May 25, 2024
How to Find the Cheapest Credit Card Processing Fees for Your Business

How to Find the Cheapest Credit Card Processing Fees for Your Business

If you run a business that accepts credit cards, you know how important it is to offer this convenient payment option to your customers. However, you also know how expensive it can be to process credit card transactions. Every time you swipe, dip, or tap a card, you have to pay a fee to the card issuer, the card network, and the payment processor. These fees can vary depending on the type of card, the amount of the transaction, the industry you are in, and the processor you work with.

Credit card processing fees can add up quickly and reduce your profit margin. According to a report by ValuePenguin, the average credit card processing fee ranges from 1.43% to 3.5% per transaction. For a business that makes $10,000 in monthly sales, that means paying between $143 and $350 in fees every month. Over a year, that could amount to $1,716 to $4,200 in fees.

Fortunately, there are ways to find the cheapest credit card processing fees for your business. In this article, we will explain how credit card processing fees work, how to compare different pricing models, how to negotiate with processors, and how to choose the best option for your business. We will also provide some tips and best practices to help you save money on credit card processing fees.

How Credit Card Processing Fees Work

Before you can find the cheapest credit card processing fees, you need to understand how they work and what factors affect them. Credit card processing fees are composed of three main components: interchange fees, assessment fees, and processor fees.

Interchange Fees

Interchange fees are the fees that the card issuer (such as Visa, Mastercard, American Express, or Discover) charges the merchant for each transaction. The card issuer uses these fees to cover the cost of processing the transaction, providing fraud protection, and paying rewards to cardholders. Interchange fees are usually the largest part of the credit card processing fees, accounting for about 70% to 90% of the total cost.

Interchange fees are not fixed, but vary depending on several factors, such as:

  • The type of card: Different types of cards have different interchange fees. For example, debit cards have lower fees than credit cards, and rewards cards have higher fees than non-rewards cards.
  • The type of transaction: Different types of transactions have different interchange fees. For example, card-present transactions (where the customer swipes, dips, or taps the card at the point of sale) have lower fees than card-not-present transactions (where the customer enters the card information online, over the phone, or by mail).
  • The amount of the transaction: The interchange fee is usually calculated as a percentage of the transaction amount, plus a flat fee. For example, the interchange fee for a Visa credit card transaction may be 1.51% + $0.10. This means that for a $100 transaction, the interchange fee would be $1.61 ($1.51 + $0.10).
  • The industry and category of the merchant: Different industries and categories of merchants have different interchange fees. For example, merchants that sell high-risk products or services, such as travel, gambling, or adult entertainment, may have higher fees than merchants that sell low-risk products or services, such as groceries, clothing, or books.

Interchange fees are set by the card networks (such as Visa, Mastercard, American Express, and Discover) and are updated twice a year, usually in April and October. You can find the current interchange fees for each card network on their websites. For example, here are the interchange fees for Visa and Mastercard.

Assessment Fees

Assessment fees are the fees that the card network (such as Visa, Mastercard, American Express, or Discover) charges the merchant for each transaction. The card network uses these fees to cover the cost of maintaining and operating the network, providing customer service, and promoting the brand. Assessment fees are usually the smallest part of the credit card processing fees, accounting for about 2% to 4% of the total cost.

Assessment fees are fixed, but vary depending on the card network and the type of transaction. For example, the assessment fee for a Visa credit card transaction may be 0.14%, while the assessment fee for a Mastercard credit card transaction may be 0.1375%. This means that for a $100 transaction, the assessment fee would be $0.14 for Visa and $0.1375 for Mastercard.

Assessment fees are also set by the card networks and are updated periodically. You can find the current assessment fees for each card network on their websites. For example, here are the assessment fees for Visa and Mastercard.

Processor Fees

Processor fees are the fees that the payment processor (such as Square, Stripe, PayPal, or Clover) charges the merchant for each transaction. The payment processor is the company that provides the service and equipment to accept and process credit card payments. Processor fees are usually the most variable part of the credit card processing fees, accounting for about 10% to 25% of the total cost.

