Credit card processing fees can quickly eat into your profit margins if not managed carefully. Fractions of a percent might not seem like much on a contract you sign with a merchant service provider, but those pennies add up.
Businesses pay a processing fee of 1.5% to 3.5% for each transaction. If your total annual sales are $500,000, a 2% rate comes to $10,000 in processing fees. With a 1.5% rate, the amount changes to $7,500, saving you a few thousand by just lowering your fee down by 0.5%.
Fortunately, there are several strategies that can help reduce credit card processing fees, allowing you to retain more of your hard-earned revenue. Here are eight simple tips for lowering your credit card processing fees in 2024.
Strategies to Lower Your Retail Credit Card Processing Fees
1. Understand Your Current Fees
The first step in reducing your credit card processing fees is knowing exactly what you’re paying for. Many merchants sign up for credit card processing without fully understanding the various charges involved. Here are some key terms to familiarize yourself with:
- Interchange Fees: These are the fees charged by card networks (e.g., Visa, MasterCard) and are typically non-negotiable. They vary depending on the card type, transaction type, and merchant industry.
- Processing Fees: These are the fees the payment processor charges for handling your transactions.
- Assessment Fees: These are the fees charged by the card networks themselves and are also non-negotiable.
By reviewing your monthly statements carefully and breaking down the costs, you’ll have a clear understanding of where your money is going and can start identifying areas where savings are possible. Check out the following guide to learn about some of the cheapest credit card processing solutions.
Action Step:
- Request a detailed breakdown of your fees from your processor.
- Look for hidden or unnecessary charges that may be increasing your costs.
Find out how much you’re spending.
2. Negotiate with Your Payment Processor
One of the most direct ways to lower your credit card processing fees is by negotiating with your payment processor. The processing fees are not set in stone and can be negotiated depending on the size of your business, transaction volume, and relationship with the processor.
Payment processors are often willing to lower their rates for long-term customers or businesses with high transaction volumes. If you feel that you’re paying too much, don’t be afraid to ask for a better deal.
Compare offers from multiple processors to use as leverage during negotiations. Take a look at our Clover vs. Square fees list to see how these two processors compare.
Action Step:
- Gather quotes from competing processors.
- Contact your current provider to negotiate better terms or ask for a rate review based on your transaction history.
3. Don’t Combine Your Processor With Your Point of Sale Provider or Bank
Many POS solutions also include a processing agreement. While merging these two major business operations into one service and price is convenient, this will almost certainly keep your processing rates higher than needed.
Points of sale solutions that come with a processing agreement leave businesses with no choice for processing agreements. The rates are fixed, and the lack of choice means that there is less room for negotiation.
Moreover, they often keep businesses bound to long-term contracts through their processing services. The POS software may not have any binding contract, but if the processing does, SMBs are still stuck in an unfavorable position.
Banks, too, cannot provide the lowest processing rates. Usually, banks outsource the processing to third parties. Adding another cog in the wheel will undoubtedly mean higher prices. Keep it simple by working directly with your merchant service provider.
If you’re looking for some processing-agnostic POS systems, check out our guide about the best POS system without changing credit card processing requirements.
Action Step:
- Research and choose a POS system that allows for multiple processor integrations.
- Compare payment processors independently to find the best rates, ensuring your POS system can easily integrate with any chosen provider.
- Regularly review your payment processor contracts and rates to ensure you’re getting the best possible deal without changing your POS setup.
Are payment processors
giving you trouble?
We won’t. KORONA POS is not a payment processor, so we’ll always find the best payment provider for your business’s needs.
4. Optimize Transaction Methods
Certain types of transactions incur higher fees than others. For instance, card-not-present transactions, such as online or phone orders, tend to have higher fees than card-present transactions, where the customer physically swipes or taps their card.
Additionally, certain types of cards, such as premium or rewards cards, come with higher interchange fees. Encouraging customers to use debit cards instead of credit cards or steering them toward regular credit cards (instead of high-reward ones) can help lower your overall fees.
Action Step:
- Encourage customers to use debit cards or card-present payment methods when possible.
- Offer incentives for in-person payments or for using lower-fee payment methods.
5. Reduce Chargebacks and Fraud
It’s important that every business take any precautionary measures against retail fraud. Chargebacks can significantly increase your processing fees and damage your relationship with your payment processor. Below are some fraud protection methods to highlight when negotiating your rates:
- Follow all PCI Compliance rules
- Require a CVV with every card-not-present (CNP) purchase
- Keep purchase histories for a long period of time and save receipts
- Require signatures for delivered orders
- Enter the ZIP code for the billing address
- Avoid keyed transactions
- Make return policies clear
- Get EMV card readers and eliminate all swiped transactions
High chargeback rates often lead to higher fees and even the possibility of losing your merchant account. To reduce chargebacks and fraud:
- Use advanced fraud detection tools, such as AVS (Address Verification System) and CVV (Card Verification Value). AVS is a system that further reduces your risk of credit card fraud and chargebacks. This process simply verifies the cardholder’s billing address with the issuing bank tied to the card. The address entered must match the address that the shopper’s bank has on file, or the transaction will automatically be canceled.
