Mobile and contactless payment solutions have revolutionized the way businesses—both local small businesses and multinational corporations—operate.
Wireless card terminals, online payment services, and secure credit card processing “Point of Sale” devices make it easy for anyone to buy and sell anything anywhere, at any time. Unfortunately, these payment options often come at a cost—to both you, the business owner, and your customers.
Anyone who accepts credit/debit card payments gets charged an interchange fee plus a processing fee. To put it simply, it’s a fee charged by the credit card associations (Visa, MasterCard, AmEx, or Discover) and the merchant services company processing the purchase, covering the cost of fraud or bad debt, and ultimately, approving the payment and moving the money between accounts.
(Note: It’s estimated that around 300 individual interchange fees make up the “single” lump sum fee paid per transaction.)
When accepting credit cards, merchants typically end up paying the interchange or surcharge fee—an average of around 1.81%.
When accepting debit cards, businesses also pay a fee—an average of around 0.3%.
(Fees will vary according to the service provider.)
Businesses who want to save their customers from paying a fee can simply encourage them to pay by cash. However, this means that the businesses’ bottom line could be impacted, as most customers prefer paying with cards..
Nonetheless, there are some ways that you can save on your credit and debit card processing fees, helping you protect your bottom line.
Sign Up for a Payment Aggregator Account – Certain services, such as Paypal and Stripe, allow you to set up a “shared merchant” or business account. These are typically easy to sign up for and offer payment processing with no fees. However, this is only below a certain limit—usually $50,000 per year. If you receive more than that minimum, the transaction rates actually end up costing you more (rates like 2.9%+$.20 per transaction). If your earnings are above the limit, you might be better off with a merchant account. Keep in mind that there is a fee for each transaction on Stripe. A Stripe fee calculator can be used to determine the charges.
Open a Merchant Account – Merchant accounts are customized specifically for the businesses they are servicing and the bank or payment service that is providing them. You will need a specific merchant category code (MCC) to make certain the payments are processed correctly for your particular industry. You’ll also want to talk with the service provider to make sure the service is optimized for the payments you expect to receive (total yearly volume, amounts per transaction, frequency, etc.). Credit/debit card processing fees are typically lower with merchant accounts because of the lower rates. Anyone processing over $50,000 per year would be better served with a merchant account.
Encourage Customers to Use Certain Cards – Not every credit card association charges the same fees. MasterCard, and Visa have lower interchange rates. (Note: MasterCard typically has the lowest fees, followed by Visa, then American Express.) You can encourage your customers to use those specific credit card types, or make it clear that you only accept certain cards (MasterCard, and Visa but not American Express, etc.). That way, you pay only the lowest processing fees on the market.
Only Accept Debit – As mentioned above, the use of debit cards by your customers will automatically charge you, the business, the fee, but the fee is typically fairly low (lower than credit cards). If you want to keep costs low and it doesn’t inconvenience your customers significantly, you can simply state that you don’t accept credit cards, only debit cards. However, this could also work against you because many shoppers only carry credit cards around or choose to primarily use credit cards for their purchases to earn points and rewards.
Find a Payment Service that Provides No-Fee Processing – Due to the rise in popularity of mobile, contactless and online payments, service providers have sprung up that offer “no-fee processing.” Simply put, they handle the credit/debit card processing but without significant charges.
How is this possible? No-fee processing services work directly with credit card associations (like Visa, MasterCard, and American Express) to qualify individual businesses for “no-fee processing,” which then allows merchants to eliminate the bulk of their processing fees. Thanks to recent law changes and advancements in processing software, businesses are able to find new-and-improved ways to handle credit card payments without being charged exorbitant fees—or any fees at all.
As a small or medium-sized business, it’s important to know solutions that can help you save money and reduce overhead costs. Payment processing fees can cut sharply into your annual income, particularly if the majority of your sales are made using debit or credit cards—both online and in person. The information above will help you find the best option to cut your payment processing costs and choose the best solution so you can maximize your income and protect your bottom line.
With the right merchant processing service, your business will become more profitable than ever!