Most businesses understand that credit card processing can be expensive, but it’s necessary to help maintain an existing customer base while growing the rest of your business. Many small business owners are unaware that most processing fees can be negotiated, and there is an option to choose from different pricing models depending on what might be best for your business. Below we will discuss some ideas on ways merchants can work to reduce their costs and increase profit margins without sacrificing their current services.

Small Business Credit Card Processing Tips Table of Contents

Understand Your Business


Understanding the financial operations of your business is the first step towards saving money on credit card processing. This understanding includes the transactions that are processed, the volume of transactions every month, and the types of bankcards your customers use. All these pieces of information can help paint a better picture of the payments your company receives and ultimately make better choices regarding the type of processing that should be used.

The second set of factors to consider is the type of equipment you have or will need. This will vary significantly based on your business model and the habits of your customers. If you have a brick-and-mortar store, you likely need a lot more hardware, such as a terminal, than if you own an eCommerce business and customers pay online. If you need physical equipment in your store, it is usually best to purchase the equipment outright rather than leasing, financing, or using “free” equipment. Owning your own equipment gives you more leverage when negotiating fees, allowing merchants to lower their overall costs for the relationship term significantly.

Lastly, merchants must know what features and services they need from their payment processors.  This includes such functions as fraud protection and compliance. Merchants can determine what services they need to operate properly by knowing the business and how customers pay. When accepting customer credit card information, protecting the consumer and the merchant is essential since the fraud and fines associated with fraud can be determinantal to a business.

Know What Fees Can Be Negotiated

Credit card processing includes a complex series of fees charged by different entities. Some are written up by the payment processor and sales organization, allowing room for negotiation. Other fees are passed through from the card payment networks and leave little to no room for negotiating a lower fee. Knowing the different costs and their differences will make merchants better suited to negotiate the terms for their business.

Interchange and various assessment fees are primarily non-negotiable costs. The credit card networks assess interchange fees as discount and per-transaction fees, with most of the discount and transaction fees going to the card issuing banks. Assessment fees are based on your monthly sales, and 100% are paid to the credit card networks to help maintain the security of the systems.

The merchant account markup fees are the negotiable parts of the processing agreement. These are the fees charged by the processor for their payment services, including equipment and management of accounts. Payment processors do not receive any portion of the interchange or assessment fees charged by the card associations, resulting in their profits from the markups. Monthly fees are another negotiable segment; many times billed as a monthly account, maintenance fee, or some combination of them both. These fees can often be negotiated based on good standing with the service provider and the monthly transaction volume.

Understand the Different Pricing Models

The discount rate schedules are some of the most complex concepts to understand in card processing but are vital to your business. Knowing the difference between the pricing models can be a fantastic way to understand what a business needs and save money on the processing. Not all models are created alike, and one solution might save businesses thousands per month in fees while raising the costs of another merchant.

Interchange Plus Pricing
This is usually an excellent option for most small businesses needing card processing services. In this model, the service provider passes the interchange fees from the card networks directly to the merchant. At the same time, the payment processor will charge their markup fees at a fixed rate in an easy-to-understand method. This model makes planning for your processing costs easy because of the fixed markup rate. The confusing part about this plan are the interchange fees because they vary for several reasons, including card type and the card issuing bank. This type of payment model is the most transparent and fair for the merchant because the payment processor discloses all their fees upfront.

Tiered Pricing
Tiered pricing is often a complex structure that can be difficult to understand. Transactions are grouped into “tiers” and charged according to their designated tier. These tiers are typically qualified, mid-qualified, and non-qualified with upwards of 6 different tiers depending on the payment processor. Each tier is priced at a different markup, and transactions will be charged according to the interchange cost of that transaction.

Service providers categorize transactions differently, so doing a side-by-side comparison in this model is challenging. Service providers offer low teaser rates that sound good, but few cards can qualify for that tier resulting in downgrades to charge cost tiers. The best way to check fees is by comparing monthly fees against other providers.

Flat Rate Pricing
This model is the easiest to understand and plan for, and why so many merchants flock to it. Generally, these payment processors, operating as e-wallets, offer merchants a fast and easy setup with no monthly fees. Very enticing to startups and merchants looking to keep initial costs down.

Processors charge a flat fee for all transactions, significantly higher than merchants pay with other pricing structures. These higher fees are due to the risk and convenience of their platform, a fantastic feature for startups and smaller businesses. Merchants processing over $1,000/month should seriously consider shopping around their payment services as they will likely save a good amount of money changing.

Shop Your Business Around

Shopping around for other options is essential for merchants looking for new services, whether for an existing or startup business. Merchant services companies work on commission, so they will be more than happy to help provide you with an estimate promptly. If you are currently processing, have a recent statement to show sales agents your current costs to determine how much money their offer would save.

Avoid any merchant services company that practices high-pressure sales, uses sales gimmicks that appear too good, or offers loss leaders such as free equipment. Those practices generally show that costs could be substantial and should be scrutinized.  For instance, purchasing a terminal outright could cost you $400, but if costs increase by $30/month (verse no equipment) over the life of a 3-year contract, that terminal costs over $1,000.

Although pouring through all these offers with different pricing models and fee structures can be tedious, it’s a great way to ensure you get the best deal this time. Having quotes from multiple providers will allow you to return to the merchant services company you want and negotiate the fees you want. Having a secure payment services provider that offers excellent customer service with excellent rates will help you be successful without issues.

Prepare to Start Saving Money

Payment processing is an important aspect of any business. Giving it time and attention can help a business succeed long-term by reducing unnecessary costs. The ideas and suggestions above will help merchants pinpoint the best rates and find the best provider based on the needs of your business.