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Grow Your Business Finances

Effective Tips for Negotiating Lower Credit Card Processing Fees

image for Pandit Chanthong / Shutterstock
Pandit Chanthong / Shutterstock

8/19Credit card processing fees are notorious among small business owners, most of whom rely on as many transaction cents to go back into their enterprise as possible. Credit card fees can be a huge expense for these professionals.

While this is frustrating, Antara Dutta, SCORE business mentor and president of Delaware SCORE, urges small business owners to focus less on the fees and more on negotiating the makeup of the fees. Nonetheless, she notes that there are methods to score lower credit card processing fees with proper planning. In fact, there's a whole industry of professionals dedicated to helping you do just that.

Never underestimate your own power to negotiate and advocate for your business, however. By building market knowledge, refining your negotiation skills and properly navigating the processing terrain, you'll have all the tools you need to land the lowest credit card processing fees available to you. Here's how.

In breaking down credit card processing, Dutta says there are two key categories to know about: the types of credit card processing fees and the bodies that charge, measure, and collect the fees. Many business owners make poor decisions about credit card processing because they don't know any better, so it is crucial to understand credit card processing. Above all, you need to understand what it means for your unique business.

"Credit card processing is not always a transparent world," Dutta said, "which is why it's so important for small business owners to learn about it." This begins with understanding the "what" and "who" involved in credit card processing.


Editor's note: If you're looking for information to help you choose the credit card processor that's right for you, use the questionnaire below to have our vendor partners contact you with free information.

Many factors come into play to determine your overall fees. It takes time to organize all these players batting for your earnings, but understanding them is integral to credit card processing negotiation.           

Let's start with the three main fees you can expect.

These are a fixed percentage your business pays of each transaction that is processed with a credit card. This fee is calculated depending on the pricing model, ranging from 1.5% to 3.5%. 

These are the fees for working with a payment gateway or services provider. To use the service, you will likely pay $5 to $15 on a monthly basis, not including PCI compliance fees, which can be around $100.

These are fees charged per occurrence if something is up on your end – like nonsufficient funds or transaction chargebacks. Be sure to specifically ask the processing company what circumstances would cause it to charge you for below-minimum monthly funds or a faulty customer transaction.

As for who is collecting the money accrued by these fees and rates, there are players related to both your business and your customers that join the conversation. Here are the main four.

Associations are card-issuing banks that set transaction terms for merchants. Visa, Mastercard, American Express and Discover are all credit card associations.

Issuers are the financial institutions that offer credit cards. It is important to note that Visa and Mastercard are not issuers; they are transaction processors. American Express and Discover, on the other hand, are both associations and issuers, so they will yield a higher interchange rate. 

The main machine is a merchant point-of-sale (POS) system. Business owners often rent these to take and process credit cards during transactions, whether or not the card is present. Dutta urges business owners to be cognizant of when cards are present versus non-present, as transactions with cards not present pose a higher risk.

In today's digital market, online payment is common for all kinds of businesses. This payment gateway is like the POS system, but found online instead.

Now that you know who you'll be dealing with, let's move on to what aspects of your credit card processing fees are in your control.

Dutta admits that, as a business owner, "there isn't much you can do to negotiate lower credit card processing fees" once you've entered into a contract and processing system. You just have to wait out the contract if you aren't in a month-to-month agreement or try hard to negotiate within the contract. Because of this, it is crucial to negotiate fees and processors before you make a commitment.

Interchange-plus is a pricing model that details the charges of issuing banks and credit card associations. "Interchange" is the fee you pay per transaction, and "plus" is a flat fee paid to the processor on top of that. This model can complicate your statements if you're not a financial whiz. However, it is considered the most transparent pricing model. The complicated statements are a small price to pay, because the rates will ultimately be lower than those you'd pay with tiered pricing.

Tiered pricing breaks down your processing rates into levels of qualification. The level a transaction falls into is determined by the processor. Tiered pricing takes advantage of your small business's transactions by advertising low rates for transactions that don't hit the "qualified" level. This pricing model can be favorable for businesses whose customers usually pay in person with standard debit cards, especially since it costs less to process debit cards. For those who go with this pricing model, it is imperative to find out as much as possible about the potential processor's rates so you don't get stuck with unexpected fees.

Of course, processing companies want your business, so they're willing to compete a bit to take you on as a customer. However, small businesses will have different needs from large businesses when choosing a processor, and those needs diversify even more depending on what kind of transactions you process the most.

Now you've got your all your cards on the table – time for the processors to show theirs. Choosing a credit processing plan is not a black-and-white deal. As with any major business decision, different businesses have different needs. There are plenty of excellent credit card processors out there that fit these needs. For example, if your business relies on online and mobile transactions, you'll be better off with a company like Square or Stripe. If your business needs more flexibility on contract timelines, consider Flagship. In general, look at credit card processing companies with transparent pricing, low rates and fees, and month-to-month contracts. [Looking for a credit card processing service? Check out our best picks and reviews.]

If you're going to enter into a credit card processing service contract, you should work your hardest to find out how much of your money will go where. This may seem like an obvious question to ask, but it is all too easy to sign off without reading the fine print, especially in the case of tiered pricing, which can make it difficult to tell where money from various fees is going. "This is where business owners will find some power," Dutta said, as the companies you are working with want to keep your business.

Ask for a sample monthly statement for insight into what your business's processing could look like. Request that the processor send a sample monthly statement from a merchant it works with. A legitimate processor will provide this statement, in which each fee should be itemized and all line items clearly labeled.

If you find rates and fees lower than the ones you have, ask for the lower fee. In fact, ask and keep asking the processing company, your bank, and whichever cloud software you use for online sales about lowering your rates and fees. This is especially effective if you can prove that taking your business elsewhere would yield lower costs for you.

Conversely, if things seem too easy with a processing company, it is probably too good to be true. This comes in the form of "free" credit card terminals or POS systems. Don't get too excited – with processing companies, these gifts mean higher fees and contract terms. Also, if you leave that processor, you'll have to leave its "free" equipment behind.

A balance of industry knowledge and negotiation guts will take you far in your quest to achieve the lowest credit card processing fees available to your small business. It is well worth the time to learn about the world of credit card processing. When you do, you'll be prepared to tackle all manner of rate and fee negotiations that will help you keep more of your business's hard-earned money.

Rebecka Green

In December 2018, Rebecka received her bachelor's in English composition and religion from Luther College. She currently resides in Saint Paul, Minnesota, where she does communications and marketing for two local nonprofits. In her free time, she enjoys writing projects of all shapes and sizes and exploring her new home city. You can reach her by email at rebeckag@gmail.com or connect with her on Twitter.