If your business is to grow and prosper, credit card processing fees are a necessary cost of doing business. You pay a fee each time a card is swiped, which is not a profit breaker. But over time, they can add up to a significant expense. The more sales volume a business generates, the more processing fees it pays. That’s not necessarily a bad thing unless you aren’t using the most efficient processing tools and services. Where every dollar of profit counts, lowering your processing costs is vital.

Understanding Your Processing Costs

The challenge facing many small and medium-sized businesses is that the card processing industry is a minefield of complex fee structures and convoluted relationships that put them at the mercy of their merchant services provider (MSP). Some businesses argue that they deliberately make it confusing, so it’s more challenging to figure out that you are likely paying more than is necessary for the services you receive.

That’s why it’s vital to fully understand the MSP fee structure and the role of various parties in creating your end cost.

Interchange Fees

The dirty little secret in the industry is that interchange fees, the wholesale rate for determining the amount of fees charged between the credit card processor bank and the issuing bank, are not a secret. They are published for everyone to see, but the card processors won’t tell you that. These fees account for nearly three-quarters of total processing costs and are fixed for all credit card processors, which means they are not negotiable.

Assessments

About three to five percent of processing expenses are the assessment fees charged by Visa and MasterCard. These fees are also non-negotiable. So, with your wholesale costs and assessments locked in, the only cost you need to worry about is the markup.

The Markup

Card processors make their money on the amount charged above the interchange and assessment fees-called the markup. This is the negotiable fee. How much is negotiable depends on your sales volume and how much you’re willing to press them.

That means the markup is your only point of cost comparison. The more competitive processors charge a markup of between 15 and 20 percent of processing costs. However, some processors bundle all their fees together, which can result in a higher overall cost.

Three Steps to Lower Processing Costs

When dealing with a card processor, follow these steps to keep your processing costs to a minimum:

1. Always request interchange plus pricing, a more transparent fee structure with the markup charged separately from the interchange and assessment fees.
2. When comparing processors, focus on the total cost, not just the markup rate.
3. Ask that they waive the cancellation fee, which is an unnecessary add-on card processors use as a negotiation point. They will gladly waive it to get or keep your business.
4. Finally, don’t agree to anything unless you get everything in writing.