- Clearly communicate your refund and return policies to avoid disputes.
- Ensure that your website security and payment gateways are up to date.
Action Step:
- Invest in fraud prevention tools and educate staff on chargeback prevention.
- Monitor chargeback reports regularly to identify trends and address issues promptly.
6. Leverage Technology to Minimize Costs
Payment technology continues to evolve. Solutions like Payment Facilitators (PayFacs) and ISO processors (Independent Sales Organizations) are offering more flexible pricing structures. PayFacs aggregate smaller merchants under one platform, allowing you to benefit from lower fees typically reserved for larger businesses.
In addition, depending on your provider, digital wallets like Apple Pay, Google Pay, and contactless payments may incur lower fees than traditional credit card transactions. These payment methods also reduce fraud risk, leading to savings over time.
Action Step:
- Research PayFac and ISO processor options to see if switching could save you money.
- Promote the use of digital wallets and contactless payments to lower transaction costs.
7. Consolidate Payment Processing Services
You may incur additional fees if you use different vendors for online payments, in-store payments, and other types of transactions. Consolidating all your payment processing needs under a single provider can streamline your services and reduce fees.
For example, when you use a single provider for both online and in-person payments, you may be able to negotiate volume discounts. Additionally, integrated systems simplify reporting, reconciliation, and customer service interactions, saving you time and reducing errors.
Action Step:
- Look for payment processors that offer both online and offline solutions to consolidate your services. You need a POS credit card processing that accepts online and in-store credit card payments.
- Compare the costs of consolidating services with a single provider vs. multiple vendors.
8. Avoid Long-Term Contracts With Early Termination Fees
Many payment processors try to lock merchants into long-term contracts with hefty early termination fees. More payment providers are offering month-to-month contracts with no termination fees, giving you more flexibility.
Avoid signing long-term contracts unless you are confident that the provider offers the best possible rates and services. Early termination fees can be a significant burden if you find a better deal elsewhere or if your business needs to change.
Action Step:
- Choose a processor with flexible, month-to-month contracts.
- If you’re in a contract, check your termination fees and consider switching when the contract ends.
Learn more about how credit card processing works and save your business money in this free eGuide.
9. Regularly Review Your Statements
Processing fees can fluctuate over time, so it’s important to regularly review your statements and keep track of any fee increases. Some processors may add or adjust new fees without clearly notifying you, leading to unexpected cost increases.
By reviewing your statements every month, you can catch these changes early and take action to avoid overpaying. You can also spot fraudulent or erroneous charges, which can add up over time if not addressed.
Action Step:
- Set aside time each month to review your processing statements.
- Reach out to your processor if you notice any discrepancies or sudden increases.
10. Consider a Surcharge or Cash Discount Program
While this option may not work for all businesses, some merchants choose to offset processing fees by implementing a surcharge on credit card transactions or offering a discount to customers who pay with cash.
Be sure to check state and local regulations regarding surcharging, as some areas have restrictions. A cash discount program incentivizes customers to pay with cash, eliminating transaction processing fees. Alternatively, adding a small surcharge to credit card payments can help cover the cost of processing without impacting your margins.
Action Step:
- Research local laws regarding surcharges and cash discount programs.
- Clearly communicate any surcharges or discounts to customers to avoid confusion.
11. Settle Transactions Quickly
Merchants must settle or batch transactions after a certain time period. Batching means consolidating a group of transactions that occurred over a certain time period and submitting them to the bank to be processed. The money will then be withdrawn from the issuing bank and transferred to the receiving bank.
In order to complete this, you must manually tell your POS system payment terminal to complete the task or set it up to be done manually. Manual batching is better since it can be timed to be done each night and leaves less room for human error.
Ensure your point of sale can be set to complete batching automatically. Not only will you receive cash for your sales more quickly, but more frequent settling of credit cards will lower your processing rates.
Action Step:
- Set your POS system to automatically settle or batch transactions at each business day’s end.
- If you prefer manual batching, ensure it’s done consistently at the same time each day to avoid errors and delays.
- Monitor your settlement schedule regularly to ensure that transactions are processed on time, reducing your processing rates and ensuring timely payments.
Glossary of Terms For Credit Card Processing
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 a few of the major contributors below:
Assessment Fees
These fees are set by the credit card company and vary slightly within each network. They are also typically slightly higher for credit transactions than debit. Assessment fees also include a fixed monthly network rate as a sort of subscription fee.
Interchange Fees
Your interchange rate is the vast majority of your total fee paid for each transaction. These vary the most and can be reduced (though never eliminated) by strict credit card policies. Some factors that determine interchange rates include cards present/not present, high rewards cards, business or corporate cards, and keyed/swiped/inserted transactions. These rates vary between networks, but oversight committees are cracking down on outrageous rates across the world. The EU recently issued broad caps on interchange rates set by the major card networks.
Processor Fees
Of course, the merchant service provider must also receive compensation for its role in this process. This rate varies between companies and can be negotiable based on transaction volume and business security/fraud protection measures. More on that below.
