Tips for minimizing payment processing fees: A complete guide

Published On: February 28, 20230 Comments on Tips for minimizing payment processing fees: A complete guideLast Updated: January 24, 20246.4 min read

Are you a business owner? If yes, You’ll have to pay for everything from setup to processing fees as long as your business accepts payments. However, different providers have different pricing models and prices. Some providers, for example, may charge you a monthly service fee or an early termination fee. Furthermore, you may be charged a higher processing fee for credit cards. However, it depends on factors such as your industry, the type of transaction, the type of card used, and your processing volume.

paying with credit card

A transaction’s credit card processing fee is a negligible portion of the transaction value. The total amount is not small when all the transactions are added together. The per-month cost of using a credit card can be very high. It includes the monthly fee, authorization fees, and assessment fees. As a result, this article will offer business owners tips on reducing payment processing fees.

What is the meaning of a payment processing fee?

The expenses incurred by business owners when processing customer payments are known as payment processing fees. The amount of payment fees charged to a merchant is determined by several factors, including the transaction’s level of risk, the type of card, and the pricing model. Only a few people carry cash to pay for goods and services. Many buyers prefer to pay with a credit card rather than hard cash. Businesses that accept credit cards and online payments must pay a small transaction fee, known as the payment processing fee.

Average processing fee:

You have to pay the processing fee; it doesn’t matter if you use cash for a pay stub or order raw materials. Typical credit card transaction fees for businesses hover around 3%. They can vary significantly depending on several variables. Debit cards typically have the lowest processing costs, whereas fee structures for digital payment platforms vary greatly.

Credit card

Credit card Transaction fee
VISA 1.43%  to 2.4%
Mastercard 1.55% to 2.6%
Discover 1.56% to 2.3%
American Express 2.5% to 3.5%

Platforms for digital payments:

PayPal 3.49% + a fixed fee + 49 cents for each transaction
Venmo 1.9% of the transaction + 10 cents for each transaction
Square 2.6% + 10 cents for each transaction
Stripe 2.9% + 30 cents for each transaction

Debit cards:

Rates on debit cards are typically lower because they involve less risk and bank funds back them. While federal regulations limit debit card processing fees to $0.21 + 5% of the transaction, most debit card issuers charge lower fees.

example of payment processing fees

Fees included in payment processing methods:

Flat fee:

Flat-rate fees are a payment plan where the payment processor imposes a single fee on all transactions. It does not depend on the physical purchase’s brand, type, or location. Flat-rate fees are calculated as a percentage of the transaction amount or as a percentage of the purchase amount plus a fixed fee.

Interchange plus pricing:

The payment processor charges an interchange fee plus a fixed fee or percentage per transaction when using an interchange plus pricing strategy. A processor, for example, may charge 0.5% + 15c per transaction in addition to the interchange fee.

Tiered fee pricing:

According to the tier pricing model, your online processing fee is determined by the degree of risk connected to the interchange used. Any of the 300 interchange rates are classified by the processor as qualified, mid-qualified, or non-qualified. The higher the quality of the interchange rate, the lower your processing costs.

Qualified rates are competitive only in low-risk scenarios, such as credit card payments at a POS terminal. eCommerce transactions are typically classified as non-qualified, resulting in a higher cost for accepting payments online. For some payment processors, mid-qualified transactions only meet some requirements, such as reward cards or business cards.

Membership fee pricing model:

As it features markup and interchange costs separately, this model is comparable to interchange plus pricing. On the other hand, membership pricing charges a flat dollar amount per transaction (no percentage markup here) and a flat monthly subscription cost. This model, a newer pricing style on the market, is an option for merchants with more significant transactions.

Tips for minimizing payment processing fees:

Payment processing fees can be complicated, but there are ways to reduce them. Here are a few of our best tips for lowering payment transaction fees.

Negotiate rates:

You can negotiate lower payment processing fees based on your volume. A better rate may be available if you process more monthly transactions and experience fewer chargebacks. In general, a higher volume usually results in a lower rate. The best way to bargain is to position yourself as a high transaction volume value-added merchant. As a result, you should forecast your future sales and demonstrate your annual growth. If your volume is large enough for the payment processors to negotiate with their suppliers, they may offer you a discount. You can review your rates and fees regularly as your company grows. The increased volume may entitle you to volume discounts. Another pricing model might provide better savings as your circumstances change.

Use an address verification service:

Use an address verification service (AVS) to confirm the cardholder’s billing address. It increases security and lower payment processing costs.

  • During the checkout process, customers enter their addresses.
  • The AVS system checks to see if the information entered matches the registered address in the customer’s file at the issuing bank.
  • After the comparison is complete, the bank will send the merchant an AVS code.
  • The merchant uses the code to decline or complete the transaction.

This anti-fraud system lowers the number of chargebacks or refunds for in-store and online purchases. It is especially advantageous for eCommerce businesses. MasterCard and Visa both support and encourage the use of AVS by all companies.

Hire a processing expert:

It will help if you acknowledge your lack of expertise in payment processing without feeling embarrassed. However, you can consult a contract lawyer, or a credit card processing specialist can provide you with insider knowledge. Every credit card processor gets their rates from Visa, MasterCard, and Discover for the same price. Every credit card processor can resell these rates to various businesses at the same price. Knowing this and utilizing the connections these professionals have built over the years will allow you to negotiate lower rates for your company.

Check your merchant account & terminal setup:

A costly error may result from incorrect terminal or merchant account configuration. For example, choosing the wrong merchant category, transaction type, and frequency of transactions tied to your account can result in higher fees. Moreover, ensure you are not paying for features you do not require. Set up and standardize your account information accurately from the start:

  • Select the appropriate business type, transaction type, and frequency.
  • Set a credit card minimum, such as $10, to avoid high fees for small order values.
  • Include a credit card surcharge, where customers pay the fee for their credit card transaction.

The processing fee is also affected by the settings of your terminals. If the credit card processing rates and fees are high, the long wait time. Here are some cost-cutting measures:

  • To reduce the number of transactions, complete transactions within 24 hours.
  • Rather than every few days or weeks, perform a transaction batch every day.

Note: If you can’t control payment processing fees, then it’s better to take professional help by hiring a contract lawyer.

Conclusion:

Although you can’t avoid paying processing fees, there are ways to minimize this cost. It includes being aware of charges, lowering your risk of fraud, setting up your account and terminal properly, negotiating a better rate with your provider, and consulting an expert. These steps will help you accept payments more smoothly, improve your bottom line, and arrange a better rate.



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