A point-of-sale system in front of a customer paying with a credit card

How to Negotiate Lower Credit Card Transaction Fees

Almost every business accepts credit card payments these days. It’s quick, easy, and convenient for customers. However, businesses have to pay processing fees for each transaction. These fees can add up, especially for small businesses. This can quickly eat into profits. The good news is that it is possible to learn how to lower credit card processing fees.

Negotiating lower transaction fees with your merchant account provider is all about being proactive and doing your research. This way, you can negotiate from a position of strength. Here’s what you should know about negotiating lower credit card processing fees.

Why Do Businesses Loathe Transaction Fees

Maybe it doesn’t seem like much. Most credit card processing fees are between 2.5 and 3%. It’s hard to imagine most people getting excited about a sale of 2% off the list price—so why do business owners dislike credit card fees so much?

On a $100 sale, about $3—or even more—goes to the processing company. When businesses have hundreds or thousands of transactions per month, those fees add up, equaling thousands of dollars pulled out of the gross revenue.

To make matters worse, those transaction fees are often hidden in the fine print of credit card processing contracts. Certain situations or types of cards make the fees higher, so most business owners feel like they have no idea what they are actually paying in fees until their merchant statement arrives. That’s where learning how to lower credit card processing fees comes in. By understanding how these fees actually work, you can find leverage to negotiate with your credit card processor and increase your profits.

Understanding Credit Card Processing Fees

There are three main components to credit card processing fees. Understanding each of them is critical to learning how to lower credit card processing fees.

1. Interchange Fees

This fee is set by credit card issuers like Visa, MasterCard, Discover, and American Express. They are paid to card-issuing banks to cover operation costs and risks.

The interchange fee comprises two parts:

  • A base rate that’s a percentage of the transaction (This fee ranges from 0.05% – 3.50% depending on the type of card used.)
  • A transaction fee ranging from $0.05 to $0.25

For example, interchange on a debit card may be 0.05% + $0.22 while on a credit card it could be 1.60% + $0.05.

As you learn how to lower credit card processing fees, it’s important to understand that interchange fees aren’t negotiable. You can call Visa and complain if you’d like, but it won’t get you anywhere.

2. Dues and Assessment Fees

These fees are also set by credit card issuers like Visa, MasterCard, and Discover to cover the cost of running and maintaining the card networks.

There are two types of assessment fees:

  • A per-transaction fee that’s a flat rate, regardless of the transaction amount
  • A network access or participation fee that’s a percentage of the transaction total

Similar to interchange fees, negotiating lower transaction fees for the assessment cost isn’t possible either.

3. Processor Markup Fees

It may seem bleak so far, but the markup fees are where you have some negotiating power. Processor markup fees are the fees charged by your payment processor on top of the interchange and assessment fees. Processors typically charge monthly fees, authorization fees above costs, flat percentages above interchange, and other fees that are pure profit for them. Unlike interchange and assessment fees, they are negotiable.

Now that you know the main components of credit card processing fees, let’s look at how to lower credit card processing fees for your business.

You Can Actually Negotiate Transaction Fees

Despite the widespread use of credit cards and the high fees that businesses are charged to accept them, it’s unfortunate that many businesses don’t even know that they can negotiate to get those fees lowered. Before negotiating lower transaction fees with your credit card processor, it’s important to understand how transaction fees work.

Negotiate the Pricing Model

The first step is understanding how your processor charges you. The three most common pricing models are:

  • Interchange-plus: You’ll pay a markup on top of the interchange rate, which is the cost to process the transaction.
  • Tiered: You’ll be charged different rates depending on the type of card used (rewards, business, etc.), with each tier having its own markup.
  • Flat-rate: A flat fee per transaction, regardless of the card type.

Synapse charges a subscription fee above cost which is cheaper than all three in most cases.

Of the three, interchange-plus pricing is often the cheapest for small businesses—but not always. So, as you learn how to lower credit card processing fees, you’ll need to evaluate your business’s sales volume and average transaction amount to determine which pricing model makes the most sense for you.

Once you know how your processor charges, it’s time to start negotiating. This works best for businesses that process a large volume of transactions or have high average transaction amounts. Small businesses will face challenges when attempting to lower their credit card processing fees as most processors have a “take it or leave it” attitude.

Compare Interchange Plus Quotes

Learning how to lower credit card processing fees means taking advantage of every opportunity to save. When you compare interchange plus quotes from different processors, pay attention to the base rate and the per-transaction fee. The base rate (basis points) is a percentage of each transaction that goes to the processor, while the per-transaction fee is a flat fee charged for each sale.

