How to Lower Credit Card Processing Fees for Your Small Business
Credit card processing is essential for most small businesses, but that doesn’t mean you should be paying more than necessary to accept payments.
Between interchange rates, processor markups, monthly charges, transaction fees, and other costs, credit card processing fees can quickly eat into your profit margins. For a business processing tens or hundreds of thousands of dollars in card payments each year, even a small reduction in processing costs can add up to significant savings.
The good news is that business owners have options.
Understanding how payment processing works—and knowing what to look for in a payment processing provider—can help you identify unnecessary expenses and potentially lower your credit card processing fees.
Here are some of the most important places to start.
1. Understand What You’re Actually Paying
The first step toward lowering credit card processing fees is understanding your current costs.
Your merchant processing statement may contain several different types of charges, including:
- Interchange fees
- Card network assessments
- Processor markups
- Per-transaction fees
- Monthly account fees
- PCI compliance fees
- Equipment or terminal fees
- Other service or administrative fees
Some of these costs are associated with the card networks and issuing banks, while others may come from your payment processor.
Instead of focusing only on the advertised processing rate, look at your total processing cost compared with your total card sales.
If you’re not sure what you’re paying or whether your current pricing is competitive, contact Cobalt Payments to schedule a call and discuss your current payment processing setup.
2. Review Your Merchant Processing Statement
Merchant statements can be confusing, which can make it difficult for business owners to determine exactly how much they’re paying.
Take the time to review your statements for charges you don’t recognize or understand.
Pay particular attention to recurring monthly fees, processor markups, equipment charges, and other costs that may be increasing your effective processing rate.
You should also compare several months of statements. Processing costs can fluctuate based on factors such as transaction volume, card type, and how customers pay.
Understanding these patterns gives you a much better starting point when evaluating whether another processing solution could save your business money.
3. Understand Your Pricing Model
Not every payment processor prices transactions the same way.
Common pricing structures include flat-rate pricing, tiered pricing, and interchange-plus pricing.
With flat-rate pricing, businesses generally pay the same basic percentage regardless of the underlying interchange cost of a transaction. This can be simple and predictable, but simplicity doesn’t necessarily mean it will be the least expensive option for every business.
Interchange-plus pricing separates the underlying interchange cost from the processor’s markup, potentially giving merchants more visibility into what they’re paying.
Tiered pricing groups transactions into different pricing categories, which can sometimes make it more difficult to understand the true cost of individual transactions.
There isn’t one pricing model that’s automatically best for every business. Your transaction volume, average ticket size, industry, card mix, and payment methods can all affect which option makes the most sense.
4. Compare Payment Processors
Many businesses continue using the same payment processor for years without reviewing their pricing.
That’s convenient, but it can also mean missing opportunities to reduce costs.
As your business grows, the processing arrangement that made sense when you first opened may no longer be the best fit.
When comparing payment processors, don’t look only at the headline processing rate. Consider the entire relationship, including:
- Processor markup
- Transaction fees
- Monthly fees
- Equipment costs
- Contract terms
- Customer support
- Funding speed
- Reporting capabilities
- Integration with your existing systems
The lowest advertised rate isn’t always the lowest overall cost.
Cobalt Payments can help business owners evaluate their payment processing needs and explore options based on their specific business. Schedule a call or demo with Cobalt Payments to learn more.
5. Ask Whether Your Processing Volume Qualifies You for Better Pricing
Processing volume matters.
A business processing $10,000 per month in credit cards has a very different processing profile from one processing $250,000 per month.
If your business has grown significantly since you established your merchant account, it may be worth reviewing your pricing.
Even relatively small differences can become meaningful at higher volumes.
For example, a difference of just 0.25% on $100,000 in monthly card volume equals $250 per month—or $3,000 per year.
That is why periodically reviewing your payment processing costs can be worthwhile.
6. Pay Attention to How Customers Pay
Not every transaction carries the same underlying cost.
Factors that can affect processing costs include:
- Credit vs. debit cards
- Consumer vs. commercial cards
- Rewards and premium cards
- Card-present vs. card-not-present transactions
- Online vs. in-person payments
- How transaction information is entered and transmitted
Businesses with a high percentage of manually entered or online transactions may have a different cost structure than businesses where customers primarily tap, insert, or swipe cards in person.
Understanding your transaction mix can help identify areas where changes to your payment process may reduce costs.
7. Make Sure Your Payment Setup Matches Your Business
Payment processing shouldn’t be a one-size-fits-all product.
A restaurant, retail store, contractor, professional service provider, e-commerce company, and high-volume retailer may all have different payment needs.
The right processing setup should account for how your customers pay, your average transaction amount, monthly processing volume, technology requirements, and industry.
A payment provider that takes the time to understand your business may be able to identify opportunities that aren’t obvious from simply comparing advertised rates.
8. Consider Whether a Cash Discount or Surcharge Program Makes Sense
Depending on your business, location, card-network requirements, and applicable laws, certain programs may allow businesses to offset some of the cost associated with accepting credit cards.
Two commonly discussed approaches are cash discount programs and credit card surcharge programs.
These programs aren’t identical, and businesses need to understand the applicable requirements before implementing either one.
If you’re interested in reducing the impact that processing costs have on your margins, speak with a payment professional about which options may be available and appropriate for your business.
Talk with Cobalt Payments about your options and find out whether a different payment strategy could make sense for your operation.
9. Don’t Choose a Processor Based on Rate Alone
A low processing rate can sound attractive, but payment processing affects much more than the percentage you pay on each transaction.
Consider what happens when you need help.
How quickly can you reach someone? What happens if your terminal stops working during your busiest hours? How quickly are funds deposited? Are the fees clearly explained? Does the technology work with the rest of your business?
Saving money matters, but reliability, transparency, technology, and service matter too.
The goal should be to find the best overall value, not simply the lowest number in an advertisement.
10. Review Your Processing Costs Regularly
Payment processing shouldn’t be something you set up once and never think about again.
Your business changes.
Sales volume increases. Average ticket sizes change. Customers adopt new ways of paying. Technology evolves. Pricing structures change.
Consider reviewing your merchant processing statements periodically and asking a few simple questions:
What am I paying? Why am I paying it? Is my current setup still the right fit for my business?
If you can’t easily answer those questions, it’s probably time for a conversation with your payment provider.
Small Changes in Credit Card Processing Fees Can Create Big Savings
For small businesses operating on tight margins, every expense matters.
Credit card processing may seem like an unavoidable cost of doing business, but that doesn’t mean you shouldn’t examine what you’re paying.
Understanding your merchant statement, evaluating your pricing model, comparing providers, reviewing your transaction mix, and making sure your processing solution fits your business can all help you make better decisions.
And the higher your processing volume becomes, the more important those decisions can be.
If you’re wondering whether your business could be paying less—or simply want a better understanding of your current payment processing costs—Cobalt Payments can help you review your options.
