How to Find Cheap Credit Card Processing for Your Business
By Alexandra Sheehan
It’s 2019. Credit cards are outpacing cash payments. Just two years ago, they were used for more than 60% of consumer payments. And there’s no slowing down: In 2022, it’s expected that small business credit card purchase volume will climb to $686 billion — up from $493 billion in 2017.
Accepting credit card payments also helps businesses grow. Cardholders will spend up to 18% more than those using cash.
But it’s not all profits. To be able to accept credit card payments, you need the technology to accommodate it. And that means paying fees to those tech companies. You want to mitigate these expenses as much as possible by finding the cheapest credit card payment processor.
Unfortunately, it’s not as straightforward as doing a price comparison on Amazon or Google Shopping. There’s no one-size-fits-all answer. Let’s look at how to evaluate payment processing fees and how to choose the cheapest one for your biz:
What goes into payment processing fees
To understand credit card payment processing fees, it’s also helpful to familiarize yourself with how credit card processing works and who are involved in the process. Each of the players needs to take their own cut. Here’s a quick overview:
When it comes to payment processor fees, how much you pay depends on the vendor you choose and the payment structure they have. There are four main ways credit card payment processing is charged:
1) Flat rate: This is a fixed amount or percentage for each transaction. Many times, credit card processors will have a fixed amount plus a percentage of the transaction. (For example, $0.30 + 2.5% of the transaction amount.)
2) Interchange plus: Like a flat rate, you’ll pay a certain amount for each transaction, a percentage of that transaction (typically lower than the flat rate percentages), and the interchange rate on top of the fees to your payment processor. Interchange fees vary, so you’ll need to research what this means for your particular situation.
3) Tiered: These rates are based on pricing tiers: qualified, mid-qualified, and nonqualified (these refer to the type of card your customers use to pay). With this pricing structure; processors will often advertise the lowest qualified rates and keep the more expensive fees hidden.
4) Membership: You pay a fixed monthly membership fee, which often includes a small per-transaction fee on top of that. This is ideal because your payment processing expenses are always predictable.
And there are more fees owed to the other players involved in the process. How much you end up paying depends on the merchant services providers you choose. It really starts with your payment processor and their fee structure.
How to compare fees for payment processing
Understand all the fees involved
Here’s a general breakdown of what to look for when choosing a payment processor:
- Upfront fees: Some payment processors will charge application, setup, installation, and other one-time upfront fees. You’ll want to calculate this into your costs.
- EMV technology: EMV refers to the major players in credit cards: Eurocard, MasterCard, and Visa. Today, chips are becoming more common (they help reduce fraud), and if you want to accept chip payments, you’ll also need the technology to do so. Find out how much it’ll cost you to get this tech set up.
- Transaction fees: These are the fees we go over above. Find out which fee structure the payment processor uses and what those numbers are.
- Hidden fees: We mention this briefly above, but many payment processors will advertise their lowest rates and keep more expensive fees hidden. This is for different types of cards: Debit card transactions, for example, are typically charged at a lower rate than credit.
- Monthly fees: These are also typically hidden and can include small fees for mailing a monthly statement or credit card processing terminal rental, which can be up to $100/month. You might also be charged if you don’t meet your processor’s monthly minimum transaction amount.
- Cancellation fees: If you sign a contract with a payment processor, they may hit you with a fee if you want to terminate if before it expires.
A note about markups
While there’s not any wiggle room in terms of the payment processing rates, one area to consider is the markup. This is typically more flexible, as the payment processor institutes these fees. This is what you pay your payment processor on top of what they collect for the banks and credit card networks.
If you’re paying an interchange plus rate, for example, you’ll likely have to pay the interchange rate and a markup to the payment processor. This is when wholesale rates come into play — they minimize markup and added expenses to the merchant. Membership-based pricing, on the other hand, gets you wholesale pricing. In other words, that monthly membership fee is the markup.
Evaluate your numbers
What’s cheapest for you may not be cheapest for the next merchant. It all boils down to how you do business, who your customers are, how many transactions you process, and how much customers spend in an average transaction.
To do this, analyze your credit card processing statement for the past three months.
In addition to the factors we list above, you’ll also want to look at the type of cards your customers use, your fraud risk, and how many chargebacks you face.
Read customer reviews
Customer reviews can tell you a LOT about a payment processor — things that a payment processor may not be willing or able to tell you themselves. Scan reviews for complaints (or praises) about their fees. Have merchants been pleasantly (or unpleasantly) surprised at how much they take?
Tips to keep in mind when negotiating with processors
You’re not going to be able to negotiate the actual processing fees, but one way you can score lower rates is by reducing your fraud risk. If you pose a high fraud risk, you’ll likely face higher fees as well.
So how exactly do you do this? One way is to accept cards in person as opposed to online. Cyber credit card fraud is more prevalent, and in-person transaction is less likely to be susceptible to this.
To take it even further, you can require additional “identity checks” for credit card payments. Things like the cardholder’s ID, zip code, security code, and even address verification can safeguard you from fraud — and unnecessarily high fees. It’s important to also educate your staff on how to be proactive against fraud — they’re your first line of defense.
There is no single answer to the question, “who is the cheapest credit card payment processor?” It really boils down to your business’s unique needs. But if you take the time to research your options, understand your own numbers, and find the one most suited to you, you’ll have a greater chance at finding a payment processor who will help you profit as opposed to cutting into your profits.