How to Reduce Credit Card Processing Fees: Top Strategies (2024)

Table of Contents

1. What is a Typical Credit Card Processing Fee?
   1. Understanding Payment Processing Fees
2. Why Are Card Processing Fees so High?
3. How Can I Avoid Card Processing Fees?
4. How to Offset Credit Card Processing Fees?
5. Cut Credit Card Processing Costs Today

Key Takeaways

• Over half of all payments are made using credit or debit cards, but businesses face significant card processing fees, which can be as high as 3.5% per transaction, impacting revenue.
• Businesses can mitigate these costs through strategic approaches, considering alternative payment options and card payment optimization.
• Card processing fees are high due to transaction processing costs, fraud prevention, and the profit margins of credit card companies and banks.

In 2020, consumers used credit or debit cards for over half of all payments, and they remain one of the most popular payment methods to date. But there's one problem for businesses: card processing fees.

Until recently, sellers absorbed the processing fee in most B2B payments. It was the price of "doing business." However, when a credit card transaction can cost as much as 3.5% to process, that's a massive portion of a company's revenue. This is significant for B2B companies, which often provide goods or services that cost thousands of dollars.

What is a Typical Credit Card Processing Fee?

Credit card processing fees are the charges merchants pay to accept credit and debit cards. These fees are typically a percentage of the transaction amount plus a flat fee. The average credit card processing fee is around 2% to 3% of the transaction amount, with a flat fee of around $0.30.

Understanding Payment Processing Fees

When most companies think of credit card fees, they only consider transaction fees, late payment fines, or high interest rates. However, several additional fees are not necessarily standardized across industries or companies. You will likely find a specific combination based on your payment processor, industry, accepted cards, and other factors.

Common costs of accepting payment cards can include the following:

• Interchange fee. Cover the cost associated with the payment risk.
• Interchange rate. The fee set by the Federal Reserve is required from the seller.
• Assessment fee. It is based on monthly sales.
• Markup fee. It is paid per transaction to the processor.
• Flat fee. A possible monthly service fee.
• Minimum fees. It is charged when the monthly minimum is not met.
• Batch fee. Possible fee for batch purchases.
• Equipment leasing fee. It is associated with the consumer market.
• Chargeback fee. It can be incurred during customer disputes.
• Payment gateway fee. A third-party gateway may charge it.

Once you list the costs specific to your organization, you can find ways to offset the expense.

Why Are Card Processing Fees so High?

Several factors contribute to the high cost of card processing fees. One is the cost of processing the transaction itself. This includes the cost of maintaining and updating the card network and the cost of fraud prevention and chargebacks.

Another factor is the profit margin credit card companies and banks take on each transaction. These typically charge a higher fee for high-risk transactions, such as online or over the phone.

Businesses accepting credit cards have little choice but to pay these fees. However, businesses can reduce the impact of card processing fees by negotiating a lower interchange rate with their credit card processor or implementing a surcharge for customers who use credit cards. This surcharge can offset the cost of card processing fees.

Here are some additional factors that contribute to the high cost of card processing fees:

• Fraud. Credit card fraud is a major problem, costing businesses billions yearly. Credit card companies and banks charge interchange fees to offset the fraud cost.
• Chargebacks. They occur when a customer disputes a transaction and requests a refund from their credit card company. Credit card companies and banks charge interchange fees to offset the cost of chargebacks.
• Technology. The technology that is used to process credit card transactions is constantly evolving. Credit card companies and banks charge interchange fees to offset the cost of developing and maintaining this technology.

By understanding the factors contributing to the high cost of card processing fees, businesses can make informed decisions about managing these expenses.

How Can I Avoid Card Processing Fees?

Card processing fees can be a significant expense for businesses, especially those that process a high volume of transactions. These fees can eat into your profits and make it difficult to stay competitive. However, there are many ways to avoid or reduce card processing fees.

How to Offset Credit Card Processing Fees?