Merchant Account
A special bank account that enables businesses to accept credit card payments. It acts as an intermediary between the merchant and the card networks, ensuring that funds from customer transactions are securely transferred to the merchant’s bank.
Payment Gateway
A technology that securely transmits credit card information from a merchant’s website to the credit card processor. It bridges the point of sale and the payment processor, ensuring transaction data is encrypted and transferred safely.
Batching
Batching is the process of grouping all completed credit card transactions from a specific period (usually a day) and submitting them to the payment processor for settlement. It helps merchants receive funds efficiently and ensures accurate processing.
Chargeback
A reversal of a credit card transaction initiated by the cardholder or issuing bank due to disputes such as fraud, product issues, or billing errors. Merchants may face penalties or fees when chargebacks occur and must provide evidence to contest them.
PCI Compliance
Short for Payment Card Industry Data Security Standards (PCI DSS), PCI compliance refers to a set of regulations that businesses must follow to handle, process, and store credit card data securely, reducing the risk of fraud and data breaches.
Credit Card Terminal
A physical device used by merchants to accept credit and debit card payments. Modern terminals often support multiple payment methods, including chip cards, magnetic stripes, and contactless (NFC) payments like mobile wallets.
NFC (Near Field Communication)
NFC is a wireless technology that allows short-range communication between devices, such as mobile phones and payment terminals. It is commonly used for contactless payments, where customers can tap their card or phone to complete a transaction.
Credit Card Processing Fees of Major Credit Cards Network
Card Network |
Average Interchange Fees | Assessment Fees |
Visa | 1.4%-2.5% | 0.14% |
Mastercard | 1.5%-2.6% | 0.13% |
American Express | 2.3%-3.5% | 0.165% |
Discover | 1.55%-2.5% | 0.14% |
Is it Possible to Get Rid of Credit Card Processing Fees Completely?
Getting rid of credit card processing fees entirely is generally not possible for most businesses that accept credit card payments. However, there are some strategies that can help minimize these fees:
- Surcharge programs (with limitations): With these, you pass the processing fee onto the customer who chooses credit cards. This can incentivize cash payments but requires compliance with regulations and may not be popular with all customers.
- Offer cash discounts: Instead of surcharging credit card users, businesses can offer discounts to customers who pay with cash or debit cards, which typically have lower processing fees.
- Negotiate with processors: Businesses can negotiate with credit card processing companies for lower rates, especially if they have a strong sales volume or are willing to commit to a long-term contract.
- Choose the right processor: Research and compare different processors to find one that offers competitive rates and transparent fee structures. Nowadays, most retail POS systems provide their own payment processors. However, a few POS solutions, like KORONA POS, are processing-agnostic, meaning they can integrate with any payment processing solution.
Are payment processors
giving you trouble?
We won’t. KORONA POS is not a payment processor. That means we’ll always find the best payment provider for your business’s needs.
Frequently Asked Questions: Reducing credit card processing fees
Can you negotiate credit card processing fees?
The short answer is yes! Credit card processing fees consist of many different factors that add up to your final rate. Many of these are non-negotiable flat rates, but some can be adjusted. The fee that goes directly to the processing company itself is the most common subject of negotiation since this is directly controlled by the merchant service company.
What are some ways to lower my credit card processing rate?
There are several ways to lower your processing rates, including getting bundled plans, reducing your risk of credit card fraud, setting up address verification services on eCommerce sites, adding minimum transaction amounts for credit/debit purchases, setting and batching transactions often, and keep your processing separate from your point of sale. Simple changes can save retailers thousands of dollars in processing rates each year.
What is the average credit card processing rate?
Processing rates vary greatly, so determining an average amount is difficult. The average rate for a typical small—to medium-sized retail enterprise is about 2%- 2.5%. Remember, if your business processes a lot of sales, even lowering the rate by a fraction of one percent can put thousands of dollars back into your pocket.
What options do businesses have for credit card processing?
There are thousands of different merchant service solutions out there. Largely, they perform the same tasks at similar rates. The most important thing for businesses to have when it comes to processing is choice. When you are stuck with only one or two options, processors will likely have higher rates due to the lack of competition. Look for POS systems without a locked-in processing agreement so you can shop around for the best solution for your store. For instance, businesses with a high volume of low average transaction values will require a far different solution than those with few transactions but a much higher average value.
Why are credit card processing fees so high?
Credit card processing fees are high due to various factors, including transaction complexity, the involvement of multiple parties (banks, card networks, payment processors), fraud prevention costs, and the need for technology and infrastructure to ensure secure, fast, and reliable payments. Each party takes a percentage, leading to higher overall fees.
How to Lower Credit Card Processing Fees: Wrapping Up
Reducing credit card processing fees in 2024 requires a proactive approach. You can significantly lower your costs by understanding your fees, negotiating with processors, optimizing transaction methods, and using the latest payment technology.
Regularly reviewing your statements and exploring flexible pricing models can also help you maintain control over your expenses. Implementing these strategies can make a tangible difference in your profit margins, allowing you to focus on growing your business.
KORONA POS can also help you choose the right pos payment processor for your business. Click below to get in touch with one of our product specialists.
