How To Reduce Payment Processing Costs

EMR Chip ReaderIf you’ve ever accepted a credit card payment from a customer, you’ve probably winced at the transaction cost.  What does VISA (or AmEx, or MasterCard) do to deserve 3% of your hard earned money?  For some of us, 3% might be nearly our entire profit margin!

Fortunately, there are a variety of ways to reduce payment processing costs. These strategies generally fall into one of three categories:

  • Renegotiate your contract
  • Switch processors
  • Become more operationally efficient

But before we get to that, it helps to understand the three basic types of payment processing models used for merchant account services: 

Part I:  The Three Types of Transaction Processing

These fee structures are widely used by e-commerce and retail storefronts, and even merchants requiring a high risk merchant account.  There are three types of processing models in the marketplace, each with their own type of pricing. They are:

  1. Flat Rate Pricing
  2. Tiered-Rate Pricing
  3. Interchange Plus Pricing

All three models have different pricing structures. As a business owner, it’s important to understand the differences and to know how to get the best deal for your company.

1. Flat Rate Pricing

This is exactly what it sounds like. You pay the same flat rate for all transactions, regardless of what they are or what type of payment method is used. This is awesome in terms of simplicity because your billing statement will be straightforward and easy to understand.

This type of pricing is great for businesses that do a small number of transactions per month. It’s also helpful for new business owners because it makes forecasting much easier. If you know the approximate number of transactions you will conduct each month, you can easily figure out what your processing expenses will be.

2. Tiered Pricing

This type of pricing is a little more complex and is based on a “bundling” model. Typical bundle types include Qualified, Mid-Qualified and Non-Qualified. These are terms that are used to describe the type of card transactions that you’re running.

This bundling technique is based on the type of card being used, how quickly the transactions are reconciled and other such factors. This makes it extremely difficult to anticipate what your monthly billing costs will be. Since you never know what types of cards your customers will use, you can’t really forecast with much accuracy.

3. Interchange Plus Pricing

This is the most cost-efficient type of pricing. With interchange plus pricing, you will pay the interchange fee directly to the credit card companies. In the other two models, the processor pays it on your behalf, which makes the pricing a bit convoluted.

This model allows you to pay the fees directly to the credit card companies, and the processor simply adds their fee on top of that. This makes the billing and reconciliation of charges much more transparent, not to mention easier to understand. Interchange plus is the preferred credit card processing method for all types of businesses, from online startups to Fortune 500 chains.  

Part II:  Tips for Reducing Processing Costs

Now that you have a basic understanding of the different pricing models for payment processing, let’s take a look at how to decrease your costs. There are a variety of ways to do this, and every merchant’s situation will be unique.

Change Pricing Models

The most obvious way to decrease your processing costs is to change the pricing model that you’re currently using. This could be as simple as choosing a different plan with your current processor. If your processor offers a variety of pricing models, have a conversation with them to find what’s best for you.

Renegotiate Your Contract

If your current processor does not offer any other pricing models, try to renegotiate your contract with them. If your transactions have increased over time, that’s an indicator that your business is growing. You can make a case for lower fees because your increased volume will make up the difference for them in terms of revenue.

Change Processors

This is a little more complicated than just switching pricing models or contracts, but it’s definitely worth looking in to. If your current processor does not offer any other models and refuses to negotiate, it’s worth investigating other options. If you do find something that’s better, make the switch and don’t look back.

Become More Operationally Efficient

There are tons of ways to be more efficient with your operation that will result in a higher level of productivity and lower processing costs. Here are some of the most effective and easiest to implement.

Streamline Your Transaction Types

Processors charge different fees for different types of transactions. Here are some examples of this:

  • Debit cards generally have lower fees than credit cards.
  • If you swipe a card, you will pay lower fees than if you enter in manually.
  • Cards with an EMV chip will cost less than those being swiped.

Although you can’t necessarily change the payment types your customers use, you can sway them in a particular direction. Gently letting them know that you prefer one type of payment method over another can actually influence their behavior over time. If you need a more blatant way to do this, offer an incentive for using a particular payment type. If you are making a significant change to your policies, be sure to use the best live chat for websites to help them attend to all customer queries and concerns and put them at ease to ensure excellent customer retention.