Here’s an example. Let’s say you’re paying a base rate of 0.30% (30 basis points) above cost and a per-transaction fee of $0.10. On a $100 transaction, your total fees would be $0.40 (0.30% x $100 + $0.10 trans fee). But if you were to negotiate a lower base rate of 0.05% and $0.04/transaction, your total fees on the same transaction would be $0.09 (0.05% x 100 + $0.04). It may seem simple, but it can have a big impact on your bottom line.

Again, planning how to lower credit card processing fees using this strategy is only part of the puzzle. You’ll need to work with your processor to ensure you’re getting the best possible rates. Most processors aren’t willing to budge when it comes to negotiating lower transaction fees, or rather, their base rates, especially for small businesses. It would be beneficial to have a quote from another processor and force them to match the rate or you will go with the other company.

Negotiate the Effective Credit Card Processing Rate

The effective rate is the total amount of fees paid divided by the total amount of money processed. To negotiate a lower effective rate, start by asking your processor for a breakdown of all the card types and interchanges. Then, you can add up all the interchanges and subtract that number from your effective rate to get an idea of how much the processor is taking as profit. Once you know that markup rate, you can negotiate it across the board.

If you really want to learn how to lower credit card processing fees, you should know the true percentage you’re paying for every credit card transaction. This will reveal if your processing costs are too high and if you’re being overcharged. Most credit card processors aren’t transparent about their fees, so you’ll need to ask for a breakdown of all the fees you’re being charged. Don’t be surprised if your processor does not provide you with a list of all of the cards you’ve accepted or provides you with something you didn’t ask for. Hiding this information is beneficial to the processors, and they often are unwilling to share it.

Negotiate the Processor Markup

As mentioned earlier, the processor markup is negotiable. If you’re unhappy with the rate you’re currently paying, call your processor and ask for a lower rate. If they say no, tell them you’re considering switching processors and see if that gets their attention. You may not get the rate you want, but it’s worth a shot as you plan how to lower credit card processing fees.

Cut Down on Monthly Fees

Most business owners aren’t aware of the additional monthly fees that come with accepting credit cards. These include:

  • Payment gateway fees
  • PCI compliance fees
  • Monthly or annual fees
  • Virtual terminal fees
  • Batch fees
  • Fees for not reaching the monthly minimum
  • Statement fees

When it comes to negotiating lower transaction fees, don’t forget to ask about these monthly fees as well. You may be surprised how much you can save by simply asking for a reduction in these areas. Unfortunately, once you’ve signed a contract with a credit card processor, you’re locked in for the long haul, unless you pay an early termination fee.

Synapse will pay your early termination fee up to $1000 when you switch to our Premium plan.

So it’s important to do your research upfront and be aware of all the fees you’ll be responsible for before signing on the dotted line.

Consider Switching Your Credit Card Processor

If you’re getting nowhere with your current processor, it may be time to start shopping around. Payment processing is a highly competitive business—which is great news for you! Newer companies are always looking to take on new clients and may be willing to offer lower transaction fees as an incentive.

Additionally, if your business has grown since you first signed up with your processor, it’s time to try something new and potentially get a lower rate. Remember that the negotiation tips discussed above all have their own limits. So, don’t hesitate to switch things up if you feel like it could save your business some money. It could be a better option that you never considered.

Synapse Makes it Simple to Switch for Your Business

We will never make you guess if switching would be cheaper. Show us your most recent merchant statement, and we will show you exactly where and how much you’ll save.

Synapse is the most user-friendly payment processor because we make it easy for businesses to switch. You will never be locked into an agreement. All of our contracts are month-to-month, and there are no cancellation fees. We offer a subscription-based model so you always know exactly how much you’ll pay in fees each month. With our transparent pricing, there’s no need to plan how to lower credit card processing fees in the future.

We also provide a free Clover point of sale system for every new client on our Standard subscription. Combine that with our next-day funding, intuitive online portal, and 24/7 live support, and you’ll see why so many businesses have stopped trying to negotiate lower transaction fees and just switched to Synapse instead.

Give us a call at 800-925-5191 or get started online. Stop overpaying in processing fees. See how much Synapse can save you today.

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One thought on “How to Negotiate Lower Credit Card Transaction Fees

  1. We are a private boarding secondary school based in Maryland. We are looking for a way to accept credit card payments online for students’ tuition and boarding fees. The parents would typically pay $2000-3000 per month, many of them from overseas. We expect payments from about 10-15 students to be accepted through online payment in the fall semester, if we implement the system, and could potentially expand to up to 50-70 students. We are already using Square for accepting small donations and love the ability to set up a payment website through them, yet their fees are too high to implement it for accepting tuition. Kindly provide me with the information on how your payment system may be a better option for us, if possible. Thank you! 🙂

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