How To Offset Or Lower Your Credit Card Processing Fees

The majority of merchants are unaware that they can negotiate a processing agreement. While it won’t always work, it never hurts to ask your processor for a lower rate or a discount on a recurring fee. Many processors will gladly offer some pricing concessions to avoid losing you to a competitor. This is true even with providers that fully disclose their “standard” rates upfront.

One important caveat: interchange fees and other charges set by outside entities like credit card associations and issuing banks are outside of your processor’s control and cannot be lowered through negotiation.

A very common practice among many small business owners is to switch to a less expensive credit card processor. While this can be an effective way to save a significant amount of money on processing costs, be aware that it’s a rather drastic remedy that can actually cost you more money if you don’t plan it carefully.

For a retail business, switching processors can require you to replace all of your current processing hardware at once. eCommerce merchants need to consider whether they’ll still be able to use their current payment gateway, especially if they’ve built up a sizable customer information database.

You’ll want to plan carefully to ensure that switching to a new processor doesn’t disrupt your business operations more than is absolutely necessary.

While many merchants aren’t aware of it, manually entering a customer’s credit card details instead of swiping, dipping, or tapping their card is the least secure — and therefore the most expensive — way to accept a credit card payment. While mail and telephone order businesses have little choice but to use this method, retail businesses should avoid it whenever possible.

Fortunately, the transition to EMV cards has dramatically lowered the chance you’ll be unable to read your customer’s card with your terminal. If you’re using a virtual terminal, we strongly suggest pairing it with a compatible card reader for in-person transactions.

The Address Verification Service (AVS) compares the physical address submitted by a customer with the billing address that’s on file for their credit card, automatically rejecting transactions if there’s a mismatch. While it won’t save you money on a per-transaction basis, it will help protect you from fraudulent transactions that can be very costly.

Essential for eCommerce, AVS is also very helpful for mail and telephone order businesses. Be aware, however, that some credit card processors may charge you as much as $0.10 per transaction for this service.

You should make a point of submitting all your transactions within 24 hours of the sale. Timeliness of submission is a factor in determining which interchange fee will apply to a transaction. Submitting one more than 24 hours after it was approved will usually result in a higher interchange fee being assessed by your processor.

If you’re on a tiered pricing plan, submitting a transaction late will usually result in it being downgraded, meaning you’ll have to pay a higher mid-qualified or unqualified processing rate.

Submitting all of your daily transactions in a single batch at the end of the day is usually the best course of action.

In addition to getting your transactions sent off for processing as soon as possible, it’s also a good practice to submit them in a single batch at the end of the day. Many (but not all) merchant services providers assess a batch fee (usually $0.10/batch) to accept your transactions, making it very expensive to submit them individually.

Check your merchant agreement and your monthly processing statements to see how much you’re really paying in batch fees.

Credit card tokenization is a security method that replaces actual cardholder data with ‘tokens’ that the credit card processing network can decrypt. The use of tokenization provides an additional layer of security for cardholder data and helps to prevent fraud.

With these benefits, tokenized payments are assessed lower interchange fees by the issuing banks than non-tokenized payments. Most providers today offer tokenization at no additional cost, so there’s no reason not to use it.

Note that tokenization requires a payment gateway to function, so it’s generally best for eCommerce businesses or retail businesses that are using an integrated payments platform to process their transactions.

One of the worst ways to unwittingly pay too much for credit card processing is to lease a credit card terminal.

In the payments industry, terminal leasing contracts are typically noncancellable, meaning that you’ll have to pay every remaining monthly lease payment at once if you break your lease. The total cost for a typical four-year leasing contract is often four or five times more expensive than simply buying the equipment outright. The monthly lease payments also add to your effective rate and drive up the overall cost of your merchant account, even if you rarely use your terminal.

There are simply no advantages to leasing your processing hardware; we strongly encourage you to find alternatives to leasing credit card machines.

A convenience fee is added to a sale when the customer pays with a non-preferred payment method, typically a credit or debit card. Convenience fees are usually for a specified, fixed amount and not a percentage of the sale price.

While convenience fees are legal throughout the United States, the rules for implementing them vary widely among the major credit card associations. We recommend that you contact your credit card processor to determine when you can add a convenience fee and how much the fee can be.

Cash discount programs pass your transaction processing fees onto your customers but do so in a roundabout way that makes it much more palatable to them than paying an additional fee directly.

With cash discounting, your advertised prices are raised by the amount necessary to cover the processing costs. If a customer pays with a credit card, they pay the advertised price and nothing more. However, if a customer pays with cash or a debit card, they receive a discount at checkout in the amount of the processing fee that doesn’t need to be paid.

We recommend cash discounting over surcharging, as it is generally well-received by customers and less likely to result in lost sales.

Credit card surcharging has recently enjoyed a surge in popularity among merchants frustrated by the ever-increasing cost of accepting credit cards. Surcharging adds the credit card processing fee onto the bill at the point of sale, so the card-using customer will pay more than the advertised price when they check out.

While it’s legal in almost all US jurisdictions, surcharging requires compliance with a bewildering variety of state laws and credit card association policies. It’s also not very popular with customers and may result in lost sales if your competitors aren’t using it. Nonetheless, it can be a very effective method of offsetting some or all of your credit card processing fees if properly implemented.

Unfortunately, the only way to truly avoid credit card processing fees is to not accept credit or debit cards at all. A better option is to offset those fees by passing them onto your customers through credit card surcharging, a cash discount, or a convenience fee.

Yes, processing fees are negotiable — but only to a certain degree. Because the underlying interchange fees must be paid to the issuing banks and are for a fixed amount, your processor can only offer you lower rates by reducing the amount of markup they charge you for processing your transactions.

As a general rule, processors only offer their lowest per-transaction rates to very high-volume businesses.

Despite competition between Visa, Mastercard, and the other major credit card associations, credit card processing fees have continued to rise in recent years. While the issuing banks frequently cite increased credit card fraud as the primary driver behind rate increases, the lack of a federally-imposed limit on interchange fees is also a major factor.

Processing rates in the United States are nearly twice as high as in European Union countries, where they are capped under EU law.

Credit card fees can be passed onto customers through credit card surcharging, cash discounting, or adding a convenience fee. Each of these methods is subject to a variety of legal limitations and must comply with credit card association policies regarding them.

We recommend cash discounting as the best option for most businesses, as it is subject to fewer legal restrictions, is easy to implement, and is generally better received by consumers.