Invest in Appropriate Equipment

Since EMV (“chip”) transactions tend to have the lowest fees, it makes sense to have a card reader that can accept them. If you haven’t invested in a chip reader, you should consider doing so. This will almost automatically decrease the amount of fees you’re paying.

Reconcile Transactions at the End of Each Day

This is one of those tasks that is really tempting to put off until tomorrow. However, many processors will charge higher fees if you don’t get it done within 24 hours. You might have every intention of settling the payments first thing the next morning, but we all know that life gets in the way. You might as well do it before you leave the office for the day.


If you find that you’re paying too much in processing fees, don’t feel like there’s no way out! If renegotiating your contract or switching processors is too intimidating, start with your operations. Use these tips to be as efficient as possible from an operations standpoint.

If you do that for 6-12 months and you don’t see significant improvement in your fees, maybe it’s time to consider the next steps. If you need help renegotiating, consider hiring an attorney to help. When all else fails, secure a couple of free consultations with different processors to see what’s out there.

Guest Blogger Cris Carillo helps companies establish — and improve! — their merchant services at Contact him at ([email protected]

The Surprising Reasons Charitable Giving is Profitable for Small Businesses

Why should your small business donate to charities? Because you are “good people doing the right thing?” Maybe… but I think there’s a much more pragmatic (cynical?) reason for it. Like all business decisions, giving to charity is actually profit-driven.

Charitable giving can be profitable for a variety of reasons — and aligning a company with an image of charity is a great financial decision.

A Social Demand

Consumers vote with their dollars. The products they buy reflect their values. Today, customers support companies that align more closely with their moral and socially responsible ideals. To remain relevant — and competitive — companies must demonstrate similar values through their products and their actions.

In response to waves of social change like #metoo and #blacklivesmatter, some companies are scrambling to show their support for gender and racial equality. The largest have stepped up to make substantial donations to social justice causes. These donations might advance noble goals … but in any case, they bolster the company’s standing with consumers.

Charitable giving has real benefits. Some experts note that the brand positivity associated with charitable donations is profound and can increase the likelihood of a purchase by upwards of 85%. Associating your brand with a cause is just good business.

Employee Expectations

But customers aren’t the only reason to adopt a generous (and/or ethical) stand toward social giving. Employees appreciate it, and younger employees actually expect it. Millennials, for instance, tend to strive to work for companies where they feel as though they are contributing to something larger. Experts believe that both millennials and the younger Gen Z are driven to work for a company that aligns with their moral values. Being aligned with charities can attract some of the top, young talent in today’s market.

Many employees love being involved in a company’s charitable enterprises. The activity makes them feel great about the company and the community they live in. This pride translates to greater productivity in the workplace — employees who participate in company-sponsored charitable events tend to be up to 13% more productive.

Finally, moving a company toward social activism and charitable giving can also increase business networking opportunities and connections for employees of every level. Generosity comes back to roost as new partnerships and new products. Employees enjoy wider community collaboration, customers see their values reflected, new products emerge, and the company thrives.

Systemic Changes

Ready to take giving a step further? Participate in the annual Giving Tuesday.

This charitable giving event, which began in 2012, offers individuals and organizations the opportunity to make changing the system part of — well — the system. Giving Tuesday occurs at the beginning of every holiday season around the globe. Individuals and businesses alike are encouraged to donate both funds and time to causes they find most resonant. Give all your employees a full paid day off on Giving Tuesday to donate their time to a cause of their choice.

Volunteering can be left to the employee, or coordinated to support a single corporate-chosen charity.

Giving to charities and trying to make the world a better and more equitable place feels good. But it can also have a significant positive benefit to the companies that participate in it. Social and environmental awareness is something that customers are demanding from the companies they frequent. Likewise, employees are expecting greater contributions from the companies they work for. Charitable efforts are a big step toward doing well while doing good!