Credit card processing fees are a necessary cost of doing business. With each swipe of a card, a fee is charged, which doesn’t break your profits on each individual transaction. However, the fees can mount up over the course of month and become a significant business expense. For a fledgling business, every cent counts towards profitability, so it is important to reduce your processing costs.
Understanding Your Processing Costs
The card processing industry contains complicated fee structures that can put small businesses at the mercy of their merchant services providers. It is important to understand the fee structure and how all of the parties share in it to create your end cost.
The wholesale rate at which fees are charged, also known as interchange fees, are not secret. They are published for all to see, but the card processors won’t tell you that. These fees, which account for about three-quarters of the total cost of processing, are fixed for all credit card processors, so they can’t be negotiated.
Card network providers such as Visa and MasterCard charge assessment fees which comprise about 3 to 5% of the processing expense. They are also not negotiable.
The card processor makes its money primarily on the markup over and above the interchange and assessment fees. This is where you may have some negotiating room, depending on your sales volume and your willingness to push the issue. The markup of the more competitive processors is somewhere between 15 and 20% of the total processing costs. The markup becomes your true basis for comparing card processors. However, it is also important to know how the processor charges a markup fee. Often, they bundle their fee with the interchange and assessment fee, which can result in a higher overall fee expense to you.
Three Steps to Lower Processing Costs
Whether you are new to card processing or intent on lowering your processing costs, these are three steps to follow when selecting a card processor:
Ask for interchange plus pricing. This makes all of the charges more transparent, because the interchange and assessment fees are charged directly to you, and the processor’s markup is charged separately. This way, you know the actual breakdown of the fee structure, and you are more likely to see a lower overall fee expense. It also provides a more accurate way to compare the fee pricing among different processors.
Don’t just focus on the rate or fee. Consider the overall cost when comparing processors.
Ask the card processor to waive the cancellation fee. The cancellation fee has become an unnecessary add-on that most processors will gladly waive to get or keep your business.
Make sure you get everything in writing. Promises don’t count until they show up in black and white and they are reflected in your monthly statements.