November 10, 2019

How to Negotiate Credit Card Processing Fees

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Credit card processing fees eat away at your profits. Learn the best ways to negotiate credit card processing fees to lower your cost.

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Types of Credit Card Processing Fee Pricing

Before you begin, here's a summary of the different pricing models:

Interchange Plus
This is the model you'll want to choose if you plan to negotiate. With interchange plus, you pay a percentage of each credit card transaction plus a flat per-transaction fee.

Both the interchange and assessment fee are non-negotiable since the processors all pay the same amount to the card brands. But the "plus"—the markup the processor charges—IS negotiable.

Networks like Visa, Mastercard, and Discover determine the interchange fees and charge a small assessment fee as well.

Flat rate
You'll pay a flat percentage for every transaction. There's no breakdown of the wholesale and markup fees since the processor combines them. Square is a common example of flat rate credit card processing.

You'll pay a monthly fee whether you process credit card transactions or not. You also pay a wholesale non-negotiable fee plus a small markup per transaction fee, which the processor determines. Fattmerchant offers this type of pricing.

Tier pricing
Processors group all fees into one of several tiers, which your transactions could fall under. Several variables determine the tier for each transaction, including:

  • Card type
  • Card category
  • Transaction method

You can't differentiate between wholesale fees and markup fees, making it hard to compare to other processors. Before you can negotiate your credit card processing fees, you'll need to do your homework. Keep reading to get started.

Look for Interchange Plus Quotes

To compare plans, you need to be able to separate the fees. This is only possible with the interchange plus pricing plan. You may see interchange plus pricing plan written like so: 0.2% plus $0.10 per transaction.

On a $500 transaction, you would pay $1.10 plus the interchange fees ($500 x 0.002 plus $.10). The $1.10 goes to the processor and the interchange fee goes to the card's bank.

With interchange plus quotes from each processor, you can easily determine who offers the best deal. But remember, some processors charge a monthly or other service fee in conjunction with your account—we'll discuss that in detail below.

Negotiate the Rate Too
While interchange rates aren't negotiable, you may be able to convince a processor to lower its markup—the rate they charge. This is especially true if a competing business is willing to offer a lower rate.

Study the Monthly Fees

As you shop for the best interchange plus rates, be sure to get a detailed list of the fees the processor charges. A few of the most common fees include:

  • PCI compliance fees
  • Gateway fees
  • Virtual terminal fees
  • Monthly or annual fees
  • Fees for not reaching the monthly minimum

Don't assume each company only charges these fees, though. Ask to see the fine print and ask specific questions about any non-disclosed fees that could add to your expenses for each processor.

Consider the Add-Ons

Negotiating your rate is important since it affects every credit card transaction you accept. You may also negotiate your add-ons, though.

For example, Payline Data offers free PCI compliance as a part of its interchange plus pricing program. If you choose another processor, but would like PCI compliance included, try to negotiate that feature with your preferred processor.

You can also ask for details about the extra fees processors charge and try to negotiate the add-ons into your contract for free.

Know the Effective Rate

The best way to compare processors is to compare the effective rate. You can ask the processor for the rate or calculate it yourself using this formula: total processing fees/total sales volume.

In order to determine the total processing fee, you need to know the interchange plus pricing and any:

  • Monthly fees
  • PCI compliance fees
  • Cancellation fees
  • Gateway fees

Basically, you'll need to research any fees the processor charges on a monthly basis. This will not include any one-time fees, such as chargebacks, termination fees, or setup fees.

How to Calculate the Effective Rate
Say your processor charges:
  • Interchange plus pricing of 0.2% plus $0.10 per transaction
  • A monthly fee of $10
  • No PCI compliance or gateway fee

If you have monthly credit card sales of $15,000 with an average sale of $150, your effective rate would be:

  • Credit Card Sales / Average Sale = Transactions
    $15,000/150 = 100 Transactions

  • 100 transactions x $0.10 (markup fee) = $10

  • 15,000 x 0.2% = $30

  • Monthly Fee + Markup Fee + Per Transaction Markup = Total Cost
    $10 + $30 + $10 = $50 Total Cost

  • Effective rate = Total Cost/Monthly Sales
    $50/$15,000 = 0.33%

Get Several Quotes

Try to get quotes in writing from at least three credit card processors with interchange plus pricing. Along with the effective rate, though, you should determine what they offer.

In other words, do they offer a gateway, virtual terminal, PCI compliance (free of charge), shopping cart integration, or any other features you may find useful?

Once you know the big picture, you can decide among the processors. For example, if you already have a shopping cart, the processor offering the shopping cart may not be necessary (unless they offer the lowest effective rate).

If you need a gateway or virtual terminal, though, determine what it's worth and see if the effective rate of the company offering it will more than make up the cost of securing the gateway or virtual terminal from a third party.

Choose a Processor and Negotiate

Once you have all of the information, it's time to negotiate. Use the written quotes and your research to get the best possible deal. By understanding the terms and process, you'll have a better chance of securing favorable terms on a contract.

Don't forget to look at the cancellation policies. The ideal contract operates month-to-month. It shouldn't cost you anything to cancel should you decide the processor isn't right for you.

At the very least, negotiate an early termination fee waiver. This gives you the chance to cancel your contract early if the processor doesn't work out for you.

Bottom Line

Negotiating your credit card processing fees will keep more profit in your pocket. Knowing the different terms and what processors charge can help you make an informed decision.

Shop around with different processors and make your decision carefully. Don't feel pressured to take the first "incredible deal" you're offered.

Instead, take your time and choose the processor that will provide what you need at the lowest effective rate possible.

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