Processor fees are not fixed, but vary depending on the processor and the pricing model they use. There are four main types of pricing models that processors use: flat-rate, interchange-plus, subscription, and tiered.

  • Flat-rate pricing: The processor charges a fixed percentage and/or a fixed fee for each transaction, regardless of the type of card, the type of transaction, or the amount of the transaction. For example, Square charges 2.6% + $0.10 for each card-present transaction and 2.9% + $0.30 for each card-not-present transaction.
  • Interchange-plus pricing: The processor charges the interchange fee plus a fixed percentage and/or a fixed fee for each transaction. For example, Stripe charges the interchange fee plus 0.25% + $0.10 for each card-present transaction and the interchange fee plus 0.6% + $0.05 for each card-not-present transaction.
  • Subscription pricing: The processor charges a fixed monthly fee plus a fixed fee for each transaction, regardless of the type of card, the type of transaction, or the amount of the transaction. For example, Stax by Fattmerchant charges $99 per month plus $0.08 per transaction for each card-present transaction and $199 per month plus $0.15 per transaction for each card-not-present transaction.
  • Tiered pricing: The processor charges different rates for different types of cards, transactions, or amounts, based on predefined tiers or categories. For example, PayPal charges 2.7% for each card-present transaction, 3.5% + $0.15 for each keyed-in transaction, and 2.9% + $0.30 for each online transaction.
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Processor fees are determined by the processor and are negotiable. You can compare the rates and fees of different processors on their websites or by requesting a quote. For example, here are the rates and fees for Square, Stripe, PayPal, and Clover.

How to Compare Different Pricing Models

Now that you know how credit card processing fees work and what factors affect them, you may wonder how to compare different pricing models and find the cheapest option for your business. The answer is not simple, because different pricing models have different advantages and disadvantages, and the best option depends on your specific situation and needs.

Here are some general guidelines to help you compare different pricing models and find the cheapest credit card processing fees for your business:

Flat-rate pricing:

This pricing model is simple, transparent, and predictable. You know exactly how much you will pay for each transaction, regardless of the type of card, the type of transaction, or the amount of the transaction. This pricing model is ideal for businesses that have low to medium sales volume, low average transaction size, and a mix of card-present and card-not-present transactions. However, this pricing model may not be the cheapest option for businesses that have high sales volume, high average transaction size, or mostly card-present transactions, because they may end up paying more than the interchange and assessment fees.

Interchange-plus pricing:

This pricing model is transparent, flexible, and competitive. You pay the actual interchange and assessment fees, plus a fixed markup for the processor. This pricing model is ideal for businesses that have high sales volume, high average transaction size, or mostly card-present transactions, because they can benefit from the lower interchange and assessment fees. However, this pricing model may not be the cheapest option for businesses that have low sales volume, low average transaction size, or mostly card-not-present transactions, because they may end up paying more than the flat-rate pricing.

Subscription pricing:

This pricing model is transparent, predictable, and scalable. You pay a fixed monthly fee, plus a low per-transaction fee, regardless of the type of card, the type of transaction, or the amount of the transaction. This pricing model is ideal for businesses that have high sales volume, high average transaction size, or mostly card-present transactions, because they can save money on the per-transaction fees. However, this pricing model may not be the cheapest option for businesses that have low sales volume, low average transaction size, or mostly card-not-present transactions, because they may end up paying more than the flat-rate or interchange-plus pricing.

Tiered pricing:

This pricing model is complex, opaque, and unpredictable. You pay different rates for different types of cards, transactions, or amounts, based on predefined tiers or categories. The processor decides how to classify each transaction and what rate to charge.

This pricing model is not transparent, flexible, or competitive. You may end up paying more than the interchange and assessment fees, plus a high markup for the processor. This pricing model is not ideal for any business, because it is difficult to compare rates and fees, and to predict your monthly costs. You may also face hidden fees, surcharges, or penalties from the processor.

