5 Tips for Minimizing Payment Processing Fees

Consumers are increasingly abandoning cash as their primary mode of payment. According to one study, credit and debit cards accounted for slightly more than half of all transactions in 2018. (51%). This trend has had a significant impact on merchants, who are required to set up online payment gateway systems in order to process those payments. They must also learn how to deal with the difficulties that come with payment processing fees.

Processing fees are service charges that are charged to cover the overhead costs and risks associated with credit card transactions. To understand how fees are calculated, it's worth reviewing what happens during a credit card transaction. Accepting a credit card payment appears to be a simple act, but it is actually a complex, multi-step process involving multiple parties. When a customer presents a card for payment, the merchant gateway system sends the payment information to a payment processor, who then sends it to the card association that issued the card (such as Visa or MasterCard). The card association then refers to the bank that issued the customer's card. The bank either approves or declines the transaction, and the decision is relayed back to the point of sale via the processing chain.

If the transaction is approved, the merchant will be given an authorization number that will allow them to complete the sale. If the transaction is declined, the customer must present a different form of payment. All of this occurs in a matter of seconds, thanks to complex processing networks that connect merchants to card associations and issuing banks via merchant account providers or payment processors (which are often the same company, as with Transcend Pay). Although the process can be a little more complicated, and payment processing isn't complete until credits and debits are issued between institutions to transfer funds, this broad overview is sufficient to provide context for how fees work.

As a merchant, you're usually responsible for covering the costs of everyone else in the credit card processing chain. Because interchange rates are non-negotiable, the payment processor you choose will have a significant impact on how much you actually pay for each credit card transaction. To make the best decision for maximizing your revenue, it's critical to understand how your processor charges fees. A reputable payment processor should always be upfront about what fees are charged and when they are charged.

Keep an eye out for hidden fees tacked on as monthly costs, such as customer service fees, POS system hosting fees, or network access fees. Processors with a bad reputation frequently try to hide fees by incorporating them into a tiered or bundled pricing model that establishes specific criteria for different levels of transactions and charges different prices accordingly. These practices can reduce your revenue unfairly and make it difficult to make decisions based on your processing requirements.

Given the impact that fees can have on your business, it's always a good idea to consider ways to avoid or reduce them. While some processing fees are unavoidable, there are steps you can take to keep them as low as possible.

While this is obviously not possible for many online businesses, in-person transactions have a lower processing fee because they are less likely to be fraudulent. Avoid accepting credit card payments through the best online payment gateway over the phone and do everything you can to encourage customers to charge their purchases in person.

Because processing fees apply to each transaction, a large number of low-volume transactions can quickly add up to a significant amount of fees. Setting a minimum purchase amount for credit card sales can help reduce these fees, but there are some legal considerations to keep in mind. Debit cards may be subject to different rules depending on the issuer, so check with your payment processor to see how much leeway you have when it comes to set minimums.

A chargeback occurs when a customer disputes a charge from your company and requests that their credit card company reverse it. Due to the nature of their industry, high-risk businesses typically experience a higher than average volume of chargebacks (it's one of the key factors that gets them labeled as high-risk merchants in the first place). A credit card authorization form, which is a document signed by the customer that gives you permission to charge their card, is one way to reduce chargebacks. Having this documentation increases your chances of winning chargeback cases with the card issuer as well as lowering the overall number of chargebacks your business experiences in order to keep your processing fees low.

An AVS, which requires customers to enter their address during the checkout process, is one of the most effective tools for combating credit card fraud. When the transaction is processed, it is compared to the address on file with the issuing bank. Businesses that use AVS on their eCommerce platforms frequently qualify for lower interchange rates from credit card companies.

Some payment processors engage in predatory behavior, forcing businesses to maintain unnecessarily high reserve requirements and pay a variety of fees for services that any reputable processor should provide as part of their standard services. When it comes to credit card processing, high-risk merchants frequently face significant challenges because the processor may require them to meet additional requirements. When negotiating with a payment processor, always confirm their fee structure and whether they deduct a percentage of transactions to meet a reserve requirement.

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