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All too often we talk to small business owners who underestimate the importance of finding the best credit card processing deal. Fractions of interest may not seem like much in the contract you sign with a service provider, but these pennies add up. Fast. For businesses that have a higher volume, they accumulate faster. And those totals will make a big difference to your bottom line at the end of the year. So it will be very valuable for business owners to know how to reduce retail credit card processing fees.
On average, businesses pay a processing fee of 1.5% to 3.5% per transaction. If gross annual sales are $500,000, the 2% rate comes in on a $10,000 processing fee. At a rate of 1.5%, that amount changes to $7,500, saving you thousands by reducing fees by 0.5%.
Credit Card Processing Rates
Credit card processors know exactly how quickly these fees can add up. And they are just as good at marketing their contracts on favorable terms. Square, for example, lowered its prices by a percentage, but added a $0.10 fee. This significantly increased the total processing fee. So be careful what you sign up for and how much it will cost your business each year. There are also some very easy ways to reduce your retail recycling fees. Use that money to improve your business instead of spending it on extra taxes and fees.
Infographic: Credit Card Processing Fees
Simply put, there are several. For a more detailed look, see our blog on how credit card processing works. But let’s summarize some of the main contributors below:
Evaluation fee: This fee is determined by the credit card company and varies slightly between networks. They are also usually slightly higher on credit transactions than debit. The evaluation fee also includes the monthly landline rate as a kind of subscription fee.
Exchange Fees: Your exchange rate is the vast majority of the total fees you pay for each transaction. They vary the most and can be reduced (but never eliminated) by strict credit card policies. Some of the factors that determine the exchange rate include card presence/absence, cards with high rewards, business or corporate cards, and key/swipe/insert transactions. These prices vary between networks, but regulatory committees crack down on exorbitant prices around the world. The European Union has recently issued large caps on the exchange rates charged by the major card networks.
Processing Fees: Of course, the merchant service provider must also be compensated for their role in the process. This rate varies between companies and is negotiable based on transaction volume and the business’s security/fraud protection measures. More on that below.
Credit Card Processing Fees: Average Transaction And Merchant Fees
With some processors, merchants have options for different types of structured accounts. However, not all credit card processors offer this. Go into negotiations with potential credit card processors armed with information about how the process works. They are more likely to offer favorable prices.
Fixed Fee: Here every transaction comes with a predetermined fixed fee. Fees vary for different types of transactions, but do not change over time. For example, your contract may have slightly different rates between debit, credit and activation transactions, but those rates remain the same for all transactions of that type. This type of report is easy to understand and is great for businesses that don’t have a lot of transactions. For higher volume SMBs, look for alternative plans.
Interchange-Plus: Arguably the best account plan for most businesses, interchange-plus has more transparency than other plans. The rate is broken down into a base exchange rate based on the type of card used and further details of how the card was processed. The extra details are there to show retailers exactly what they’re paying for, so they can adjust their store’s policies to lower prices. Interchange-plus rates are more complicated to decipher, but allow you to understand what factors will affect your rates.
Tiered: Finally, tiered pricing is less disruptive to commissions. The different levels combine the exchange rates for each different card type with the transaction type into a single fee. A single charge makes it impossible to know exactly which factors contributed to the total charge. Also, these types of plans are difficult to negotiate and are the easiest way for processors to set prices in certain situations.
Credit Card Processing Rate Comparison: Get The Best Rate For Your Smb
These plans make the process easy, but none of them offer the transparency that many retailers want. There are many factors that affect your processing rates, and it’s important to understand each part if you want to reduce your overall credit card processing fees.
Remember that credit card processors, just like you, are in the business of making money. Of course, this service will never be free. And it is also an absolutely necessary operation for 99% of businesses. But that doesn’t mean you have to pay too much.
Remember that while you want to minimize costs, you also want to add value to the merchant’s service provider. One way to use this is to highlight transaction volume. A higher volume usually corresponds to a lower speed. Show evidence of annual growth with projected sales in future years.
It is important that all businesses take some preventative measures to protect against retail fraud. This means staying current on trends and technology and making sure your business is equipped with the right POS software and technology. Part of your processing fee is a form of insurance, and the processing and issuing banks bear the risk. So if you can show that your business is less prone to fraudulent activity, processors will lower their rates. Below are some fraud prevention methods to consider when negotiating your rates:
Credit Card Processor Fees You Need To Know
Reducing your chances of falling victim to retail fraud will not only make your life less stressful, but it will also save you money on credit card processing fees.
AVS is a system that further reduces the risk of credit card fraud and charges. This process simply checks the cardholder’s billing address with the issuing bank associated with the card. The address entered must match the address registered by the buyer’s bank, otherwise the transaction will be automatically cancelled.
Although this method is typically used for CNP transactions in the e-commerce channel, brick-and-mortar retailers also require it for in-store purchases. Most often, the customer is only required to provide the billing postal code. The process is quick and easy, but adds another important layer of protection against fraud, adding yet another reason for credit card processors to lower rates. In fact, VISA has started to incentivize the use of AVS by lowering the exchange rates for their merchants who use it.
You see this in many stores for a reason. Especially businesses that sell large quantities of low-cost goods. Here’s why.
Merchant Acquirer Fees Explained
Typically, the credit card processing fee comes as a percentage of each gross sale. And usually retailers who sell off-price items make only a small profit on each sale. Markup is almost always lower on cheaper products. Therefore, even a small decrease in profits can mean that sales have gone from being profitable to making a loss. If your business thrives on small purchases, consider not accepting credit cards for transactions over a certain amount (typically $5-10). And for transactions where you accept credit cards, follow the other steps in this blog to minimize the total interest that goes into processing fees. You will see the difference at the end of the year.
Some small and medium-sized retail businesses are now making up for lost profits with their processing fees through credit card surcharges or convenience fees. The laws have been relaxed so that shipping or handling costs can be passed on to the customer. However, this can mean a reduction in business, so it’s usually a less than ideal solution.
First, talk to the software and hardware vendor at the point of sale about how they handle the sales process. Many POS companies also act as merchants. In these cases, it is important to find out exactly what they are paying for and how the prices are distributed. Pay attention to contracts in these cases. Often they will not lock you into a contract for their POS system, but connect you to their processing system. This keeps you on track even if you’re unhappy with the dealer’s software, and early termination comes with costly penalties.
Others (such as KORONA) are integrated with various payment processors. In this case, check that your POS company can integrate with the processor of your choice and go from there. This gives you greater freedom in your business operations. It also allows you to better negotiate a cheaper price. When different companies are competing for your business, you are more likely to get a friendly offer.
Simple Tips To Lower Retail Credit Card Processing Fees
After connecting to the POS provider and credit card processor, set up each terminal with all necessary hardware. The most important thing is that this includes modern payment terminals. Get credit card machines that accept EMV cards and mobile payments. in addition,
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