How to Lower Your Credit Card Processing Costs

5 Tips to Lower Your Credit Card Processing Costs

In Brief: Credit card processing fees can be a significant expense for your business. While you may not have direct control over interchange rates, there are strategies to mitigate processing costs. This article provides five actionable tips to help you lower your credit card processing fees. You’ll learn about the basics of credit card processing fees, discuss strategies for optimizing your transactions, and provide guidance on minimizing unnecessary charges.

We understand that credit card processing costs can be a significant expense for businesses small and large. While merchants may not have direct control over interchange rates set by major credit card networks, there are several strategies to mitigate these costs and maximize savings.

In order to lower your credit card processing costs, the best place to start is to understand the basic components that make up your bill. These elements are made up of card band fees and payment processor fees.

Card brand fees are set by the major credit card networks and represent approximately 80% of what you pay. These include hundreds of interchange rates based on a host of different variables such as the type of merchant you are, the type of credit card being used by the customer, and whether or not the card is present at point of purchase.
These rates are not negotiable. That said, you still may be able to lower your credit card processing costs by qualifying for a reduced interchange rate.

1. Pass Level 2 or Level 3 Data in the Transaction

Credit card transactions are categorized into three levels based on the amount of data transmitted during processing. Level 1 transactions, the most common, involve basic consumer and commercial card information. Level 2 and Level 3 transactions, however, require additional details such as tax amounts, product codes, and more. By providing this extra information, merchants will qualify for lower interchange rates from the credit card companies. Your payment processor should be helping you do this.

2. Optimize Card-Not-Present Transactions

Card-not-present (CNP) transactions, such as online or phone orders, often carry higher interchange rates due to the increased risk of fraud. To mitigate these costs, you should strive to collect as much data as possible during CNP transactions. This includes information like billing address, CVV code, and order details. By providing more data, you are essentially sending a signal to the credit card companies that the transaction is less likely to be fraudulent. This will result in a lower interchange rate for that transaction.

3. Avoid Tiered Pricing Plans

Tiered pricing plans may seem simple and straightforward, but they can often lead to higher processing costs. These plans typically have multiple tiers based on transaction volume or average ticket size. If your transactions fall into a higher tier, you’ll pay a higher processing rate, even if your individual transactions have low interchange fees. Imagine shopping in a grocery store where everything is one of three prices. Sounds simple, but what if you only want to buy a pack of gum? That purchase may end up costing you $10, which is not a very attractive price.

Think about that in terms of tiered pricing for your payment processing. Let’s say someone makes a purchase with a card that carries a 1.65% interchange rate from the credit card company.

The lowest tier in the above example is 1.5%. If your payment provider puts it in the lowest tier, they lose money, which is unlikely to happen. So they bump it to the next tier, 2.5%. As a result, you end up paying way more interchange than is necessary. This is good for your payment processor – not so good for you.

4. Minimize Unnecessary Fees

Many merchants incur additional, unnecessary fees beyond their base payment processing costs. These can include fees such as:

• Non-EMV Fee: Additional fee charged for card-not-present transactions
• Risk Fee: Additional fee charged by the processor to merchants to help the processor mitigate the risk in their entire portfolio
• PCI Non-Compliance Fee: Additional fee for not completing industry security requirements (Annual self-questionnaire & monthly network scans)
• Monthly vs. Daily Discount Fee: Additional fee charged for an industry standard feature

To get a more detailed breakdown of these unnecessary fees, watch our webinar “Decoding Merchant Services Statements and Payment Processing Fees”.

5. Consider Surcharging Strategically

Surcharging, the practice of passing the credit card processing fee to your customers, can be a viable option for offsetting processing costs. However, it’s essential to carefully consider the full impact this can have on your business. Customers who pay by credit card tend to spend more. If they shift to cash or check to avoid the surcharge, they may actually spend less. Also, you must consider how your customers will react to a surcharge. Customer satisfaction is important to any business.

Lastly, some states have restrictions on surcharging, so you’ll want to confirm what those are before implementing a surcharge program.

Working with Your Payment Processor

In addition to the tips outlined above, it’s essential to maintain a strong relationship with your payment processor. They can provide valuable insights and assist with compliance efforts. Regularly review your processing statements to discuss potential cost-saving measures with your processor.

If your current processor isn’t open to helping you reduce your costs or if you can’t even reach your processor to schedule a conversation, feel free to reach out directly to me. Wind River offers a free statement analysis to see where you may be able to save some money. After all, it can’t hurt and it may result in lowering your credit card processing costs.

By understanding the intricacies of credit card processing and implementing these tips, you can better control your payment processing expenses and drive greater profitability.