Updated: May 21, 2021
There are ways you can help reduce credit card processing fees and better protect your company. As a busy small business owner, the fees that come with processing credit cards don't always come to mind.
While small fees here and there may seem minimal, those small percentages that processors take with every transaction can add up quickly.
Examples of common payment methods:
Electronic bank transfers
If you’re accepting payments from your customers that are not in cash form, you're paying fees.
There are things you can do to help lower your processing rates:
Remember that processing fees for credit cards are often negotiable.
Make sure that your terminal and account are set up properly when accepting credit card payments in person.
Understand how the account service fees can add to your monthly processing costs and that some of these are also negotiable.
What are Credit Card Processing Fees?
Processing fees for credit cards are the costs your small business pays every time a customer pays you with a credit or debit card. Some card providers charge account and secondary fees that add to the overall cost of accepting credit and debit cards.
Types of Processing Fees for Credit Cards
There are many types of credit card fees to keep track of when accepting payments. The main fee to consider is the rate a payment processor charges for each transaction when looking for the right system.
There are three parts of the rate:
1. Interchange fees- These are costs set by the credit card networks. They are necessary to help offset risks such as fraud and other handling costs associated with each credit card transaction. Your bank pays these fees to your customer’s bank for each purchase.
Your processor passes this cost to you as part of the rate. Interchange fees vary, depending on the card used by your customer, the acceptance method, the sale amount, and your industry.
Because the credit card networks set these fees, they aren’t negotiable and everyone pays the same rate.
2. Assessment fees- The credit and debit card companies charge these fees to cover the costs for customers to use their cards. These fees also cover transaction processing costs on the payment network of the card provider.
While these fees are non-negotiable, they’re often lower than interchange fees.
3. Payment processor markup fees- These fees are the margin of your credit card processor on each transaction. They help cover your processor’s operating expenses and are where it makes its money.
These fees are the only part of the processing rate you can negotiate.
Understanding Incidental Fees
You can also face incidental and account service costs along with transaction fees.
Certain actions generate incidental fees:
When a customer disputes a card transaction, you’re charged a chargeback fee. You can get a refund from some processors if you win the dispute.
Small, everyday fees that cover the costs of settling daily deposits are called batch fees.
AVS fees are the costs associated with using anti-fraud tools, and rates can vary depending on the cardholder’s zip code and address. This fee typically costs a few cents with each transaction.
Voice authorization fees are costs associated with voice authorization, which is another fraud protection tool. When credit card companies need more information to approve or deny a transaction, you need to call them to prove authorization.
It doesn’t often happen, but when it does, you’re charged a voice authorization fee.
Account Service Fees
Account service fees are ongoing costs charged by the processor to keep up your account.
You may be able to negotiate some of these:
Also known as a monthly statement fee, monthly fees cover the costs of your processor’s support services. These costs help cover customer service and monthly statement preparation.
Payment gateway fees are also charged monthly. They cover the costs of accepting credit cards online when using a payment gateway.
Most credit card processors require you to complete a questionnaire each year to prove that you comply with data security standards. These fees are known as PCI compliance fees, and some offer insurance and assistance as part of the total cost.
These compliance fees can be charged monthly or separately, and some processors may be willing to waive them for you.
If you fail to maintain your PCI compliance, you’ll be charged a PCI non-compliance fee each month until you reach compliance.
You’re required to generate a certain dollar amount in processing fees or process a certain dollar amount of credit card transactions every month. If you don’t meet the minimum, you’re charged a monthly minimum fee.
Understanding Average Credit Card Processing Fees
Below are some examples of average fees when processing credit cards. These averages don’t include processor markups because these costs vary with each processor.
Network: Average Credit Card Processing Fees
Visa: 1.29% + $0.05 to 2.54% + $0.10
Mastercard: 1.29% + $0.05 to 2.64% + $0.10
Discover: 1.53% + $0.05 to 2.53% + $0.10
American Express: 1.58% + $0.10 to 3.20% + $0.10
5 Tips to Reduce Credit Card Processing Fees
While you can’t avoid paying credit card processing fees completely, there are steps you can take to help yourself potentially save thousands each month.
You can help reduce credit card processing fees in 5 ways:
1. Negotiate With Credit Card Processors
You can leverage your transaction volume to negotiate with credit card processors. The more you sell, the more card transactions you perform, and this adds more value to the processor.
2. Reduce Your Risk of Credit Card Fraud
If you’re seen as a merchant with higher security risks, your credit card processing fees can also be higher.
You can help reduce credit card fraud risk in two ways:
Swiping credit cards as often as you can
By having your customers swipe their cards, you can avoid higher rates set by card companies. This is because when the cards are keyed, it poses higher fraud risks.
New POS technology allows for more effortless card swiping, leaving few reasons for your customers to not swipe their cards. You can also lower your fraud risks by offering security information that validates purchases and protects the cardholder.
3. Use A Service That Verifies Addresses
You can take it one step further to reduce credit card fraud by using an address verification service (AVS). These systems verify each cardholder’s billing address with their card company.
These anti-fraud tools provide major benefits in the e-commerce world, including reducing chargeback fees.
Customers enter their address during checkout, and the software compares the address on file with their bank. Once complete, their bank sends the AVS code to the merchant, who then uses the code to accept or decline the transaction.
Both MasterCard and Visa support AVS globally. In the U.S., Visa incentivizes businesses to use these systems by providing a reduced interchange rate when merchants run an AVS check on transactions.
4. Properly Set Up Your Terminal and Account
Simple mistakes can sometimes lead to higher credit card processing fees. You can help reduce credit card processing fees by setting up properly from the start.
Not setting up your account properly can increase your risk of higher charges in processing fees due to providing incorrect business information. Correct setup of the account also impacts how the fee stature works.
How you set up your terminal and use it also influences processing fees.
Try processing transactions within the first 24 hours and make this a habit. This can help reduce the number of transactions and processing fees.
5. Talk with a Team of Credit Card Processing Experts
Many small business owners are too busy running their company to know all there is to know about credit card processing. To gain a better understanding, consult with credit card processing experts.
These professionals use their expertise and relationships with processors to help get the lowest rates possible for your business. Understanding and having access to insider credit card processing information can provide you with an edge with vendors as a small business owner.