Reducing Your Credit Card Processing Costs

Choosing the right merchant service provider for your business can be daunting. There are many costs to consider when accepting credit cards, from setup and application to processing and customer service, and no two providers charge the same. Where one vendor may advertise a low rate but charge more for service items, others may charge for setup and administration but waive their fees on other services.

  • Before starting your search, consider the following guidelines for the best results.

    • Don't be fooled by low pricing. A rock-bottom rate isn't worth unreliable service.

    • Choosing an integrated payment solution can save you time and money by reducing duplicate data entry and costly manual errors.

    • Don't be misled by companies that claim no hidden fees. Understand all the fees involved and read the fine print before signing any vendor contract or application.

    • Ensure that you understand the different types of processing rates and whether the provider charges for terminating your contract.

    • Choose a provider who will work with you to facilitate changes and growth in your business.

    Do your research before choosing your vendor. Educate yourself on reducing your processing costs to level the playing field, allowing you to more effectively navigate the world of credit card processing without breaking the bank.

  • Ready, set, get paid

    First, set up your merchant account. There are different accounts for different types of business, each with its own rate and qualification requirements. Choose the account that is appropriate for your type and volume of business and the nature of your transactions to get the best rates and service available.

    Before deciding upon the merchant solution that's right for you, do your research. Asking the right questions about the costs involved before you commit can save you both time and money further down the road. Some providers charge a non-refundable application fee, so look for a provider that doesn't charge, or ask if the fee can be waived.

    Ask the following questions when you're comparison shopping:

    • What are the non-qualified rates? (these may or may not be published)

    • What are the monthly fees?

    • What are the monthly minimums?

    • Are contracts or cancellation fees involved?

    The biggest upfront cost is setup, equipment, and software. A variety of terminals are available and range in price depending on their printing and connection functionality.

    • Don't pay extra for terminal functions you will never use.

    • Use processing software instead of a terminal if all your business is done online and/or over the phone.

    • Ask your provider if it can reprogram your existing terminal.

    • Be cautious about leasing a terminal to lower your monthly costs, as high cancellation fees and long-term contracts will likely cost you more in the long run.

  • Rates and Fees

    Rates

    The majority of your costs will be transaction processing fees. Your rate per transaction is determined by your personal and business risk, percentage of card-absent sales, average dollar amount per sale, and total dollar amount of monthly sales. Lowering your transaction risk will also lower the rate you are charged.

    To get the best rate for how you conduct business, be sure to understand the rates and associated qualifications around each type of sale.

    Qualified rate is the percentage rate that's charged whenever a merchant accepts and processes a regular card using an approved processing solution. This is usually the lowest rate one can receive, and often what is quoted to a merchant when inquiring about rates.

    Mid-qualified rate is the percentage rate that's charged if a merchant accepts and processes a card that does not qualify for the lowest rate. This may happen when a card is manually keyed into a terminal instead of being swiped, or if a rewards or business card is being used.

    Non-qualified rate is the percentage rate that's charged whenever a merchant accepts and processes a card that does not qualify for either qualified or mid-qualified rates. This may happen when a card is manually keyed into a terminal versus being swiped, address verification isn't performed, information is missing, or the authorization is not settled within the allotted time frame (usually 48 hours).

    A rate increase, otherwise known as a down grade, occurs when your transactions do not meet the requirements for the lowest or qualified rate. To mitigate the number of down grades you receive:

    • Ensure that your transactions meet the qualification requirements to get you the lowest rate available for every transaction and train your staff to do the same.

    • Train closing and opening staff on how to audit transactions totals for errors and close out daily credit card transactions at the end of each day.

    Batching refers to settling the charges to your terminal by sending the completed transactions for the day to the acquiring bank for payment. To ensure that you get the best possible rate on all your daily transactions, you must "batch out" within 24 hours. Failing to do so may raise the risk of dispute, causing your transactions to be downgraded. Be aware that dial-up connections are prone to dropped lines and can result in duplicate charges.

    Fees

    The interchange fee is a percentage of the transaction and helps to cover authorization costs, fraud, and credit losses. Most merchant service providers include the interchange fee in their bundled rate, making it more difficult to identify specific rates. Ask your provider if you can pay the interchange fee as it is incurred. This will prevent you from paying more than you need to and help you keep better track of your transaction costs.

    A chargeback occurs when the cardholder disputes a transaction and it's returned to the acquiring bank. A delayed response to a chargeback inquiry can cost you a timeliness fee or the entire sale, resulting in lost income. Be sure to ask your prospective provider how it deals with chargebacks and the costs involved.

  • Not all cards are created equal

    Certain credit cards cost more to process than others. It's up to you to choose what works best for your business. To help offset the cost of processing more expensive card types, ensure that your transactions meet as many of the qualifying requirements as possible.

    Debit cards are another type of card that has grown in popularity. Today's debit card often plays double duty as both a check and a debit card. Deciding whether to process the charge as online or offline can make a difference in the resulting charge:

    • Online transactions get processed through the credit card interchange and are charged at an online (non-qualified) rate.

    • Offline transactions get processed through the debit network and are charged a flat per-transaction fee.

    • Reduce your costs by processing low-cost items at the offline rate and larger items at the online rate.

  • At your service

    Some merchant service providers charge for customer service; others do not. Be wary of companies that charge you a fee for contacting customer service; if your system isn't working, you should be able to get up and running without incurring additional charges! This is different from a charge for premium services. Other items for which you may be charged include printed account statements, account updates, monthly minimums or maximums, and service cancellations.

  • If it's not one fee, it's another

    There are a number of operational fees that are often bundled or "hidden" within other charges. Most of these charges are a part of your transactions and simply a cost of doing business.

    • Communications fees cover the Internet costs of moving the transaction from the merchant to the processor. Dial-up transmission costs more to cover the processor's maintenance of toll-free phone circuits and modems.

    • Address and voice authorization verifications reduce your fraud risk and can help you avoid a rate downgrade.

  • It's all in the details

    Fees are an inevitable part of processing credit and debit cards. Your best defence against hidden costs and unnecessary downgrades is keeping accurate records of your processing costs. Audit your records on an ongoing basis to build your own benchmarks, evaluate the cost-effectiveness of your business rules and practices, and optimize accordingly. Although accepting credit cards is an essential component of doing business, it should never undermine your bottom line.