotiate others. For example, you can’t negotiate authorization, assessment, and fixed monthly network fees. This means you have only two fees that you can negotiate: interchange and discount fees.
The best way to negotiate with the processors is to provide them with value, so they want your business. One thing you should leverage is your transaction volume. If you have many customers checking out using their credit cards, let the credit card processor know about it and use the high number to your advantage.
As you are negotiating, pay attention to the discount and interchange rate fees and aim to bring the fees as low as possible.
Since you have leverage, shop around for processors that will give you the best deal.
Apply a surcharge
Surcharge is where you pass the processing fees to your customer. While this is a highly effective way to reduce your fees, it comes with plenty of rules that you have to play with. For example, you can’t surcharge a prepaid or debit card.
Also, not all states allow surcharging, so before you invoke it, do your research and ensure that you aren’t breaking any rules. You don’t want to be in a court of law, do you?
Pay close attention to the pricing plan for your business
Payment processors have different pricing plans, with the most popular ones being: interchange plus, flat-rate pricing, and tiered pricing.
Different plans have different rules, and you can pay extremely high fees for choosing the wrong plan. For you to choose the right plan, take your time to understand every pricing plan.
Interchange plus pricing: In this plan, you pay a flat rate percentage and an interchange reimbursement fee. This means you pay the base cost for each card type your customers use plus about 0.25%.
Flat rate pricing: Here, you pay the same rate to the card processor regardless of the type of card your customers use. The only time this can change is when you take the customer’s information over the phone.
Tiered pricing: In this pricing, the processor charges you depending on your customer’s type of card.
There is no right or wrong pricing plan to settle for. You only need to study your customers and find out the cards they love using. Of course, you should choose a plan that has the lowest rates.
Swipe the cards when possible
Credit card processors often charge higher fees to high-risk transactions such as online and over-the-phone transactions.
To reduce the costs, encourage face-to-face transactions as they are less risky; hence you pay less for them. When the customers are in your store, ask them to swipe their cards instead of paying online.
For the customers that can’t get to your store, encourage them to use cell phone swipers. With all the technology around, there is no reason you should continue paying premium fees while you can cut the costs.
If your buyers have to buy online, you can reduce the risk by providing security information that protects your customers and validates the purchase. For example, you can ask your customers to enter their billing zip code and security code before taking their payment.
While this might be off-putting to some customers, it will save you a lot of money as the card processors deem you more secure.
Offer ACH payments
These are electronic bank-to-bank transfers that are faster and more reliable than physical checks. To add icing on the cake, they don’t have interchange fees such as debit and credit cards, making them less expensive for you.
Become PCI compliant
The payment card industry (PCI) data security standard is a set of rules and regulations that a merchant must follow to ensure that the sensitive credit card data is safe.
When you enroll with a given processor, they will give you two to three months to comply with the laid down regulations. During this time, the processor charges you a non-compliance fee, which is wasted money.
To avoid this fee, put all the required measures in place and become PCI compliant. The cool thing is that besides the fee going away, PCI providers often give you up to $100,000 that serves as an insurance policy in the event you accidentally compromise your customer’s credit card information.