As a small business owner, every penny counts, and you may be looking at your credit card processing statement each month wondering how to cut costs. Processors do a great job of making rates and fees confusing, but knowing how to decipher costs and which areas of expense to attack will have you seeing through their games and saving big bucks in no time.
Know where your money goes (the divide part).
Before you can cut your credit card processing costs, you need to know where your money is going and which portions of expense are negotiable. Separating costs saves time by allowing you to focus on the rates and fees that you can actually reduce.
1. Interchange fees (Non-negotiable)
Believe it or not, wholesale credit card processing rates are public knowledge. You may not have heard because, well, processors don’t want you to know. These wholesale rates are called interchange fees, and they’re used to determine how much money your credit card processor’s bank pays your customer’s card-issuing bank when you accept a credit or debit card.
For example, if your customer pays using his Citi credit card, your processing bank pays Citi Bank an interchange fee for the transaction.
Interchange fees account for roughly 75% – 80% of total processing expense; they are the same for all credit card processors, and they are non-negotiable.
2. Assessments (Non-negotiable)
Visa and MasterCard make money by charging assessments when you accept their cards. Assessments for each brand are currently 0.11% of volume plus about $0.02 per transaction. Assessments account for roughly 2% – 5% of total processing expense, and like interchange fees, assessments are the same for all credit card processors and they’re non-negotiable.
3. Processor’s markup (Negotiable!)
Let the negotiation begin! The processor’s markup is your target, and it’s where you want to draw a big red “X.” But it’s not as easy as demanding the lowest rate.
The processor’s markup is the only area of cost where you can haggle your way to lower rates and fees. But more importantly, you can guarantee transparency and lower costs by demanding something called interchange plus pricing.
With competitive pricing, a processor’s markup should account for only about 15% – 20% of total processing expense.
Negotiate like a pro (the conquer part).
Now that you know the base cost of processing is the sum of interchange and assessments, your goal should be to get your processor’s markup as close to those rates and fees as possible. Follow these simple steps and you will be saving in no time.
1. Demand interchange plus pricing.
Processors use two basic pricing schemes called bundled or interchange plus. Bundled pricing is the one that results in higher costs and hidden fees. Interchange plus is the one that you want. As the name implies, interchange plus pricing functions by passing actual interchange fees and assessments directly to your business, and the processor’s markup is added to the actual cost.Aside from being less expensive, the transparency of interchange plus makes it easy to compare quotes from different processors. There’s no guess work.
You can easily tell the difference between interchange plus and bundled price quotes because interchange plus rates are much lower. For example, a typical interchange plus quote looks like 0.25% plus $0.10, and a bundled price quote will look something like 1.69% plus $0.20.
2. Look at the big picture.
Getting focused on a single rate or fee is expensive. Compare processors based on total cost to determine the least expensive option.
3. Words are cheap.
Some sales reps will promise the moon and the stars to get you to sign on the dotted line. The problem is that lawyers only speak the written word. Be sure to get everything that you’re promised in writing, and yes, email counts.
4. Refuse to pay a cancellation fee.
Cancellation fees are garbage. If processors are offering competitive rates and good service, they won’t force their customers to stick around with a cancellation fee. If you’re presented with a cancellation fee, simply tell the processor that it needs to be waived. You’ll find that 99% of the time they’ll agree without a fight.
5. Read your statements.
Getting the best pricing model and low rates is only half the battle. Once you get them, you have to keep them. Read the first page of your statement each month to ensure your fees stay low. If they’re going to increase, this is where your processor will notify you.
About the Author
Ben Dwyer helps businesses save an average of 40% on
credit card processing fees at CardFellow.com. CardFellow
is a free Web site that allows businesses to receive multiple
interchange plus quotes from leading processors instantly.