Reducing Credit Card Processing Costs

Tips on how to lower your credit card processing costs and fees

Understanding processing costs and fees  


When you start accepting credit cards in your business, you’ll pay fees for everything from setup and application to processing and customer service. But no two providers charge the same. One vendor may advertise a low rate but charge more for service items. Another may charge for setup and administration but waive their fees on other services. That’s why it’s so important to find the right merchant service provider for your business.

As you look for a provider, remember  


1. Don't be fooled by low pricing. A rock-bottom rate isn't worth unreliable service.


2.  Choosing an integrated payment solution can save you time and money by reducing duplicate data entry and errors.


3. Understand all the fees involved and read the fine print before signing any vendor contract or application.


4. Learn about the different types of processing rates and find out whether the provider charges for terminating your contract.


5. Choose a provider that will work with you to help grow your business.


By learning how to reduce your processing costs, you can get more out of credit card processing without breaking the bank. (For those trying to understand what credit card processing is all about, read this page).


Set up the right merchant account  


The first step in accepting credit card payments is to set up your merchant account. To get the best rates and service, choose the account type that’s most appropriate for your type and volume of business. Each account type has its own rate and qualification requirements.


Before you select an account, do your research. Asking the right questions about costs today can save you time and money later. For example, some providers charge a non-refundable application fee. Look for a provider that doesn't charge this fee, or ask if it can be waived.


While you’re comparison shopping, ask providers:


1. What are your non-qualified rates? (These may or may not be published).


2. What are your monthly fees?


3. What are your monthly minimums?


4. Are there any contracts or cancellation fees?


The biggest upfront costs are setup, equipment, and software. A variety of terminals are available and range in price depending on their printing and connection functionality.


1. Don't pay extra for terminal functions you’ll never use.


2. Use processing software instead of a terminal if all your business is done online and over the phone.


3. Ask your provider if it can reprogram your existing terminal.


4. Be cautious about leasing a terminal to lower your monthly costs. High cancellation fees and long-term contracts will likely cost you more in the long run.

Credit Card Processing Rates and Fees  




Most of your costs will be transaction processing fees. Your rate per transaction is determined by your personal and business risk, percentage of card-absent sales, average dollar amount per sale, and total dollar amount of monthly sales. Lowering your transaction risk will also lower the rate you pay.

To get the best rate for the way you conduct business, be sure you understand the rates and qualifications around each type of sale.


Qualified rate is the percentage rate that's charged whenever you accept and process a regular card using an approved processing solution. This is usually the lowest rate you can receive, and it’s often what you’ll be quoted when you inquire about rates.


Mid-qualified rate is the percentage rate that's charged if you accept and process a card that doesn’t qualify for the lowest rate. This may happen when you manually key a card into a terminal instead of swiping it, or if a rewards or business card is being used.


Non-qualified rate is the percentage rate that's charged whenever you accept and process a card that doesn’t qualify for either qualified or mid-qualified rates. This may happen when a card is manually keyed into a terminal versus being swiped, address verification isn't performed, information is missing, or the authorization is not settled within the allotted time frame (usually 48 hours).


A rate increase, otherwise known as a downgrade, occurs when your transactions don’t meet the requirements for the lowest or qualified rate. To mitigate the number of downgrades you receive, make sure your transactions meet the qualification requirements to get you the lowest rate available for every transaction. Train your staff to do the same. Secondly, train closing and opening staff on how to audit transactions totals for errors and close out daily credit card transactions at the end of each day.


Batching means settling the charges to your terminal by sending the completed transactions for the day to the acquiring bank for payment. To make sure you get the best possible rate on all your daily transactions, you must "batch out" within 24 hours. If you don’t, you may raise the risk of dispute and cause your transactions to be downgraded. Remember that dial-up connections are prone to dropped lines and duplicate charges.





The interchange fee is a percentage of the transaction and helps to cover authorization costs, fraud, and credit losses. Most merchant service providers include the interchange fee in their bundled rate, which makes it more difficult to identify specific rates. Ask your provider if you can pay the interchange fee as it is incurred. This will prevent you from paying more than you need to and help you keep better track of your transaction costs.


A chargeback occurs when the cardholder disputes a transaction and it's returned to the acquiring bank. If you don’t respond promptly to a chargeback inquiry, you may have to pay a timeliness fee or lose the entire sale. Be sure to ask your prospective provider how it deals with chargebacks and what costs are involved.

Not all cards are created equal  


Certain credit cards cost more to process than others. It's up to you to choose what works best for your business. To help offset the cost of processing more expensive card types, make sure your transactions meet as many of the qualifying requirements as possible.

Debit cards have grown in popularity. They often serve as both a check and a debit card. Deciding whether to process a charge as online or offline can make a difference in your rates. Please keep in mind the following:


1. Online transactions get processed through the credit card interchange and are charged at an online (non-qualified) rate.


2. Offline transactions get processed through the debit network and are charged a flat per-transaction fee.


3. Reduce your costs by processing low-cost items at the offline rate and larger items at the online rate.

Service without the cost  


Be wary of merchant service providers that charge you a fee for contacting customer service. If your system isn't working, you should be able to get help without paying extra for it. This is different from providers that charge for premium services. Other items for which you may be charged include printed account statements, account updates, monthly minimums or maximums, and service cancellations.

Other operational fees 


Many operational fees are bundled or "hidden" within other charges. Most of these charges are a part of your transactions. They simply reflect the cost of doing business.  


1. Communications fees cover the Internet costs of moving the transaction from the merchant to the processor. Dial-up transmission costs more to cover the processor's maintenance of toll-free phone circuits and modems.


 2. Address and voice authorization verifications reduce your fraud risk and can help you avoid a rate downgrade.

It's all in the details  


There’s no avoiding it: if you accept credit and debit cards, you’ll have to pay fees. Your best defense against hidden costs and unnecessary downgrades is to keep accurate records of your processing costs. Audit your records regularly to build your own benchmarks and evaluate the cost-effectiveness of your business rules and practices. Based on this data, you can continue to optimize the way you do business. Just remember that accepting credit cards should help—not hurt—your bottom line.


If you are ready to explore further, QuickBooks Payments offers payment solutions that allow businesses to process credit/debit card payments on mobile phones or tablets, as well as accept ACH bank transfers and checks. Visit this page to find out more details and pricing.