There are multiple ways to cut costs and streamline your AR processes. Here are our top 5 ways to offset or eliminate credit card-related fees:

1. Consider Level 3 interchange Processing

Each credit card has a Federal Reserve-regulated exchange rate that changes twice a year. Rates vary widely based on the card type, issuing banks, and other factors. B2B companies that take advantage of level 3 data processing in this system can save significantly on credit card fees.

To qualify for level 3, businesses need to provide a greater level of transaction detail that includes:

• Merchant name
• Transaction amount
• Transaction date
• Customer code
• Total tax
• Customer postal code
• Invoice number
• Order number
• Freight cost
• Line item details

Also, your business will need a payment gateway to authorize these transactions.

Besides reducing your transaction fee, level 3 processing offers significant ticket discounts for invoices exceeding $7,500. Depending on the card and size of the transaction, businesses can lower the transaction cost by 25% to 75%. If your company frequently fulfills large customer orders, this can be a huge money saver.

2. Add a Convenience Fee for Credit Card Usage

Credit card surcharges can benefit businesses by saving money on payment processing fees. However, some states have banned these surcharges, so businesses should check their local laws before implementing them.

3. Accept ACH Payments

Avoiding them altogether is another way to save on credit card processing fees. The automated clearing house (ACH) is an accepted computer-based network for processing domestic transactions efficiently. Many financial institutions participate, and ACH can be used for debit and credit payments. Although some fees may be associated with ACH, they are significantly less than typical credit card transaction fees. You also have the benefit of avoiding chargebacks and fraud.

4. Use a Bank Payment Network

The Paystand Bank Network allows businesses to move money electronically without paying transaction fees. The network covers over 90% of the US banking market and 98% of all commercial accounts, making it the most complete digital payment network available to businesses today.

As a zero-fee payment rail, the Paystand Bank Network gives you access to real-time fund transfers and automated payment settlements. It also enables secure, one-off, or recurring bank payments that expedite payments and reduce chargeback requests.

Every in-network payment a business makes is recorded on the Assurety blockchain, creating a notarized record trail that is secure, verified, and digitally auditable. These records can't be altered, assuring your transactions are valid and free of tampering.

5. Go Digital

Digital payment rails provide real-time fund transfers and automated settlements. The AR format enables faster, easier, and more secure transactions, helping businesses get paid quickly and efficiently. With automation, AR teams can scale invoicing, improve cash flow, and reduce errors. Digital systems offer real-time fund verification and payment tracking, eliminating chargebacks, processing fees, and manual follow-ups. Integration with an ERP system is possible.

6. Invest in Security

Improving the security and transparency of your payment system can significantly reduce potential upcharges or increased fees.

For example, the Paystand Bank Network enables secure, one-off, or recurring bank payments that do not require blanket authorization between trusted parties. Instead, the system leverages cryptography and digital signatures to ensure the validity of each transaction.

Since the customer initiates each Paystand payment, it shows an explicit authorization and intent to pay instantly, dramatically reducing the refund and chargeback requests commonly associated with credit card payments.

7. Integrate Systems

Businesses can save money by examining AR processes and integrating systems to reduce manual data transfer, errors, and time spent on corrections, improve employee morale, and provide real-time information.

8. Automate Where Possible

Along the same lines as integration, AR automation can significantly streamline companies' workflows. For example, Paystand customers can easily integrate a "pay now" button that automatically receives funds once a customer pays. This easy-to-use feature can be incorporated into invoices, reminder emails, and all other appropriate customer communication.

Cut Credit Card Processing Costs Today

If you're ready to learn more about how to save money in credit card processing, check out Paystand's zero-fee network. It offers an easy, fast, and free way to collect payments faster than ever.

Our software can also help you manage, optimize, and automate payments on various platforms. To learn more about digitizing your AR cash cycle, check out this free eGuide. Or, better yet, schedule a custom demo and see how this payment solution works.