While credit card processing fees are often viewed as an inevitable cost of doing business, they’re not set in stone. Many small business owners can reduce their rates with little to no difficulty.
Transaction type, risk level and contract length are key factors determining a business’s processing rate. Here are some proven strategies for reducing these fees:
The easiest way to save money on processing fees is through negotiation. While many small businesses ignore payment processor fees, negotiating with them can help reduce credit card processing costs and save your business money.
Start by analyzing your processing statement. Then, calculate your average effective rate using the formula (total transaction fee charged / total amount processed). This will give you a clear picture of your current rates and whether there is room to lower your overall processing fees.
While you can’t negotiate interchange fees (the actual cost of the transaction), you may be able to convince your payment processor to lower its markup or other service fees added on top of the interchange rate. For example, if you are on an interchange plus pricing plan and your fee is Interchange + 0.2% + $0.10, getting this down to 0.1% or even 0% will save you 5 cents every time you process a sale.
The most important thing to remember is to approach the conversation with confidence. The more prepared you are, the better your chances of securing the best merchant processing contract terms. Also, consider the length of your contract, as this can impact your ability to reduce rates or cancel your account. The ideal contract will operate monthly and won’t charge an early termination fee.
Streamline Your Process
While the cost of credit card processing fees might not be at the top of most merchants’ minds, it’s an expense that shouldn’t be overlooked. These costs add up quickly, and you can make significant savings by taking a few moments to review your merchant statement regularly.
When you’re looking to streamline your processes and workflow, there are many factors to consider that must be taken into account. To begin with, you must determine what each process costs to carry out – this includes employee time, technology expenditures, and any consulting or training expenses. Once you know how much each process costs, you can start to estimate the potential benefits of streamlining.
You must also understand the potential downsides of streamlining. For example, productivity could drop significantly if employees cannot keep up with the new processes and procedures. In addition, some employees may resist any changes imposed on them.
To minimize these risks, you must communicate with the employees affected by the streamlining and seek their feedback. While some employees might initially resist change, you can help them see the benefits of a streamlined process by proving how it will save them time and improve their overall productivity. Employees will learn to work efficiently within a new and improved process by providing the proper training.
Fraudulent transactions aren’t just costly for your business – they can also drive up credit card processing fees. To prevent chargebacks, you should have clear refund policies and strive to resolve customer disputes promptly. It would help to implement security measures to protect your merchant account. Additionally, you should avoid recurring payments to reduce the risk of fraud. In six trials, researchers discovered that customers see refunds as money already lost, making it less painful to use these funds for another purchase. Participants in the study were more inclined to spend the money received as a product refund than as a bonus, and even more so than they were to spend the money received as an unexpected windfall such as lottery winnings or tax refunds. This is known as “the refund effect.”
While transactional fees may seem small, the numbers start to add up when you combine them with other processing costs like card brand assessments, batch and authorization fees, and monthly gateway or PCI non-compliance costs. In addition, certain types of transactions are more expensive than others, such as online or keyed-in transactions. If your business experiences high levels of fraud, it can cause banks to hike up processing rates and eat into your margins.
The key to reducing credit card processing fees is prevention, which requires you to stay informed about the latest threats and evolving fraud landscapes. By partnering with a trusted payments partner, you can minimize charges while ensuring your business is protected from all angles. This approach differs between addressing fraud before it escalates and cleaning up after it’s too late. For this reason, AI and dynamic data analysis are essential tools for a holistic fraud management strategy. This type of strategy will also save you valuable time and money by enabling you to focus on customer-facing activities instead of spending your time managing payment risks.