Therefore, we recommend that you avoid tiered pricing and choose one of the other pricing models, depending on your specific situation and needs. To help you compare different pricing models and find the cheapest credit card processing fees for your business, you can use online tools such as [CardFellow] or [Merchant Maverick], which provide free quotes, reviews, and calculators for different processors and pricing models.

How to Negotiate with Processors

Another way to find the cheapest credit card processing fees for your business is to negotiate with processors. Processors are not obligated to offer you the best rates and fees, but they may be willing to lower them if you ask. Here are some tips and best practices to help you negotiate with processors and save money on credit card processing fees:

Do your research:

Before you contact a processor, do some research on the market rates and fees, the pricing models, and the competitors. You can use online tools such as [CardFellow] or [Merchant Maverick] to get an idea of what rates and fees are reasonable and competitive for your business. You can also request quotes from multiple processors and compare them to find the best offer.

Ask for interchange-plus pricing:

As we explained earlier, interchange-plus pricing is the most transparent, flexible, and competitive pricing model, because it allows you to pay the actual interchange and assessment fees, plus a fixed markup for the processor. If a processor offers you a different pricing model, such as flat-rate, subscription, or tiered, ask them to switch to interchange-plus pricing or match the rates and fees of an interchange-plus offer from another processor.

Negotiate the markup:

The markup is the part of the processor fee that you can negotiate with the processor. The markup consists of a percentage and/or a fee that the processor adds to the interchange and assessment fees. The markup can vary depending on the processor and the pricing model, but it is usually between 0.1% and 0.5% for the percentage, and between $0.05 and $0.15 for the fee. You can ask the processor to lower the markup or waive the fee, especially if you have a high sales volume, a high average transaction size, or a low-risk business.

Negotiate the monthly fees:

In addition to the per-transaction fees, some processors may charge you monthly fees, such as statement fees, minimum fees, gateway fees, PCI compliance fees, or cancellation fees. These fees can add up quickly and increase your monthly costs. You can ask the processor to lower or waive these fees, especially if you have a long-term contract, a high sales volume, or a low-risk business.

Negotiate the contract terms:

Some processors may require you to sign a long-term contract, such as one year, two years, or three years, with an automatic renewal clause and an early termination fee. These contract terms can lock you in with a processor and prevent you from switching to a better offer or canceling the service. You can ask the processor to offer you a month-to-month contract, a shorter contract term, a no-renewal clause, or a no-termination fee, especially if you have a high sales volume, a high average transaction size, or a low-risk business.

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How to Find the Cheapest Credit Card Processing Fees for Your Small Business

Now that you know what credit card processing fees are and how they are calculated, how can you find the cheapest credit card processing fees for your small business? Here are some steps that you can take to reduce your credit card processing costs and save money:

Understand your credit card processing needs:

Before you start looking for the cheapest credit card processing fees, you need to understand your credit card processing needs and preferences. For example, you need to know how much you process in credit card sales per month, what types of cards you accept, what methods of payment you use (such as swipe, chip, online, etc.), what features and tools you require (such as point-of-sale systems, invoicing, reporting, etc.), and what level of customer service and support you expect. By knowing your credit card processing needs, you can narrow down your options and find the best processor for your business.

Compare different pricing models:

As we mentioned earlier, different payment processors use different pricing models to charge credit card processing fees. The most common pricing models are:

