Swipe fees, interchange fees, hidden costs, and complex fee structures can make credit cards a form of payment you hope your customers avoid. But accepting credit cards is a requirement for most of today's small businesses. It doesn’t make business sense to become a cash-only business and lose out on the income from credit card transactions.
Luckily, even in the landscape of fine print and boilerplate language, there is room for negotiating your credit card processing fee. The question is what you can do to lower fees and point of sale costs to benefit both your business and your customers. The payment card industry is large and there are many differences in how these businesses provide merchant services.
Here are a few tips to help you navigate your small business to friendlier credit card processing costs:
1. Know the Terminology. There are a number of credit card processing fees that may be in the contract between your small business and the credit card company. Before you forge ahead with negotiating down fees, be sure you are familiar with the key words. For example, "swipe fees" refer to the processing charges a business in excess of the cost of the amount charged to the customer. Interchange fees, which are part of the overall swipe fee, are the fees paid to banks that issue customers' credit cards. Processing rates are the fees the business owner pays every time a customer uses their credit card. This can vary depending on the issuing bank for the credit card and what type of card the person uses (Visa, American Express, Mastercard, Discover, etc.). And PCI compliance is a security check to help prevent fraud.
2. Shop Around for the Best Deal. There are many payment processors and card networks out there who can handle your business credit card payments. And though the first one you talk to may seem to be a bargain, do your homework by contacting at least two more. Keep a lookout for fuzzy fees such as membership fees, service fees, and compliance fees, how much is charged for each, and what the charges include. Also ask about any fees for use of a debit card or additional transaction fees for things like card-not-present transactions. Remember that processor markup is a real thing and can add to your monthly fees. Side-by-side comparisons of processing companies may be your ticket to a lower monthly bottom line
3. Change to Pricing Structures that Make Sense. If your credit card fees do not easily break down to a cost-per-swipe basis, your business likely has a complex fee structure involving percentile ranges that change based on the number of swipes or amount swiped. That may seem to mean savings in the future or for big purchases, but it will be tough to ever really gauge the per-swipe processing costs. Instead, consider switching to a pricing structure such as the "interchange-plus" which is generally just the rate plus the interchange fee that goes to the provider. Keep it transparent and easy to track.
4. Watch Out for Hidden Fees. Is there an annual fee? A fee for AVS (which is a security check to verify the cardholder’s address)? What about an early termination fee for ending your agreement prior to the time agreed upon in your contract? How about a fee for a declined card or a chargeback fee if a customer disagrees with a transaction? Or another for equipment used for in-person transactions for cardholders or your online payment gateway? If so, try to negotiate those fees down as low as possible and also use them as a basis for comparing otherwise low per-swipe fees.
Once you have the basics down, put on your negotiator's cap and be ready to find a middle ground, and hopefully some significant cost savings for your business.
Related Resources:
- Business Credit Cards Exempted from CARD Act (FindLaw’s Law and Daily Life)
- Credit Card Processing Co.'s Demand Cash Reserves; 5 Tips on Credit Card Processors (FindLaw's Free Enterprise)
- Small Business Credit Cards: What Could Go Wrong? (FindLaw’s Law and Daily Life)
