Cutting Your Credit-Card Processing Fees

By Pat O'Boyle and Michael Higgins

    Credit-card use has now penetrated almost every industry and almost every country. More than 30 million businesses accept credit cards worldwide, and that number is likely to increase as consumers continue to reach for plastic rather than cash when making purchases. In 2015, the volume of credit-card purchases for goods and services grew by 18 percent, exceeding $3.1 trillion. 

    Unfortunately, costs for accepting credit cards seem to be exploding as well. Business owners understand there is a cost for accepting credit cards. But few really understand exactly what they are paying and why, and therefore underestimate the true impact that accepting credit cards has on their business’s profitability. 

    The good news: A basic understanding of the card processing business—how it works, the types of fees and who is making money on your credit card sales—can go a long way in curbing your costs. In fact, informed businesses can reduce fees by up to 40 percent.

Credit-Card Fees 101. One reason many businesses overpay is that accurate information regarding the procedures, account setup options and real operating costs is not readily available. Businesses can’t always rely on the sales personnel for guidance either. Often, the sales reps have limited knowledge of the industry and resort to aggressive sales tactics to succeed in the competitive climate of the processing industry. This lack of advocacy and support has made it harder, if not nearly impossible, for decision-makers to recognize the true costs and select the best, optimized solution for their business. 

Some common pitfalls companies must navigate include confusing and costly rates, incorrect account setups, unnecessary elective fees, overpriced equipment and punitive contracts that lock businesses into long-term agreements. 

Simply “rebidding” credit-card acceptance services usually does not result in the savings most businesses are seeking. Merchant sales groups are too good at this shell game of hiding fees, and often a business will end up in an even more punitive program. Knowledge is power, especially in the merchant processing world.  

Cost-saving strategies. The best defense is evaluating the merchant account at least annually to identify ways to reduce costs and risks. Some tips that should help you protect your bottom line: 

  • Adopt an Interchange Pass Through versus bundled-rate (e.g., “qualified”) programs. Interchange Pass Through programs separate Interchange fees from other fees. Interchange fees are fees dictated by a card brand (such as-Visa, MasterCard, Discover and American Express). Other fees include processing and sales channel fees. With a cost-plus-pricing approach, the fees are more clearly delineated, making it easier to see and monitor what you are being charged.  
  • Make sure the merchant account is optimized for the business. Even an Interchange Pass Through program may not maximize the efficiency of the merchant account. Be sure the account is set up correctly for your type of business, with tools tailored to your industry. Correct account setup that is optimized for your business can be the single greatest area of cost savings, exceeding 40 percent.
  • Understand non-qualified trans-actions. Be sure you know why certain transactions are classified as “non-qualified” and understand the additional costs for these transactions. In general, if the term non-qualified appears on the merchant processing statement, opportunities exist for improvement. Typically, a few simple improvements to your business processes will reduce or eliminate the number of non-qualified transactions you have and thereby reduce your costs. 
  • Understand all fees. Many fees are elective and can often be reduced or eliminated. Question any fee that is not an Interchange fee or industry-dictated fee.
  • Use the Address Verification System. Including a customer’s billing address and ZIP code when entering a transaction will reduce your costs and risk of fraud.
  • Remove punitive contract term-
    ination penalties. Review merchant ac-
    count contracts and understand the terms for terminating the account. Work with vendors who do not penalize your business for canceling a merchant account. 
  • Do Not lease equipment. Leasing credit card and check processing equip-ment is expensive. In many cases, businesses pay 5 times more for equipment when they lease. Seek to purchase outright.

    Buyers beware. When selecting a card-processing solution, or when evaluating your current solution, remember that knowledge is power. With an optimized solution, your business can obtain all the benefits of accepting credit cards while avoiding the excessive costs and penalties. 

     If you are uncertain whether your business has the most optimized solution, seek assistance from a knowledgeable advocate. Risk and the potential for higher fees vary broadly from industry to industry, particularly for those outside of the retail and restaurant spaces. It is important to partner with an advocate who has experience specific to your industry to identify these risks and provide a tailored and cost-effective solution.   

About the authors


Pat O'Boyle is a partner at MSP Consulting, a merchant services consultancy in Kansas City.

P | 913.890.4900

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Michael Higgins

Michael Higgins is a partner at MSP Consulting, a merchant services consultancy in Kansas City.

P | 913.890.4900

E |