  • Flat-rate pricing: This is when the processor charges a flat rate per transaction, regardless of the type of card, the type of transaction, or the industry that you are in. For example, Square charges 2.6% + 10 cents per swipe, chip, or tap transaction, and 2.9% + 30 cents per online transaction. This pricing model is simple and transparent, and it is suitable for small businesses that process low volumes of credit card sales, or that have unpredictable or seasonal sales patterns.
  • Interchange-plus pricing: This is when the processor charges the interchange fee plus a markup fee per transaction. The markup fee is usually based on a percentage of the transaction amount plus a fixed fee. For example, Helcim charges the interchange fee plus 0.3% + 8 cents per transaction for in-person payments, and the interchange fee plus 0.5% + 25 cents per transaction for online payments. This pricing model is more complex and variable, but it is also more transparent and fair, as it reflects the actual cost of processing each transaction. It is suitable for small businesses that process high volumes of credit card sales, or that have consistent and predictable sales patterns.
  • Subscription-based pricing: This is when the processor charges a monthly subscription fee plus a fixed fee per transaction. The subscription fee usually includes access to various features and tools, such as point-of-sale systems, invoicing, reporting, etc. The fixed fee per transaction is usually lower than the interchange fee, and it does not vary depending on the type of card, the type of transaction, or the industry that you are in. For example, Stax by Fattmerchant charges $99 per month plus 8 cents per swipe plus the interchange fee for in-person payments, and $99 per month plus 15 cents per key-in plus the interchange fee for online payments. This pricing model is also complex and variable, but it is also transparent and fair, as it reflects the actual cost of processing each transaction. It is suitable for small businesses that process very high volumes of credit card sales, or that value access to various features and tools.

To find the cheapest credit card processing fees for your small business, you need to compare different pricing models and see which one offers the best value for your business. You can use online calculators or tools to estimate your credit card processing costs based on different pricing models and scenarios. You can also request quotes from different processors and compare their fees and features.

Negotiate with your processor:

As we mentioned earlier, processor fees are negotiable, as they are set by the processor. Therefore, you can try to negotiate with your processor to lower your credit card processing fees and get a better deal. You can use your credit card processing volume, your transaction size, your industry, your payment methods, and your loyalty as leverage to negotiate with your processor. You can also shop around and compare different processors and see if they can match or beat the fees and features of your current processor. However, you need to be careful and read the fine print of your contract, as some processors may charge hidden fees, such as cancellation fees, setup fees, equipment lease fees, statement fees, etc. You also need to be realistic and respectful when negotiating with your processor, as they have to cover their own costs and make a profit as well.

Optimize your payment methods:

Another way to find the cheapest credit card processing fees for your small business is to optimize your payment methods and reduce the risk of fraud and chargebacks. For example, you can:

  • Use chip cards instead of swipe cards: Chip cards are more secure and less prone to fraud than swipe cards, as they generate a unique code for each transaction. Therefore, they usually have lower interchange fees and lower chargeback rates than swipe cards. If you accept in-person payments, you should use a chip card reader instead of a swipe card reader, and encourage your customers to use chip cards instead of swipe cards.
  • Use debit cards instead of credit cards: Debit cards are also more secure and less prone to fraud than credit cards, as they require a PIN or a signature for each transaction. Therefore, they also usually have lower interchange fees and lower chargeback rates than credit cards. If you accept in-person payments, you should ask your customers to use debit cards instead of credit cards, and offer them incentives or discounts for doing so.
  • Use ACH payments instead of card payments: ACH payments are electronic payments that transfer funds directly from the customer’s bank account to your bank account, without involving any card networks or card issuers. Therefore, they have no interchange fees or assessment fees, and they only have a small processor fee per transaction. For example, Stripe charges 0.8% + 25 cents per ACH transaction, with a cap of $5. If you accept online payments, you should offer your customers the option to pay with ACH payments instead of card payments, and offer them incentives or discounts for doing so.
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By optimizing your payment methods, you can reduce the cost of credit card processing and increase your profits.

How to Choose the Best Option for Your Business

Finally, after you compare different pricing models and negotiate with processors, you need to choose the best option for your business. The best option is not necessarily the cheapest option, but the one that meets your specific situation and needs. Here are some factors to consider when choosing the best option for your business:

Your sales volume:

Your sales volume is the total amount of money that you make from credit card transactions in a given period, such as a month or a year. Your sales volume affects your credit card processing fees, because the higher your sales volume, the lower your effective rate (the total fees divided by the total sales). For example, if you pay $100 in fees for $1,000 in sales, your effective rate is 10%. But if you pay $200 in fees for $10,000 in sales, your effective rate is 2%. Therefore, if you have a high sales volume, you may want to choose a pricing model that charges a lower percentage, such as interchange-plus or subscription, rather than a pricing model that charges a higher percentage, such as flat-rate or tiered.

