Tips to Lower Credit Card Processing Fees

Credit card processing fees explained

Credit card processing fees are what you pay for the convenience of processing credit cards. Fees are made up of three different charges that are distributed to the various entities that help make a transaction happen: the card issuer, the card network, and your acquirer.

Those three main charges include:

Let’s use some hypothetical numbers to illustrate how these fees work. Say you are processing a transaction where a customer uses a Mastercard credit card issued by Capital One and your merchant account is provided by Fiserv.

• Cardholder transaction amount: $100
• Interchange rate: 2%
• Network rate: 0.15%
• Acquirer rate: 0.5%

In this scenario, you would pay $2 in interchange fees to Capital One, $0.15 in network fees to Mastercard, and $0.50 in acquirer fees to Fiserv. In total, you would pay $2.65 to process this transaction.

There are various factors that can impact processing fees, such as your merchant category code (MCC), fraud and chargeback rates, cross-border sales, and more.

Average credit card processing fees

Unfortunately, there’s no one-size-fits-all approach when it comes to processing fees. The average amount you pay depends on dozens of different factors including, but not limited to, the type of card used during a transaction, the corresponding card network, your business type, the products you sell, and your risk levels.

We’ve compiled a list of average fee ranges of card-not-present (CNP) transactions for each major card brand.

Average acquirer fees

Acquirer fees can vary greatly depending on the pricing model used. And factors such as your merchant category code, fraud and chargeback rates, or billing model can impact how much you pay. Generally, you pay more if you have higher levels of risk.

The four pricing models most acquirers use include:

• Interchange++ pricing (primarily Europe and UK)
• Interchange+ pricing
• Tiered pricing
• Flat-rate or blended pricing

Check our guide to learn more about these four pricing models.

Processing fees can add up. The good news is that these fees are not set in stone and you can work towards lowering costs. Here’s how.

Whether you’re trying to open a new merchant account or you have an established account, you may be able to negotiate pricing with a processor or acquirer.

Tips for negotiating with a new provider

• Request a transparent pricing model, such as interchange+ or interchange++.
• Check to see if the provider offers volume discounts.
• Ask about additional fees — hosting fees, identity verification fees, settlement fees. See if there is any flexibility in which fees you pay.

Tips for negotiating with your current provider

• If you have a pricing model that isn’t transparent — like tiered or flat-rate — see if you can switch to interchange+ or interchange++.
• Ask about eliminating non-essential fees, like statement fees or support charges.
• Time your ask strategically. Start your negotiations after big wins — like several months of increased sales volume or improved chargeback rates.
• Come prepared. Bring monthly processing statements that demonstrate your value and stability.

The provider you choose matters. It could be the difference between making enough sales to get by and growing your business.

If you are looking for a new merchant account, check out what AltoPay has to offer. Our pricing is transparent and intended to maximize ROI.

Risk is a huge factor in determining the cost of processing payments.

If you have higher-than-average fraud or chargeback rates, your costs will be higher. Your risk also becomes a risk for your processor or acquirer. If you receive a chargeback on a transaction, your acquirer is also penalized. To compensate for potential risks, they charge more to process payments from your business.

Moreover, every chargeback comes with a fee — which usually ranges from $25-50 — that you pay in addition to normal processing fees. And if you breach the Visa Acquiring Monitoring Program (VAMP) thresholds, you could face additional VAMP fees.

Preventing chargebacks means you can prevent these additional costs. And as an added bonus, reducing risk could also reduce your processing fees.

Invest in fraud and chargeback management tools or work with a provider — such as AltoPay — that has these solutions built-in. Click here if you’d like to learn more about our chargeback management solutions.

Grouping all your credit and debit card transactions into a single daily batch may reduce your processing fees.

Some processors offer lower rates for batch settlement. Instead of paying a fee for each individual transaction settlement, you could potentially pay one fee for the entire batch. Check with your processor to find out what discounts they provide.

Batching daily also ensures that transactions qualify for the lowest interchange rates. Delayed settlements can trigger higher fees or downgrades to more expensive interchange rates.

Subscriptions and recurring billing typically have higher fees because they come with increased risk — such as potential for disputes and payment failures. Alternatively, single sales usually have less risk — and thus have lower fees.

It’s important to choose the right billing model for your business. If subscriptions are essential, that’s fine. But if it’s possible to switch to single sales, you could save a lot of money.

If subscriptions do make the most sense for your business, consider offering monthly billing rather than trial offers to save on processing costs.

Check your monthly statements for ancillary fees such as Payment Card Industry (PCI) noncompliance fees, monthly minimums, statement fees, payment gateway charges, batch settlement fees, or annual charges. These fees can quickly inflate your overall processing costs.

Work with your provider to see if you can eliminate any of these fees. If not, see if you can negotiate a lower rate.

Increasing your credit card processing volume might lower your costs.

Some processors offer volume pricing discounts and enterprise merchant rates if you process a certain number of transactions each month. If you have volume discounts — or monthly minimums to avoid — it might be helpful to boost sales.

However, you want to make sure this change will lower net costs and result in positive ROI before raising your credit volume.

You might be able to reduce your interchange fees by sending more data with each transaction. The more data card networks have, the less risky a transaction looks.

Most transactions are processed with level 1 data which is just the essentials — merchant name, transaction amount, and date. Level 2 data includes tax details and customer codes. Level 3 data includes things like product numbers, item descriptions, quantities, and shipping information.

Upgrading to level 2 or level 3 processing data can reduce interchange fees by 20-90 basis points, depending on your merchant code and card mix.

Processing fees vary for intraregional and interregional transactions. The intraregional and interregional classifications reflect the geographical relationship between the issuer and acquirer.

• Intraregional transactions happen when the issuer and acquirer are in different countries but still within the same region or economic area. For example, the issuer is in Belgium and the acquirer is in Italy — but both are in the European Union (EU).
• Interregional transactions happen when the issuer and acquirer are in entirely different geographical regions. For example, the issuer is in Belgium and the acquirer is in the US.
  mix.

To lower your processing fees, decrease your interregional transaction volume. If you sell internationally, get merchant accounts in the regions where your customers are most prevalent.

If you’d like help expanding your portfolio of merchant accounts, let us know. AltoPay has acquiring relationships in various regions around the world.

Unfortunately, there isn’t a single processor or acquirer who offers the best rates for all businesses. Processing fees depend on a variety of factors, and each provider has their own take on how to manage fees.

The right provider is one who works with you to find the best pricing and solutions possible. Here’s what we suggest.

Ideally, you want to work with a processor who is transparent about monthly fees so that you only pay for what you need. A provider who offers interchange+ or interchange++ will be your best bet.

Find a provider that truly cares about the success of your business and offers solutions that meet your unique needs. A good provider will want you to process as long as possible and will provide a pricing plan that is customized for your business, not a one-size-fits all fee structure.

Work with someone who gives you the ability to process payments and helps keep risk levels low. A provider who looks out for your business will probably also be the one to ensure you pay the lowest fees possible.