Nowadays, we live in a society that is increasingly cashless.
In other words, we all want to use our credit or debit cards to pay for things, especially since contactless payments and mobile phone payments were introduced – the simple fact is it’s just easier!
But for a business owner, this also means paying lots of different processing fees whenever a card transaction is carried out by a customer.
These fees, although they may not seem like a lot when you look at the percentages on their own, can eventually add up to costing you quite a bit of money, particularly if you’re a small business. So it is important to figure out something as simple as what to look for when choosing a credit card processing company.
In this guide, we’ll briefly explain what credit card processing fees are and why they’re charged to you, and then we can show you some of the best tips and tricks on how to try and offset your credit card processing fees.
Read on, and we promise it’ll be worth it in the end when you manage to lower your costs!
What Are Credit Card Processing Fees?
Credit card processing fees are the costs that payment service providers charge merchants to process their customer’s payments for them.
These fees go to the card issuer (so the bank that issues the customer’s card), the card network (such as Visa or Mastercard), and the payment processor (a company that manages the credit card transaction process).
The main types of fees that contribute to your credit card processing costs are:
- Interchange fees – these are for managing the transaction from your customer’s bank to your bank and are paid to the customer’s card issuing bank.
- Assessment fees – these are charged by the card network to allow the use of a particular card network and process the card issuer’s transactions on that network
- Payment processor markup fees – these are charged to you by payment processing services like PayPal to cover their operating expenses
There are also other credit card processing fees on top of these, but the ones listed here are usually the ones that will cost you the most when completing a card transaction.
Ways To Offset Credit Card Processing Fees
Below are a few solutions to help you lower your card processing fee costs to make sure you get the most out of your business from a financial standpoint!
Implement A Surcharge
Credit surcharge programs are perhaps the easiest way to avoid paying credit card processing fees.
This actually passes the fees onto the customer, meaning they end up paying them for you – it may sound harsh on the customer, but they do actually have a choice in the matter!
Surcharging only works for credit cards, so the customer can avoid paying the processing fees by using a debit or a prepaid card instead, which means they have the option of avoiding the charges if they wish.
Despite this, many customers will still use a credit card to pay because they continue to be the most popular choice of payment method, especially in the United States and Canada.
So you will definitely reap the benefits if you decide to implement a surcharge.
The only downside to using surcharging as a method to avoid your processing fees is that it’s not allowed in every state in the US, so you’ll have to first make sure it’s available to implement in your state and remember to do your research, so you can comply with the state rules carefully.
Negotiate The Markup Fee With Your Payment Processor
Although the interchange fee and the assessment fee are both non-negotiable, the payment processor markup fee is very much open to negotiation.
Payment processors want to know that you’re a business that will essentially do well and bring in a lot of money.
If you can convince them into thinking this, then they will usually give you a lower rate for the markup fee. At the end of the day, higher sales equals lower fees.
In order to convince them of this fact, you need to put together a graph or spreadsheet of your expected sales figures in the coming years, therefore attempting to demonstrate your annual growth.
If your sales volume is/will be large enough to keep them satisfied, they can potentially offer you a discount, which will be quite a big relief to the costs of your overall credit card processing fees.
Reduce Your Risk Of Credit Card Fraud
One of the most important reasons you pay processing fees is due to the possibility of fraud and the need to cover this risk.
The main two ways of lowering the risk and, therefore, receiving lower processing fees is to provide security information and make face-to-face transactions.
In terms of security information, it is good practice to set up an address verification service in order to verify the cardholder’s billing address.
This means customers will have to give their address during the payment process and if the system says that the address the customer has given matches the address they supplied their bank with, then the merchant will receive a security code from the bank with which they can then accept the transaction.
This may sound like an annoying inconvenience, but it ensures you protect the cardholder, and it also validates the purchase.
And it can really save you and your business some money if you can prove you’re carrying out all the correct anti-fraud practices.
When it comes to making transactions, they can either be made face-to-face, online or over the phone.
Face-to-face transactions are considered to be less risky for merchants, customers, and – most importantly – the issuing banks.
Because of this, the interchange fee costs are lower when a payment is made.
To avoid the high interchange fee costs from customers making online or over the phone purchases, you can perhaps make a business plan which involves attracting and encouraging customers to physically come to your store rather than buy online.
Credit card processing fees are a pain for many businesses and can really add up after every transaction. They can also cost you and your business a lot of money in the long-run.
Unfortunately, though, if you want to carry out card transactions, they’re a necessary evil.
But there are ways to offset some of these processing fees. Whilst some are non-negotiable, others can be negotiated with card processing companies, or you can make a couple of small changes to how you run your business in order to lower the costs of the fees you have to pay.
All in all, if you can figure out how to achieve some little tips laid out in this article, it could make all the difference to your business and your profits!
We have more helpful business insider tips over in our payment processing knowledge base.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.