For merchants that accept credit cards, processing fees are a cost of doing business. However, these fees can vary based on a number of unique factors – and they aren’t set in stone. There are several ways to reduce your credit card processing costs and keep more of your revenue.
What Determines Your Credit Card Processing Rate?
Your credit card processing fees reflect the risk that your acquirer takes on when they process your payments. To determine your base rate, they will consider:
- Your industry
- The total dollar volume of your transactions
- The total number of your transactions
- Your average ticket size
- Your creditworthiness
- How many chargebacks you have received
- How you process credit card payments (for instance, whether you process them in a retail store or online)
On top of your base rate, your acquirer may charge additional fees (downgrades) based on:
- The timeliness of your settlements
- The amount that you authorize vs. the amount of the final settlement
- The field contents for each transaction
- Whether you attempt to verify the customer’s address
Some of these factors cannot be changed. For instance, if you have an online store, you’ll need to accept card-not-present payments, which are riskier than card-present payments (and as a result, come with higher processing fees). Similarly, if you sell customized goods or services, it may not be possible to settle on the same day – and you’ll pay more for those transactions. However, there are other steps you can take to make sure you’re receiving the most competitive rate – and it starts with understanding your current costs.
Strategy 1: Know Your Actual Fee
To calculate your actual effective rate, ask your acquirer for your current statement and subtract your actual deposits from your settlement totals. You’ll also want to request a detailed report of your downgrades. This will help you identify the reason(s) that you are paying extra fees.
Strategy 2: Settle In a Timely Manner
One of the most common reasons that merchants have higher credit card processing fees? They don’t settle their batches quickly enough.
The longer it takes from getting an authorization to including it in a settlement batch, the higher the cost to process the transaction. These fees increase incrementally. If you settle on the same day, you’ll get the more competitive pricing; the longer you wait, the more you pay.
Strategy 3: Provide the Necessary Contents
Some data fields are required for all transactions. However, Level II and Level III transactions require additional data fields, such as a destination zip code and tax amount.
Level II and Level III transactions apply to B2B payments – but it’s not always possible to identify a corporate purchasing card just by looking at it. Even if you aren’t exclusively a B2B merchant, you could be accepting corporate purchasing cards without knowing it. If you aren’t including the necessary data fields for these transactions, you’re paying an unnecessarily inflated rate. As a result, it’s best to automatically include all the required data fields as part of your settlement.
Strategy 4 – Use the Right Method
Because credit card processing fees reflect the risk of processing the transaction, payments that are considered riskier are more expensive. For instance, transactions where an employee manually keys in a card number are riskier – and have higher fees – than transactions where a customer inserts their chip card into an EMV terminal. When you have the option, always choose the most appropriate method to reduce your fees.
Strategy 5 – Match Your Amounts
If you preauthorize one amount and settle for something different, you’ll pay a higher fee. To prevent unnecessary downgrades, ensure that your pre-authorizations and settlements are an exact match – even if that means re-authorizing at a matching rate.
Strategy 6 – Reduce Fraud
If you can show that you are taking steps to reduce fraudulent charges, you can reduce your fees. For instance, you should always perform an address verification for every transaction to qualify for the best rate.
Strategy 7 – Combat Costly Chargebacks
The more chargebacks your customers file, the higher your fees. To help prevent unnecessary disputes, consider:
- Shipping to the customer’s billing address whenever possible
- Making your company name recognizable on your merchant account
- Obtaining a full match on the street address, zip code, and security code for each transaction
- Retaining this information to provide in the event of a chargeback
Strategy 8 – Stop Paying a Middle Man
We already mentioned that some credit card processing fees are unavoidable – but others are completely unnecessary. If you’re paying your acquirer additional fees on top of your interchange rate, you’re paying too much. Similarly, if you’re paying a credit card processor per-transaction or percentage fees, you’re giving away part of your profits. It’s important to do your due diligence to ensure that your operational costs aren’t cutting in to your bottom line.
Final Words of Advice
When it comes to credit card processing fees, there’s no standard pricing scheme that can be compared across all acquirers. This means that cost comparisons are never apples to apples. You’ll need to perform a detailed evaluation to make sure you’re receiving the most competitive rate. Similarly, it’s not a “magic bullet” to choose an acquirer that promises to waive all downgrades, as that means you’ll be charged a higher rate across the board – potentially missing out on the opportunity for substantial savings.
If you’d like to learn more about reducing your payment processing costs, Curbstone is here to help. You can view our on-demand webinar – Eight Strategies for Reducing Your Credit Card Processing Costs – for a more detailed discussion of the above factors – or you can contact our team for a no-cost review of your downgrade report.