Customers expect the ability to pay with their desired payment method, and that includes using their credit card. As a merchant, allowing your customers to pay with credit cards can be incredibly beneficial as studies have shown customers tend to spend more when using credit cards compared to cash or debit cards. However, for merchants, offering the convenience of accepting credit cards comes at a price. Processing fees can add up quickly and carve into profit margins if they have not been accounted for in your pricing model.
The good news for merchants is that there are ways to reduce credit card processing costs and take more control over payment expenses.
1. Understand Your Credit Card Processing Statement
Credit card statements are often vague, making it challenging for you to understand exactly what you are being charged. Sometimes this is intentional as it allows processors to more easily adjust rates or hide additional fees. By learning how to read and understand what exactly you are being charged each month, you can get a better grasp on which fees may be avoidable.
Below are some examples of added fees that are often avoidable:
- Non-EMV Program/Adjustment Fee: This fee appears when an chip card is swiped at checkout instead of inserted into the terminal. It is easily avoidable by ensuring your business has EMV capable terminals and that cards are inserted rather than swiped.
- Risk Assessment Fee: This fee has been added to help cover the payment processor’s portfolio risk by passing along a fee to each individual merchant.
- PCI Non-Compliance Fee: It is extremely important to complete the annual Payment Card Industry (PCI) certification requirements to ensure the safety of your customers’ sensitive cardholder information. If you are PCI compliant, this fee will not apply, and your customers’ personal credit card information will be better protected.
Read More: PCI Compliance Checklist: Are You Covered?
There are a variety of other unnecessary fees you may be paying to your payment processor. To learn how to spot them, check out our webinar on demand: Finding the Hidden Fees on Your Credit Card Processing Statement.
2. Determine Your Pricing Model
Your pricing model directly affects the total cost you pay to your processor. Here are some of the most common pricing models:
- Interchange-Plus Pricing: You pay the interchange rate (this is set by card brand networks) plus a set markup by your processor. This pricing model offers the most transparency.
- Bundled Pricing: The interchange rates and the processor fees are combined and the processor determines which “rate bucket” a given transaction will fall into. This can lead to overpaying to process transactions that may qualify for lower rates.
- Flat-Rate Pricing: This model has one fixed rate for all credit card transactions. This can be convenient for small businesses but might not be the lowest overall cost.
Look at your credit card statements or talk with your current processor to determine which pricing model you have. This is important because pricing that may have been right for your business at one time may not be the best suited for your business today.
3. Reduce Chargebacks and Fraud
A chargeback occurs when a customer disputes a transaction on their credit card and asks the for the payment to be reversed. Typically, this happens when there is an issue with the charge such as a fraudulent transaction, a mistaken or unrecognized charge, or not receiving the goods or services that were paid for.
When a chargeback occurs, merchants lose the original sale amount, and many do not recover the item or service that was delivered.
Related Content: How to Protect Your Business From Costly Chargebacks
4. Pass Processing Fees to Customers (When Appropriate)
In essence, a surcharge is added to the total bill of credit card-paying customers to offset processing fees. It is capped at three percent and can only be applied to credit card transactions. It is monitored by the card brands, and there are hefty fines if surcharging is not handled properly. So work closely with your payment processor to ensure you comply with local laws and card network rules before implementing this option.
Please be careful when deciding to surcharge. Depending on your type of business, credit card customers spend 4x more than cash buyers. Motivating those shoppers to pay with cash may save on processing costs but it also may inadvertently impact how much they buy.
Read More: Are Credit Card Surcharges Legal? Yes, and Here’s How to Do It Right
5. Minimize Downgraded Transactions
A credit card processing “downgrade” refers to a situation where a credit card transaction fails to meet the specific criteria for its intended, lower-cost interchange category and in turn, is moved to a more expensive interchange category. This means that the merchant ends up paying a higher fee for that transaction. To avoid this:
- Make sure customers always tap, dip or swipe the card rather than typing in the credit card number.
- Settle your transactions daily.
- Ensure your payment terminals are up to date and EMV-compliant.
The fewer manual entries and delayed settlements, the fewer downgrades and the less you end up paying.
6. Take Advantage of Lower Interchange Rates in Return for Passing More Data
Merchants who process B2B transactions can see significant cost savings by passing along Level 2 and 3 processing data. The card brands reward merchants who provide more detailed transaction information with lower interchange fees as this tends to lower the perceived risk.
Passing along Level 3 data can result in savings up to 1% more per transaction, which for B2B businesses that handle large volume transactions, this can translate into thousands of dollars in savings per month.
Don’t Pay More Than You Have To
Credit card processing is a necessary business expense, but you don’t have to overpay. If you are not sure whether you’re getting a fair shake on your credit card processing costs, click here for a free statement analysis. It can’t hurt, and you just might find ways to save some money.
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