This article is part of a larger series on Payments.
Credit card processing fees are a necessary cost of doing business, but it doesn’t have to take more of your business profit than it should. By analyzing one’s business model, customer preferences, and current credit card processing fees, merchants can adapt simple strategies to effectively lower costs without disrupting operations. Here are six things merchants can do to lower credit card processing fees.
1. Accept More In-person Payments
Transaction rates for in-person or card-present sales are considerably lower than keyed-in or online transaction fees. This is because card sales that are completed by using a physical credit card (swipe, tap, chip, or PIN) are less likely to be subject to fraud or chargebacks.
Make it more convenient for your customers to purchase in person. Consider investing in standalone point-of-sale (POS) terminals or mobile credit card readers that can be attached to tablets or smartphones. This allows you to accept payments within the store, tableside, curbside, and even cash-on-delivery.
And, if you are already selling in person, avoid keying in card payments. This typically comes with a much higher fee than swipe, chip, or tap payments.
2. Reduce Your Chargebacks
Chargebacks are not uncommon, especially if your business accepts card-not-present transactions. Chargebacks can cost businesses up to $25 per incident—which ultimately increases your overall monthly credit card processing cost. Not to mention, you may also be out the cost of the services or product, as well as the transaction fees.
More importantly, card networks and acquiring banks look at chargebacks as a major risk and set a limit on frequency before approving (and maintaining) a merchant account. In other words, lower chargebacks can translate to lower processing fees and more favorable contract terms.
Keeping your chargebacks to a minimum does not have to be expensive. It could be as simple as ensuring that you provide itemized receipts, using fraud detection tools, and making sure that your business name is easily recognizable on charges and billing statements. Most payment processors and merchant account service providers readily offer these.
3. Negotiate With Your Current Payment Processor for Better Rates
This should be easy to do, especially if you accept more in-person payments and have kept your chargebacks to a minimum. Consider reaching out to your payment processor to negotiate for better transaction rates if:
- Your merchant account agreement is about to expire
- You have been working with your payment processor for over a year (for pay-as-you-go contracts)
- Your projected sales volume exceeds the sales volume limit stipulated in your merchant account agreement
Pro tip: Don’t forget to shop around for competitor transaction rates. Most providers will gladly try and meet your current payment processor’s fees if you switch with them. Or, you can use these quotes as bargaining power with your current processor.
Check out our list of cheapest credit card payment processors. It includes providers like Helcim that offer automatic volume discounts so you don’t have to wait for approval to get the lowest credit card transaction rates every month. Read our Helcim review to learn more about this provider.
Transaction rates make only part of your total monthly credit card processing cost. When negotiating with a payment processor, it’s best to know how much you actually pay on average for accepting credit card payments. Learn more about credit card processing fees and use our calculator to compute them.
4. Accept ACH Payments
Simply put, ACH payments are direct-to-bank transfers from your customer’s bank account to your business bank account. Most credit card payment processors also support ACH payment methods. Accepting ACH payments carries significantly lower transaction fees than credit card payments, typically around 1%, compared to around 3% for credit cards. Check out our list of top ACH payment processors for some options to implement for your business.
Pro tip: Like card transactions, ACH payments are subject to reject fees often due to the customer’s insufficient funds. Funds also take longer to reach your bank account (around three business days). Learn more about what ACH payments are in our guide.
5. Apply for Level 2 and 3 Processing Rates
Businesses that accept business credit cards and those that process more than $20,000 per month in credit card transactions can consider applying for B2B rates (expressed as level 2/level 3). These are discounted rates for large-volume transactions in exchange for providing more payment data. Payment processors support level 2 and 3 processing with their virtual terminal, invoicing, and other payment service.
For example: Visa’s Level 1 standard rate (2.95% + 10 cents) charges 1.05% more than its Level 3 data rate (1.90% + 10 cents)
There are a number of card network requirements for merchants to qualify for B2B rates, but merchant account and payment processing service providers can help you with your application. Check out our guide to find out if level 2 and 3 processing can work for your business.
6. Get Approved for a Zero-cost Processing Program
Zero-cost processing allows merchants to pass on their credit card processing fees to customers. Depending on your state, you can implement credit surcharging, cash discounting, or convenience fee programs that essentially encourage customers to pay in cash instead of their credit cards. Like ACH and B2B rates, your merchant account or payment services provider can help you apply for and set you up with the right free credit card processing program.
CardX is one of our recommended zero-cost processors offering state-level compliance, flexible solutions, and a user-friendly interface. Visit CardX to learn more.
Whichever program you choose, make sure that your business is fully compliant with Federal and state regulations before implementing any of the zero-cost processing methods.
Learn how to legally implement zero-cost processing:
Lower Credit Card Processing Fees Frequently Asked Questions (FAQs)
Credit cards are essentially a line of credit. Both card networks and financial institutions charge a premium for accepting the risk of processing transactions on a merchant’s behalf from a source that may or may not be funded. Note that these premium rates vary based on your customer’s card brand, card type, and mode of transaction (card-present or card-not-present). Add to that your payment processor’s markup, and you get really high credit card processing fees.
There is no absolute way to accept credit card payments for free. Even if you sign up for a zero-cost processing program like credit surcharging and cash discounting, or apply convenience fees, there will still be monthly payment services and other incidental charges that you will end up paying at the end of the billing period.
The best way to lower your payment gateway fees is to choose a payment gateway provider that does not impose additional monthly fees for using the service. You should also compare proposed online transaction rates, and possibly even negotiate for better fees.
You should also ensure that you have the proper fraud detection tools in place to prevent chargebacks.
The first step in learning how to reduce credit card processing cost is by understanding your merchant account or payment processor billing service. Maintaining a healthy credit standing will eventually open up opportunities to negotiate for lower transaction rates. Work with your payment services provider in setting up the right mix of payment methods and proper fraud detection/prevention tools so you can get the most out of what you pay for.