How to Negotiate Lower Costs for Payment Processing

Most businesses today must be able to accept credit cards to stay competitive, which means there’s no escaping payment processing fees.

While, in many ways, it seems like credit card fees are just a necessary evil of doing business, it’s important to remember that these payment processing companies have an important purpose. When someone pays with a credit card, you need a company that can quickly verify that the customer has the funds or credit available to afford the transaction. If you plan to accept credit cards, you need a reliable company to facilitate the logistics, guarantee that you receive payment, and protect you from fraud.

That said, the processor’s fees can fluctuate, and there are ways you can negotiate to get the best deal possible. Here are a few quick tips for negotiating lower costs for payment processing.

Understanding the Different Payment Processing Fees

First, it helps to educate yourself on the different fees and learn where there is room to negotiate — and where the price is fixed. Payment processing fees include several smaller expenses that cover the risk of accepting the payment and compensating the various service providers involved in the transaction. Certain fees are set in stone, while others can be more flexible. So, to negotiate the lowest credit card processing fees possible, you should start by learning where you have the most bargaining power.

Common payment processing fees include:

• Interchange Fees: Fees set by the credit card issuer to cover risk and operations costs.
• Dues and Assessment Fees: Fees set by the credit card issuer to cover expenses relating to running the card network.
• Processor Markup Fees: Fees set by the payment processor to communicate with credit card issuers and process your transactions.

The big credit card processors determine interchange and assessment fees and are not up for negotiation. However, the markup charged by the payment processor can be negotiated, so this is where you’ll have the most leverage as a business owner.

Choose the Right Pricing Model

Not every payment processor charges the same rates or offers the same pricing structure. Some processors charge a flat rate per transaction, while others provide different tiers depending on the type of card used and the volume of sales. So, it’s essential to understand the different pricing models and choose the right option for your business.

Say one payment processor charges a flat rate of 2%, whereas another offers a tiered model that starts at 1% but increases to 3% once you do over $100,000 in sales. The tiered option would be the cheapest if you routinely make less than $100,000 in sales. However, if your revenue is more unpredictable and you consistently cross that threshold, it may be cheaper to stick with the flat rate. So, to negotiate the best rate possible, you should understand the different pricing models and how they affect your bottom line.

Compare Quotes

Once you understand the different fees and pricing models, you should shop around to see which companies offer your business the best rates. Make sure to calculate the actual transaction cost so you don’t fall victim to deceptive marketing tactics.

Many small businesses are better off with an interchange plus model, which means you pay a markup on top of the cost to process the transaction. For instance, say one payment processor charges a base rate of 0.4% with a $0.10 transaction fee, and another charges a base rate of 0.5% and a $0.08 transaction fee. The first option would be cheaper even though you’re paying a higher fee per transaction because the markup charged by the payment processor is lower.

For a sale of $1000, the first option would cost you $4.10 (1000 x 0.004 + 0.10 = 4.1), whereas the second option would cost you $5.08 (1000 x 0.005 + 0.08 = 5.08). Although the difference may seem minor, it can quickly add up over time if you do a high sales volume. So, consider these subtle differences to negotiate the best deal for your business. 

Reduce Monthly Fees

In addition to the standard interchange and assessment fees, payment processors often charge other miscellaneous fees to cover related costs, such as PCI compliance fees, statement fees, virtual terminal fees, monthly or annual fees, and others. Unlike the interchange fees, these smaller monthly fees can often be negotiated. Look over your contract carefully, spot any additional fees you don’t understand, and ask for clarification on why you’re being charged.

Certain fees can even be waived if the payment processor wants your business, but many customers don’t ask before signing on the dotted line. So, watch for additional costs and get clarification on whether they can be flexible.

Look for a New Payment Processor

Payment processors are like any other business; some are set in their policies, and others are more willing to negotiate to stay competitive. So, if you’re struggling to get through to your current payment processor and they are unwilling to discuss a price reduction, you may want to shop around and look for a new partner entirely. Even if you’ve already signed a contract and have to pay an early termination fee, it may be more cost-effective to eat the upfront cost and find a payment processor who will give you a better rate in the long term. However, before canceling your contract, be sure you can find a more competitive option so you don’t risk disrupting your business.

You can always negotiate your payment processing fees like any other business expense. However, you must educate yourself and research to ensure you receive the best rate possible.