Charging For Credit Card Processing Fees – Editor’s note: This article was originally published on June 18, 2019 and has been updated and revised for accuracy and completeness.
We often talk to small business owners who underestimate the importance of finding the best deal for credit card processing. The percentages may not seem like a lot in the contract you sign with a merchant service provider, but these amounts add up. Lighten up. For companies that have more capital, they scale up faster. And these combinations will completely change your line at the end of the year. Therefore, it will be very valuable for business owners to know how to lower their retail credit card transaction fees.
Charging For Credit Card Processing Fees
Typically, the company charges a processing fee of 1.5% to 3.5% per transaction. If your total annual sales are $500,000, a 2% rate comes to $10,000 in handling fees. With a rate of 1.5%, the amount changes to $7,500, which saves a few thousand just by reducing the rate by 0.5%.
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Credit card processors are well aware of how quickly these fees can be charged. And they are also good at selling the deal with favorable terms. For example, Square lowered their rate by a percentage but added a $0.10 fee. This greatly increased the total cost of care. So be careful what you sign up for and how much your business spends each year. There are also very easy ways to reduce your retail transaction fees. Use this money to grow your business instead of wasting it on additional fees and additional expenses.
Simply put, there are a bunch. For a more detailed look, check out our blog on how credit card processing works. But let’s summarize some of the main contributors below:
Assessment Fees: These fees are set by the credit card company and vary slightly between networks. They are also usually higher for credit than debit transactions. The evaluation fee includes a fixed monthly network rate as a type of subscription fee.
Exchange Fees: Your exchange rate is the majority of the total fees you pay for each transaction. These vary widely and can be reduced (though never eliminated) by a strict credit card policy. Some of the factors that determine the exchange rate include cards with/without cards, premium rewards cards, business or corporate cards, and locked/swipe/loaded transactions. Fees vary between networks, but the monitoring committee prevents exorbitant rates around the world. The EU has recently introduced broad restrictions on the exchange rates imposed by the major card networks.
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Processing Fees: Of course, the merchant service provider must also be compensated for their role in this process. This rate varies by company and is negotiable based on sales volume and business security/fraud protection requirements. More on this below.
With some processors, traders have a choice of different structured account types. However, not all credit card processing companies offer this. Go into negotiations with potential credit card processors armed with information about how the process works. They are more likely to offer a good rate.
Exchange Rate: Here, every transaction comes at a predetermined fixed rate. Fees will vary for different types of transactions but will not change over time. For example, your contract may have a small rate for debit, credit and transactions, but these rates remain the same for all transactions of that type. This type of account is easy to understand and is good for businesses that do not have many transactions. For more advanced SMBs, look for other plans.
Interchange-Plus: Perhaps the best accounting plan for many companies out there, interchange-plus boasts more than any other plan. The rate is divided by the basic exchange rate based on the type of card used and additional details on how the card is processed. The additional details are there to show sellers what they are paying, and allow them to change their store policies to lower prices. Interchange-plus rates are more difficult to calculate but allow you to learn what may affect your rate.
Credit Card Processing Fees: How They Work
Tiered: Finally, tiered pricing doesn’t mean much in terms of cost breakdown. The different levels combine the exchange rates for each type of card with each type of transaction at a single rate. A single expense makes it difficult to know exactly what caused the total expense. In addition, this type of plan is difficult to negotiate and is the easiest way for processors to quietly raise rates in some cases.
These plans simplify the process but none of them offer the transparency that many sellers desire. There are many factors that go into your processing rate and it’s important to understand each part if you want to lower your credit card processing fees.
Remember, like you, credit card processing companies are in the business of making money. Of course, this service will never be free. And it’s essential work for 99% of businesses too. But that doesn’t mean you have to pay a lot.
Keep in mind that even if you want to keep costs down, you need to add value to your merchant service provider. One way to use this is to highlight your sales volume. A higher rate usually equals a lower rate. Show evidence of annual growth with projected sales for the coming year.
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It is important that every business takes all measures to protect against commercial fraud. This means keeping up with trends and technology and ensuring your business has the right POS software and technology. Part of your processing fee is miscellaneous insurance, but the processor and issuing bank bear the risk. So if you can show that your business is less at risk of fraudulent activity, the processor will lower the fee. Below are some fraud protection tips to keep in mind when negotiating your rates:
Not only will reducing your chances of becoming a victim of merchant fraud make your life less stressful, but it will also save you money on credit card processing fees.
AVS is a system that further reduces the risk of credit card fraud and chargebacks. This process simply verifies the cardholder’s address with the issuing bank linked to the card. The address entered must match the buyer’s bank address on file or the transaction will be void.
While this method is often used for CNP transactions in eCommerce channels, brick and mortar retailers sometimes require it for in-store purchases. Normally, customers must enter the ZIP code of their accounts. The process is quick and simple, but it adds another important layer of protection against fraud, and gives credit card processors another reason to lower their fees. In fact, VISA has begun to encourage the use of AVS by reducing transaction rates for merchants who use it.
Control The Payment Experience For Your Customers On Your Website
You see this in many retail stores for a reason. Especially the companies that sell high-end products. Here’s why.
Generally, credit card processing fees come as a percentage of the entire sale. And generally, sellers selling cheap items make a small profit per sale. Markups are almost always lower on cheaper products. Therefore, even if the profit is slightly reduced, it may mean that the sale went from profit to loss. If your business thrives on small purchases, consider not accepting credit cards for transactions of a certain amount (usually $5-10). And for transactions where you accept credit cards, follow the other steps in this blog to reduce the entire percentage of transaction fees. You will see the difference by the end of the year.
Some retail SMEs are now making up lost profits through processing fees with credit card processing fees or convenience fees. The law has been loosened, allowing the burden or cost to take care of the client. However, this can mean a drop in business, which is often a bad solution.
First, talk to vendors of marketing software and tools about their sales processing practices. Many POS companies operate as merchant service providers. In these cases, it is important to accurately determine the costs and how to break down their rates. Pay attention to the contract in these cases. They usually don’t lock you into a contract for a POS system but lock you into their processing system. This leaves you stuck even if you’re unhappy with the retail software, and early termination carries expensive penalties.
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Others (like KORONA) integrate with several issuers. In this case, check to see if your POS company can integrate with a processor of your choice and go from there. This allows you to have more freedom in your business activities. It also allows you to better negotiate for lower rates. When different companies are competing for your business, you can get a friendly offer.
Once you’ve settled on a POS provider and credit card processor, set up each terminal with everything you need
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