Credit Card Processing Fees – Divide & Conquer!

Today’s guest post is brought to you by Ben Dwyer of

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.

 You can check out the actual interchange fees for Visa and MasterCard here.

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
is a free Web site that allows businesses to receive multiple
interchange plus quotes from leading processors instantly.

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  • Tyler

    Great breakdown of fees. Most people have no idea what they’re paying for, so it’s tough to negotiate and reduce those fees.

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  • Mae Loraine Jacobs 

    I always recommend: get everything in fine print. This means all types of fees as well as the preferred pricing structure, should be properly covered by a contract. If the fees are not found there, then they are unenforceable.

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  • terry curtin

    I have heard horror stories of moneies being held back from companies when they hit a growth curve.
    One I was told had 2 million held for months. He couldn’t pay commisions and that destroyed his company.
    I was also told that many pay on a teared system. I am not talking fees here. I am talking about the time to actually pay us the balance. Is there any truth to having many processors to avoid a cash flow disaster.

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    • ageorgi

      Hi Terry,

      Thanks for the question. To appropriately answer it, we turned to Ben Dwyer, the author of this article. Here is his response:

      Risk Hold Horror Stories: Processing Volume & Ticket Size
      The horror stories that you’ve heard are unfortunately all too common, and more often than not they’re the result of a poorly informed merchant due to an inexperienced or underperforming ISO or agent. In most cases, such scenarios could have been easily avoided if the business had a better understanding of how merchant accounts function.

      Merchant accounts are essentially open lines of credit issued to a business by an acquiring bank. Like any line of credit, limits are imposed on the balance. In the case of merchant accounts, limits are also imposed on the size of an individual transaction.
      When a business applies for credit card processing services, the processor will ask for the business’s average monthly processing volume and the size of an average transaction. The processor’s risk department continually references the figures that the merchant provided as they’re processing.

      If the merchant violates either of these limits, the processor may issue a risk hold on the merchant’s account thereby withholding any unsettled funds. The processor may also withdraw funds from the merchant’s checking account to limit exposure from previous charges that have already been settled.

      Funds caught in a risk hold will not be released until a processor can conclude through the course of an investigation that there is no fraudulent activity or wrong-doing on the part of the merchant. Depending on level of risk exposure (how much money is involved) to the processor or acquiring bank, such investigations can take days, weeks, or months.

      Your friend that had two million dollars withheld likely processed in gross excess of the average volume declared on his/her processing application.

      It’s important to understand that processors make money when their merchants process transactions. It’s not in their best interest to start holding funds on all of their clients, and it’s not something they take lightly. Second, processors have a responsibility to both merchants and cardholders to combat fraud as diligently as possible. Hence, they have to hold funds on suspect accounts.

      So, the name of the game is keeping your account from appearing suspect, and here’s how to do that.
      Declare generous but realistic processing volume and ticket size on the merchant account application
      Processors approve a merchant account based on a number of risk thresholds. Falling below those thresholds is okay, but break them and you start to have problems. By being generous within reason when declaring processing volume and ticket size, you leave yourself some breathing room to account for business growth.

      Remember the volume and ticket size you declared
      Processors don’t forget these figures, and neither should you. Remember the volume and ticket size you declared on your application.

      Communication is key
      If your business is getting close to or breaking the declared volume or average ticket, contact your merchant service provider to explain why. They will often notate your account so the risk department is aware of the anomaly and allows your account to continue as normal.

      The volume and ticket size that you declare is also flexible to a point, and processors do account for logical influxes in charges. For example, processors expect higher than normal processing volumes around the holidays.

      Credit Card Processing Settlement & Discount
      I’m not quite sure what you mean by processors “paying on a tiered system,” so I’ll cover the basics and hope that I answer the question in the course of text. Credit card processing is a two-part process consisting of an authorization and settlement. Settlement refers to the portion of the process where the processor’s bank deposits money into the merchant’s checking account.

      Loosely related to settlement is discount. Discount refers to the processor’s portion of fees, and is also used to refer to when the processor charges such fees. Processors can charge fees using either daily or monthly discount.
      Daily Discount
      Daily discount is also called net discount because the processor removes their fees prior to settlement. For example, if a merchant settles a batch of transaction totaling $100, he will receive a deposit for roughly $98, which is the gross transaction amount less the processors charges. As you can imagine, daily discount is not very good for cash flow.

      Monthly Discount
      Monthly discount is also called gross discount because the processor does not remove their fees prior to settling transactions. Instead, they deduct their fees monthly in one lump sum at the end of each processing period. Monthly discount is the preferred method, and it’s the only one that we allow processors to use at CardFellow.

      I wrote a thorough post on daily versus monthly discount over at CardFellow that compares the two options as well as explaining how to spot daily discount on a processing statement.

      Risk Abatement: ACH Delays & Rolling Reserves
      Credit card processors have tools at their disposal that they can use to lower the risk profile of a business. These tools allow processors to issue merchant accounts to business they would otherwise be unable to service. The most common risk abatement tools that processors employ are rolling reserves and ACH delays.

      It’s important to note that a merchant must sign off on an ACH delay or a rolling reserve before a processor may impose them. So, a processor cannot simply slap an ACH delay or rolling reserve on your merchant account unless you approve it in writing first.

      ACH Delay
      The acronym ACH stands for automated clearing house. The ACH system is what banks and financial institutions use to issue credits and debits to and from ACH-enabled accounts (such as checking accounts).
      Credit card processors typically deposit funds into a merchant’s account in a couple of business days via an ACH deposit. When a processor imposes an ACH delay, they extend the number of days between settlement and deposit. For example, a five-day ACH delay would add five days to a processor’s typical settlement time.

      An ACH delay simply means that a merchant has to wait that much longer to get their money. While it’s not ideal, and ACH delay is the least of the risk abatement tools at a processor’s disposal.

      Rolling Reserve
      A rolling reserve is a processor’s big gun when it comes to risk abatement. In the case of a rolling reserve a processor establishes a non-interest bearing account on behalf of a merchant, and they deposit a predetermined amount into that account prior to settlement until a certain balance is reached.

      For example, in the case of a 5% rolling reserve the processor would deposit 5% of the merchant’s sales into a holding account prior to settlement. So, instead of receiving a gross amount of $100 for a hypothetical batch of settlements, the merchant would receive only $95, which is $100 less the 5% reserve.

      The processor would continue to deduct the rolling reserve prior to settlement until the balance in the reserve account reached a predetermined balance, such as $10,000.

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  • LV Tech Support

    You can always use They compare over 10 top processors within minutes for free. They boast savings of over 40% and list top processors.

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    • jessirj

      Thanks for sharing!

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  • ChipCardTerminal

    Doesn’t XCharge have a cancellation fee? And I’ve seen them do bundled pricing.

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