With everything small business owners have to think about, credit card processing fees may not be something that automatically comes to mind. The fees may not seem like a lot by themselves, but those small percentages processors take for every transaction can quickly add up. And when you combine transaction fees with assessment fees, authorization costs and other monthly fees, your monthly credit card processing bill can balloon to an astronomical amount.
The best way to negotiate with payment processors is to be seen as a merchant that adds value, thus making the vendor want your business, said Rey Pasinli, executive director at Total Apps, a merchant service provider.
You can negotiate with credit card processors by leveraging your transaction volume. This is because the more you sell, the more transactions you perform, and the more value it adds to the processor, Pasinli said.
“Processors, just like any other business, can negotiate with their suppliers off of the volume of processing their clients complete,” he said. “The more you give them, the more negotiating power they have upstream to lower their overhead in different areas. In turn, they can lower your rates if it is worthwhile to them.”
The higher security risk you pose as a merchant, the higher your credit card processing fees will be. You have two primary ways of reducing the risk for credit card fraud: swiping credit cards and entering security information, said Jeffrey Gehrs, president at Electronic Merchant Systems, a credit card processing company.
“Swipe as many cards as you can,” Gehrs said. That’s because the rates set by card brands like Visa and MasterCard are higher when the cards are keyed in based on fraud risk, he explained. “With new technology, like cell phone swipers offered by full merchant-service providers and microprocessors like Square, there are few excuses to not swipe the majority of your cards.”
Merchants can also lower the risk of fraud by providing security information that protects the cardholder and validates the purchase. An effective way is to always enter the billing ZIP code and security code when prompted, Gehrs recommended.
“This seems like a small nuisance, but bypassing this step could cost your business over 1 percent of each sale,” he said. “Similar to keying in sales, forgoing this process means a higher rate due to fraud risk.”
To take a step further in reducing credit card fraud, use an address verification service (AVS), a system that verifies the cardholder’s billing address with the card issuer. This fraud-fighting tool has a big benefit in the world of e-commerce, including limiting chargebacks.
During the checkout process, the customer enters their address, which is then compared to the address on file with the issuing bank. Once the comparison is made, the issuing bank sends an AVS code to the merchant, who can then use the code to authorize or reject the transaction.
Both Visa and MasterCard support AVS globally, and in the U.S., Visa incentivizes businesses to use AVS by providing a lower interchange rate when merchants perform an AVS check on transactions.
Sometimes, a simple mistake can lead to higher credit card processing fees. Avoid this by setting up your account the right way from the start, said Fenella Kim, founder and CEO of Reliance Star Payment Services. If you set up your account improperly, you risk incurring higher processing fees from providing incorrect business information.
“Setting up the account properly [impacts] how the fee structure works,” Kim said. “The type of business, type of transactions and frequency of transactions matters.”
Similarly, the way your terminal is set up and used also affects processing fees. Kim suggests making a habit of processing transactions within 24 hours, which lowers the number of transactions for that period and thus reduces processing fees.
“If you do your batch process every day, it is more cost-effective instead of every few days or a few times a week,” she said. “Don’t wait, [because] the longer you wait to process, the higher the fees and rates.
Most small business owners know next to nothing about credit card processing. Gain a better understanding and an advocate by consulting a credit card processing expert. Not only can these professionals debunk credit card processing myths, but their knowledge and relationship with processors can also help you get lower rates for your business.
“Here is the secret that merchants are always shocked to find out: Regardless of their size or amount of volume, virtually all credit card processors buy their rates directly from Visa, MasterCard and Discover for the exact same price,” said Robert Livingstone, president and founder of IdealCost.com, a credit card processing consulting company. “Therefore, all credit card processors have the capability to resell these rates at the exact same price to different businesses.”
Knowing insider information like this can help small businesses gain an edge with vendors.
“Businesses are under the false impression that they have to keep switching their credit card processor in order to see a savings,” Livingstone said. One reason is that when businesses call their current credit card processors to negotiate better rates, they’ll get almost nowhere, he said.
Instead, Livingstone and his staff negotiate the lowest possible credit card processing fees with their existing vendors. “This means no switching or cancellation fees and zero downtime by switching from one processor to another,” Livingstone said. “If there is a savings, we split it with the client. If there is no savings, our services are free.”
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