How to Reduce Payment Processing Fees

One of the keys to sustainable success is attention to detail, especially when it comes to reducing inefficiencies and waste. Your payment processes are no exception to this rule, as payment fees may be eating into the profit margin of every transaction you make, meaning your revenue — and your bottom line — isn’t what it could be.

Understanding payment processing fees is the first step to minimizing this overlooked expense and familiarizing yourself with the ins and outs of the kind of fees you’re likely to run into. For a more in-depth look at payment processing fees and some of the methods you can use to reduce them, keep reading.

Understanding Payment Processing Fees

Your business might be paying different types of processing fees depending on your payment processing method, partners, and service agreements. These fees can differ by payment processor and may even vary for different kinds of transactions. Minimizing these fees means getting a solid grounding in what they entail, why they occur, and some steps you can take to avoid them. 

Here’s a look at the most common types of payment processing fees your business might run into when handling online payments.

• Gateway Fees: If your payments go through a gateway (the technology that transmits payment information) during processing, you’ll likely see a gateway fee. This is charged to cover the cost of processing transactions via the gateway service.
• Acquirer Fees: Sometimes referred to as a “merchant service fee,” these fees are used to offset the cost of processing electronic payments.
• Network Fees: Every time you process a credit card payment, your processing network has to communicate with the issuing bank to verify the account and send the transaction. Sending this data isn’t free — credit card networks like Amex, MasterCard, and Visa may charge fees to cover the cost of processing your credit card transactions.
• Interchange Fees: For credit card sales, the bank behind your payment processor needs to communicate with the bank that issues the credit card. Interchange fees are charged by these card-issuing banks when processing credit or debit card transactions.

Six Tips To Lower Payment Processing Fees

Even though your processing fees may look small, they add up over time as your transaction volume grows. That’s why it’s important to minimize these fees whenever possible. Here are some proven ways you can get payment processing fees down.

Tip #1: Encourage Customers to Use Debit or Other Bank Accounts

Asking your customers to pay with debit cards or via bank transfer is one way to significantly reduce some of these payment processing fees. Bank transactions – using debit cards or electronic funds transfer (EFT) networks, like ACH, SEPA, or SWIFT – don’t generate the kind of fees that credit card payments do.

Debit card interchange fees are capped by law at $0.21 and 0.05% of each transaction. This is typically much cheaper than most credit card processing fees. ACH payments can be even more cost-effective (especially for larger transactions), as those fees are often added as a flat rate per transaction (e.g.,$0.20 and $1.50).

Tip #2: Charge a Fee for Credit Card Transactions

One way to incentivize payment methods other than credit cards is by charging a small surcharge to cover credit card processing fees. You’ll want to be sure to check your state and local laws before implementing a surcharge to ensure that your process and surcharge amounts are compliant.

Chargent offers surcharging features for both customer-initiated transactions (CIT) and merchant-initiated transactions (MIT), in order to help offset these costs with minimal effort.

Tip #3: Reduce Fraud With Address Verification

Credit card fraud can be expensive, but not just in terms of lost merchandise or time spent dealing with fraudulent transactions.

If you have too many fraudulent sales, your payment processor may increase your costs or even add new fees. One way to get around this is to always use an address verification service (AVS), especially for large invoices or high-ticket items.

Address verification works by comparing the address on file for a credit card with the address information provided by the customer at the point of sale. You’ll need to collect a little more information from your customers, but address verification can save money by keeping your fees low.

Tip #4: Choose In-Person Payment Terminals Whenever Possible

Another great way to save on online processing costs is to use an in-person payment terminal whenever possible. These terminals use chip readers to positively identify the physical presence of a credit card. This “in-person” check is usually enough to bypass most fraudulent credit card purchases.

This saves you money in a couple of ways. Physically verifying a credit card is a great way to reduce fraud and eliminate chargebacks. Purchases made with these terminals generally have lower fees as well.

Your rate of fallback transactions (which happen if the presence of the card can’t be verified) will decrease as well because of the chip recognition capability of these terminals, which further helps to lower processing fees.

Tip #5: Support Level 2 and 3 Processing for B2B Transactions

If your company handles regular B2B or business-to-government (B2G) payments, there’s a way to lower your transaction fees even more. By supporting Level 2 and 3 card processing, you provide the issuing bank with more transactional details, which they can use to verify the credit card involved in the purchase.

Your payment gateway will generally charge lower interchange rates for these types of transactions. It’s worth noting that Level 3 transactions, which involve corporate or government credit cards, should be settled within 24 hours of the transaction to qualify for the best fee reductions.

Tip #6: Use Multiple Gateways for Multiple Transaction Types

Not all gateways are the same in terms of fees based on transaction types. It makes sense to use the best payment processing gateway for each type of transaction your company processes.

Your gateways will have specific parameters for each transaction. Things like the type of credit card, the amount of the transaction, the payment method, or even the purchaser’s location can all influence costs.

Look for ways to simplify this process. Use a solution like Chargent’s Smart Payment Routing to automate the process of choosing the best gateway for each transaction.

Take Control of Your Payment Processing Fees

Many businesses pay more for payment processing than they realize. The fees might seem small, but it’s a percentage lost on every sale — unless you’re doing everything you can to minimize costs. Getting the lowest payment processing fees means adopting more effective payment strategies, like the six covered above.

Doing your due diligence and making small changes can add up over time, which means you hang on to more of your revenue, and your bottom line looks better because of it. Consider partnering with Chargent to take advantage of features like Smart Payment Routing and Surcharging.

Start a 30-day free trial today to experience everything Chargent can do to reduce your payment processing fees and optimize your Salesforce payments. It’s not just about more efficient and accurate payment processes, but about keeping more of your revenue and improving your bottom line.