Credit cards are a favorite payment method for many consumers, so to do business with these consumers, merchants need a means of processing credit cards. Credit card processing refers to the many steps that occur behind the scenes that enable a customer’s issuing bank to pay merchants.
Because this process requires a few different parties to do their part, merchants must pay fees that reimburse these parties for their services. No one likes fees eating into their profits, but the good news is that there there are ways you can make them lower.
What Fees Are Associated With Credit Card Processing?
Credit card processing can be a great benefit to your business since it allows customers the convenience of paying with a card. However, processing credit cards comes with some fees that are deducted from the transaction. These fees include:
- Interchange fees: Issuing banks, which are the banks that issue credit cards to consumers, take an interchange fee. The credit card networks set these fees and typically update them biannually. Interchange fees consist of a flat rate paired with a percentage of the sale and vary according to the type of sale. Certain transactions require higher interchange fees than others.
- Assessment fees: Card networks, with the exception of American Express, take an assessment fee from merchants when their branded cards are used in transactions. These fees are usually based on a percentage of the total transaction volume for the month. You cannot alter these fees, but they are minor compared to interchange fees, consisting of a fraction of a percent of a sale.
- Discount rate: Typically, merchants just see one fee for credit card processing, which the credit card processor takes. This fee goes to cover interchange fees and assessment fees, and whatever is left goes to the processor. The amount the processor takes is known as a discount rate, sometimes also called a markup. Different processors charge different fees, and you may be able to negotiate discounts.
In addition to these fees, you can pay additional fees for chargebacks, which occur when a customer disputes a charge from your business. You can typically avoid these fees by being careful to avoid errors and fraud.
How to Reduce Credit Card Processing Fees
Now that you know what credit card transaction fees you’re required to pay, let’s talk about how you can reduce those fees. You can’t avoid credit card transaction fees, but you can find ways to minimize them. We’re especially focusing on interchange fees and discount rates, which can be the fees that end up costing you the most. Let’s look at five ways you can keep fees low so you can maximize your profits from credit card sales:
1. Read Cards Instead of Keying Them In
Some merchants who don’t have a credit card reader but have partnered with a credit card processing company take credit cards as payment by manually keying in the information on the card. This type of transaction is sometimes called a card-not-present transaction. Consumers use this method when they shop online and have to enter their credit card information for the sale to go through.
The issue with manually entering credit cards is that this method incurs higher interchange fees than swiping, inserting or tapping cards does. For example, the interchange rates for Visa and Mastercard are higher when the cards are keyed in rather than swiped. Fees for manually entering cards tend to be higher because this method is generally less secure. Of course, you need a card reader to avoid keying in cards.
2. Get an EMV Card Reader
We just looked at the importance of using a card reader to process credit card transactions, but not all readers are created equal. Older credit card readers weren’t designed to accept EMV chip cards. These new chip cards are far more secure than magnetic stripe cards since they generate a unique code for every transaction. If your card reader isn’t EMV enabled, then you will most likely pay higher interchange fees.
Your credit card processor may call these higher fees EMV non-compliance fees or EMV non-enabled fees. In addition to these higher fees, which you may have to pay whenever you swipe a chip card instead of using an EMV reader, you can pay even more if you process a fraudulent payment. As of October 2015, the liability for this fraud scenario was shifted to merchants who haven’t adopted the more secure EMV process.
3. Settle Transactions Promptly
Merchants send off their transactions in batches, typically at the end of a business day, to be settled. Typically, you can get the best interchange rate by settling charges within 24 hours. Otherwise, you may be subject to an interchange downgrade. The exceptions to the typical one-day rule are travel and entertainment businesses, which typically have eight days.
If you’re a typical retail business, don’t put off your clearing call. If you have the option to set a certain capture delay, opt for either immediate or one day. This way, you can capitalize on the best interchange rates available for transactions from that day.
4. Compare Quotes from Processors
While you can find ways to qualify for lower interchange fees, these fees are still set. In other words, you can’t negotiate for lower fees. However, discount rates from credit card processors are more negotiable. Some credit card processors, including NRS Pay, offer a custom rate. It isn’t all about negotiating with one company, though.
The most important thing is to directly compare quotes from various processors so you can make the best decision for your business. Make sure you understand what’s included in the quote you receive. It should include the interchange and assessment fees along with the processor’s discount rate. Some credit card processors will complicate things to obscure hidden fees and padded pricing, so look for simplistic, transparent pricing models. This way, you won’t be blindsided by exorbitant fees.
5. Get Payment Processing From Your POS Provider
There are many benefits to having one provider for both your POS system and your payment processing. By partnering with one company, you can enjoy a more integrated, streamlined process. You can also enjoy some possible financial savings. In some cases, you can qualify for lower processing fees. As Fit Small Business notes, working with the same provider for your POS and payment processing can simplify your payments and eliminate fees you may otherwise be expected to pay, such as a fraud prevention fee or an integration fee.
You may also receive free equipment. For example, National Retail Solutions (NRS) provides a free EMV card reader to all merchants who commit to using our merchant services for three years. This EMV reader can help you process payments more securely and avoid penalties for being non-compliant with EMV technology. Our card reader is also capable of taking Apple and Android payments. While credit cards remain popular, these mobile wallet apps are quickly gaining traction with consumers.
Get Discounts Through NRS Pay
For simplified, fair credit card processing rates your small business can afford, partner with NRS Pay. We offer a transparent fee model and do not pad fees. Instead, we offer two simple pricing models for small business payment processing fees. Our flat rate is $0.10 plus 2.49% of the sale. If your business processes more than $10,000 in credit card transactions monthly, then you can also qualify for a custom rate.
NRS is committed to helping small businesses succeed. We can even help you implement a cash discount program to offset credit card processing fees. Request a free quote today to get started.