Nowadays, an increasing number of customers prefer using credit cards to process payments. This is because it delivers high-end convenience and is more secure than cash. Retailers accepting credit card payments and online payments are expected to pay a specific fee for different transactions. This is referred to as the payment processing or credit card processing fees.
The fee for credit card processing of a particular transaction will be a smaller portion of the respective transaction value. However, when all transactions are combined, the total amount of processing fees can be quite large. Moreover, when monthly fee is also included, along with assessment fee and authorization costs, the total monthly amount you are required to pay for credit card processing an be substantial. Therefore, you should be aware of the right ways to minimize your credit card processing fees.
What is Credit Card Processing Fee?
Payment processing or credit card processing fee is the amount that payment service providers will charge out of store owners towards processing the payments out of the customers. The cost is known to cover the fees for:
- Card network
- Issuer of the card
- Payment processor
The online payment processing fees comprise of the following types of fees:
- Interchange fees
- Assessment fees
- Payment processor markup fees
- Incidental fees
- Account service fees
Factors Determining the Credit Card Processing Fee
The total amount of credit card processing fees will depend on different factors, like:
- Business Type: Payment processors will usually apply different rates for credit card processing for different types of businesses. It would ultimately depend on the MCC or Merchant Category Code like travel, fuel, retail, and supermarket.
- B2B Businesses: Usually, B2B organizations -like government suppliers or large-volume businesses are able to receive Level 2 & Level 3 processing for reduced rates for credit card processing. However, this type of discount will not be applicable for organizations having physical terminals or conventional e-commerce.
- High-risk Businesses: The payment processor can categorize your business as high-risk due to the type of products or services you are promoting, or possessing higher chargeback history. In this case, you are expected to open a proper account dedicated for high-risk merchants. It will only add up to the overall payment processing fees.
- Transaction Type: Transactions that are of the type card-present (hovering chip or NFC or swiping cards at POS terminals) feature reduced payment processing fees. On the other hand, card-not-present transactions (like telephone or online orders) will have a higher payment processing fee. The higher the risk, the higher will be the price.
Top Ways to Minimize Credit Card Processing Fees for Your Business
As we step into the new year, it is the perfect time to come across long-term solutions to minimize the overall costs of your business. A profitable place to start with, while not compromising the overall customer experience, is by going through the credit card processing solution along with the associated fees. Here are some effective ways to minimize credit card processing and other online payment fees for your business:
Selecting the Right Pricing Models
On a general basis, most of the payment service providers will offer your business three primary pricing plans. For all the cases, there is no best option. It will ultimately depend on the type of transaction, the respective growth of your business, and the overall volume when you wish to select the right pricing model.
- Blended or flat rate pricing: Irrespective of the card type of the customers, you are expected to pay a fixed fee for every transaction. The fee structure will make a transparent, affordable, and reasonable budget. Therefore, it serves to be an effective choice for small-scale or startup businesses.
- Membership or Subscription Pricing: In this case, merchants are only expected to pay a flat monthly rate. The flat monthly fee will be covering interchange and assessment fees as well. For markup fee, you are expected to pay around 5 to 10 cents on every transaction. This model serves to be a great option for growing and small-scale businesses.
- Cost-plus or Interchange-plus Pricing: This pricing model will feature two parts -the interchange fee as set by the respective card network or the markup decided by the credit card processor. You can consider choosing the payment of a flat markup rate by some fixed percentage or amount. It is well-suited for most companies while delivering the ease of budgeting options for large-scale businesses.
By understanding different types of pricing models for online payment processing, here are some considerations:
- Flat-rate pricing is a suitable option for small-sized retail. However, it is not a great solution for a higher number of transactions.
- SMEs having higher transactions can go forward with the option of interchange-plus or subscription pricing.
Negotiating the Markup Fee with the Payment Processors
While it is not possible to negotiate assessment or interchange fees, the markup fee based on the particular merchant account service provider can be negotiated.
Usually, a higher volume of processing will be available at a reduced rate. When you present your business as a highly-valued merchant featuring higher transaction volumes, it will turn out to be the most effective way to ensure negotiation.
Therefore, you can go ahead with proposing the expected sales in the future while determining your annual growth. The payment processors can eventually provide you with a special discount when your processing volumes will be higher for them to ensure negotiation with the respective suppliers.
The next aspect to negotiate is the calculation of the markup fee. For transactions featuring larger values, the percentage effect will be higher than the flat fee on every transaction.
Minimizing the Risks of Credit Card Frauds
A major part of the payment processing fees is towards covering the overall risks for the payment processor and the issuing bank. When you operate as a high-risk merchant, the payment processors will be charging higher fees for credit card processing. On the other hand, payment processors will go ahead with minimizing the rates when you are able to determine that your business will be less vulnerable to fraudulent activities and credit risk.
It is a great idea to specify some common & effective anti-fraud methods in the negotiation proposal with the credit card processor:
- Requesting a CVV for card-not-present transactions
- Entering the security number for validating the payment and protecting the cardholder
- Swiping credit cards rather than keyed transactions
- Complying with the PCI standards
- Demonstrating a well-defined return & refund policy
- Requesting signatures for orders that are delivered
- Using EMV card readers
- Filling in the ZIP code in the respective billing address
- Saving receipts and maintaining transaction history
- Staying updated with the latest technology while equipping the best POS terminal
This method will not only help in minimizing the credit card processing fees, but it will also minimize the overall risks of retail fraud taking place -delivering less strain on your business.
Using Address Verification Services
To improve the overall security level and minimize credit card processing fees, you can leverage a reliable AVS or Address Verification Service. It will help in verifying the card issuer of the billing address of the cardholder.
- Customers entering their addresses during the process of checking out
- The AVS system is helpful in comparing whether or not the filled-in information tends to match the registered addresses in the file of the customers at the issuing bank
- Upon the completion of the comparison, the bank goes ahead with sending an AVS code to the merchant
- The merchant makes use of the code to complete or decline the transaction
The presence of a reliable anti-fraud system will help in minimizing the rate of the respective chargebacks or even refunds for both online and in-store purchases. It is particularly beneficial for businesses involved in the e-commerce sector. Visa and Mastercard both offer support for AVS while encouraging businesses to start using AVS.
Setting Up Terminal and Merchant Account Effectively
A major portion of credit card processing fees tends to depend on the overall characteristics of the business. Due to this, setting up your merchant account incorrectly and offering incorrect information related to your business will damage the structure of the costs related to online payment processing. At the same time, it will also increase the overall credit card processing fees. You are expected to set up effectively while standardizing your merchant account information -right from the start:
- Selecting the right type of business, frequency, and type of transaction
- Setting a credit card processing minimum -up to $10 for purchases made through credit cards to avoid higher per-transaction fees for orders of a smaller value
- Adding a credit card surcharge -customers are expected to pay the processing fee for the respective credit card transaction
For any type of business, the credit card processing or online payment processing fee is not going to be a smaller expense. Therefore, you should make use of effective tips to minimize the credit card processing fees while generating maximum profits for your business.