Your average transaction size:

Your average transaction size is the average amount of money that you make from each credit card transaction. Your average transaction size affects your credit card processing fees, because the higher your average transaction size, the lower your effective rate. For example, if you pay $0.10 in fees for a $10 transaction, your effective rate is 1%. But if you pay $0.10 in fees for a $100 transaction, your effective rate is 0.1%. Therefore, if you have a high average transaction size, you may want to choose a pricing model that charges a lower fee, such as interchange-plus or subscription, rather than a pricing model that charges a higher fee, such as flat-rate or tiered.

Your type of transaction:

Your type of transaction is the way that you accept and process credit card payments, such as card-present or card-not-present. Your type of transaction affects your credit card processing fees, because different types of transactions have different interchange and assessment fees. For example, card-present transactions have lower interchange and assessment fees than card-not-present transactions, because they are considered less risky and more secure. Therefore, if you have mostly card-present transactions, you may want to choose a pricing model that passes on the lower interchange and assessment fees, such as interchange-plus or subscription, rather than a pricing model that charges a flat-rate or a tiered rate, regardless of the type of transaction.

Your industry and category:

Your industry and category are the type of products or services that you sell and the type of customers that you serve. Your industry and category affect your credit card processing fees, because different industries and categories have different interchange and assessment fees. For example, merchants that sell high-risk products or services, such as travel, gambling, or adult entertainment, may have higher interchange and assessment fees than merchants that sell low-risk products or services, such as groceries, clothing, or books. Therefore, if you are in a high-risk industry or category, you may want to choose a pricing model that passes on the lower interchange and assessment fees, such as interchange-plus or subscription, rather than a pricing model that charges a flat-rate or a tiered rate, regardless of the industry and category.

Conclusion

Credit card processing fees are a necessary cost of doing business, but they don’t have to be a burden. By understanding how credit card processing fees work, comparing different pricing models, negotiating with processors, and choosing the best option for your business, you can find the cheapest credit card processing fees and save money on your monthly costs.

To summarize, here are the main points that we covered in this article:

  • Credit card processing fees are composed of three main components: interchange fees, assessment fees, and processor fees.
  • Interchange fees are the fees that the card issuer charges the merchant for each transaction. They vary depending on the type of card, the type of transaction, the amount of the transaction, and the industry and category of the merchant.
  • Assessment fees are the fees that the card network charges the merchant for each transaction. They are fixed, but vary depending on the card network and the type of transaction.
  • Processor fees are the fees that the payment processor charges the merchant for each transaction. They are not fixed, but vary depending on the processor and the pricing model they use. There are four main types of pricing models: flat-rate, interchange-plus, subscription, and tiered.
  • Flat-rate pricing is simple, transparent, and predictable. It is ideal for businesses that have low to medium sales volume, low average transaction size, and a mix of card-present and card-not-present transactions.
  • Interchange-plus pricing is transparent, flexible, and competitive. It is ideal for businesses that have high sales volume, high average transaction size, or mostly card-present transactions.
  • Subscription pricing is transparent, predictable, and scalable. It is ideal for businesses that have high sales volume, high average transaction size, or mostly card-present transactions.
  • Tiered pricing is complex, opaque, and unpredictable. It is not ideal for any business, because it is difficult to compare rates and fees, and to predict monthly costs.
  • To compare different pricing models and find the cheapest credit card processing fees, you can use online tools such as [CardFellow] or [Merchant Maverick], which provide free quotes, reviews, and calculators for different processors and pricing models.
  • To negotiate with processors and save money on credit card processing fees, you can ask for interchange-plus pricing, negotiate the markup, negotiate the monthly fees, and negotiate the contract terms.
  • To choose the best option for your business, you need to consider your sales volume, your average transaction size, your type of transaction, and your industry and category.

We hope that this article has helped you find the cheapest credit card processing fees for your business. If you have any questions or comments, please feel free to contact us. We would love to hear from you and help you with your credit card processing needs.