Lower Your merchant services Fees: Proven Strategies for Savings
In today’s competitive business environment, every penny counts. One area where businesses often unknowingly overspend is on merchant services fees – the charges associated with processing credit and debit card transactions. These fees, while seemingly small individually, can quickly eat into your profit margins, especially for businesses with high transaction volumes. The good news? There are proven strategies you can employ to significantly lower your merchant services costs and boost your bottom line.
Understanding merchant services fees is the first step towards savings. These fees are typically a combination of several components:
- Interchange Fees: These fees are set by the card networks (Visa, Mastercard, Discover, American Express) and are paid to the issuing bank (the bank that issued the customer’s card). Interchange fees vary based on card type (credit vs. debit, rewards cards vs. standard cards), transaction type (card-present vs. card-not-present), and even the merchant’s industry.
- Assessment Fees: These are fees charged by the card networks to the acquiring bank (your merchant services provider) and are ultimately passed on to you. They cover things like network operating costs and fraud prevention measures.
- Processor Markup: This is the profit margin charged by your merchant services provider. It can be structured in several ways, including:
- Interchange Plus Pricing: The processor adds a fixed percentage and per-transaction fee on top of the interchange and assessment fees. This is generally considered the most transparent and often the most cost-effective pricing model.
- Tiered Pricing: The processor categorizes transactions into different tiers (e.g., “qualified,” “mid-qualified,” “non-qualified”) and charges different rates based on the tier. This model can be confusing and often leads to hidden costs.
- Flat-Rate Pricing: A fixed percentage and per-transaction fee is charged for all transactions, regardless of card type or interchange rate. This model is simple but may not be the most cost-effective for businesses with a wide range of transaction types.
Now that we understand the basics, let’s dive into actionable strategies you can use to lower your merchant services fees:
1. Understand Your Pricing Model and Negotiate:
- Review your current statement: Scrutinize your monthly statements to understand your current pricing model, the fees you’re paying, and your overall effective rate (total fees divided by total sales volume). Look for hidden fees or unexpected charges.
- Negotiate with your provider: Knowledge is power. Armed with a clear understanding of your current fees and alternative options, you can negotiate with your current provider for a lower rate. Highlight your business volume, transaction types, and any competitive offers you’ve received. Don’t be afraid to walk away if they’re unwilling to budge.
2. Choose the Right Pricing Model:
- Interchange Plus is often the best choice: As mentioned earlier, Interchange Plus pricing is generally considered the most transparent and competitive option. It allows you to see exactly what you’re paying in interchange and assessment fees, with the processor’s markup clearly defined.
- Avoid tiered pricing: Tiered pricing can be opaque and lead to unexpected charges. Transactions that don’t meet the “qualified” criteria are often charged significantly higher rates.
- Carefully consider flat-rate pricing: Flat-rate pricing can be attractive for its simplicity, but it may not be the most cost-effective option for businesses with a diverse range of transactions or high volumes.
3. Optimize Your Transaction Process:
- Avoid downgrades: Card networks assign different interchange rates based on the information provided during the transaction. Downgrades occur when insufficient or incorrect information is submitted, resulting in higher fees. Common reasons for downgrades include:
- Incorrect address verification (AVS): Ensure you’re properly verifying the billing address provided by the customer, especially for online transactions.
- Missing card security code (CVV): Always require the CVV code for card-not-present transactions.
- Delayed settlements: Settle your transactions promptly, ideally within 24-48 hours.
- Use EMV chip card readers: Chip card transactions are generally considered more secure and can help you avoid certain types of fraud-related downgrades. Consider upgrading your terminal to one that has EMV capability. PaymentCloud offers EMV capable card readers and terminals.
- Encourage card-present transactions: Card-present transactions (where the customer physically swipes, dips, or taps their card) generally have lower interchange rates than card-not-present transactions (online or phone orders).
4. Consider Cash Discount Programs:
- Legally pass on fees to customers: Cash discount programs allow you to offer a discount to customers who pay with cash, effectively offsetting some of your merchant services fees. Make sure you comply with all applicable laws and regulations regarding surcharge and cash discount programs.
5. Regularly Shop Around:
- Don’t be afraid to switch providers: The merchant services industry is competitive, so don’t hesitate to shop around and compare rates from different providers. Get quotes from multiple providers and carefully compare their pricing models, fees, and contract terms. Many online marketplaces and comparison tools can help you find the best rates for your business. Authorize.net provides payment gateway solutions, but it’s crucial to compare their pricing and features with other providers before committing.
6. Focus on Security:
- PCI Compliance: Ensuring that your business is PCI DSS compliant is crucial to preventing data breaches, which can lead to significant financial losses and reputational damage. Your merchant service provider will often work with you to achieve PCI Compliance.
By implementing these strategies, you can significantly reduce your merchant services fees and improve your profitability. Remember to regularly review your statements, negotiate with your provider, and stay informed about the latest trends in the payment processing industry.
FAQs:
Q: What is an effective rate?
A: Your effective rate is the total amount of merchant service fees you pay divided by your total sales volume. It gives you a good overall picture of how much you’re paying in fees as a percentage of your revenue.
Q: How often should I review my merchant services statement?
A: You should review your merchant services statement at least once a month, but ideally more frequently. This will help you identify any unexpected charges or anomalies and ensure that you’re paying the correct rates.
Q: What is PCI compliance?
A: PCI DSS (Payment Card Industry Data Security Standard) is a set of security standards designed to protect cardholder data and prevent fraud. All businesses that accept credit card payments are required to be PCI compliant.
Q: Are all merchant services providers the same?
A: No. Pricing models, fees, customer service, and contract terms can vary significantly between different providers. It’s important to shop around and compare offers to find the best fit for your business.
Q: What is a payment gateway?
A: A payment gateway is a technology that connects your website or app to your merchant services provider, allowing you to securely process online payments.
Conclusion:
Lowering your merchant services fees is a continuous process that requires vigilance and a proactive approach. By understanding the different components of these fees, negotiating with your provider, optimizing your transaction processes, and regularly shopping around, you can significantly reduce your costs and improve your profitability.
If you’re looking for a transparent, reliable, and cost-effective merchant services solution, we highly recommend contacting Payminate.com. They offer competitive rates, transparent pricing, and exceptional customer support, helping businesses of all sizes navigate the complexities of payment processing and maximize their savings. Visit Payminate.com today for a free quote and discover how they can help you lower your merchant services fees and grow your business.