How Small Businesses Can Reduce Payment Processing Costs

Payment processing fees can significantly impact your small business’s profitability. But with the right payment solutions in place, you can regain control over these costs. Using smart strategies and a transparent payment processor, you can reduce transaction fees while maintaining what’s important: a seamless customer experience.

The key to reducing costs lies in understanding how payment processing fees work, selecting the best pricing model for your business, and leveraging cost-effective payment methods.

Understanding Credit Card Processing Fees: What You’re Really Paying For

To reduce your payment processing costs, you need to know exactly what you’re being charged for. Every credit card processing fee is made up of three main components:

• Interchange fees: The largest portion — typically 70–90% of your total fees — goes to the cardholder’s bank. These rates vary depending on the type of card (debit vs. premium credit), transaction method (in-person vs. online), and your Merchant Category Code (MCC).
• Assessment fees: These are non-negotiable charges from card networks like Visa and Mastercard. They’re a small, fixed percentage of each transaction and are consistent across processors.
• Markup fees: This is the fee that your payment processor charges — and it’s where you have the most room to save. Markup fees can include per-transaction charges, monthly service fees, statement fees, and more. Providers like E-Complish offer competitive, transparent pricing structures to help minimize this layer.

Smart Strategies to Lower Your Processing Costs

With a solid understanding of your fee structure, you can take action. Below are the most effective ways to reduce processing costs, many of which are made easy with E-Complish’s flexible platform:

1. Choose the Right Pricing Model

Your pricing model significantly impacts overall processing costs. The three main models offer different advantages to consider:

• Interchange-plus pricing: Often the lowest-cost option for high-volume merchants. You pay the actual interchange fee plus a consistent, transparent markup. This model is ideal if your business processes more than $10,000/month.
• Flat rate pricing: A fixed percentage regardless of transaction type. While this is simple to understand, it’s often more expensive for established businesses with steady volume.
• Subscription (membership) pricing: Combines a monthly fee with low per-transaction costs. This model can be highly cost-effective for businesses with large monthly volumes.

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2. Optimize Your Transaction Habits

Small changes in how you process card payments can lead to big savings on interchange fees.

• Settle transactions daily: Settling your credit card transactions every 24 hours lowers your risk profile, which in turn reduces your processor fees.
• Use address verification service (AVS): This service checks the address against the card issuer’s records to help prevent credit card fraud and reduce associated fees. It can also help you avoid costly chargeback fees from customer disputes.
• Enter all card security information: For online transactions, requiring the customer’s security code and billing zip code provides more data. This lowers your interchange rates and prevents the risk of fraud, helping you achieve lower fees.

3. Encourage Lower-Cost Payment Methods

Not all payment types cost the same. As a small business, you should promote options that reduce your expenses:

• Promote ACH payments: Direct bank transfers (ACH payments) don’t incur interchange fees and often are a fraction of the cost of credit card transactions.
• Encourage debit card use: Debit card transactions generally carry lower interchange fees than credit card payments.
• Accept mobile payments: Many digital wallets have competitive processing rates, making them a good option for small, on-the-go transactions.

4. Implement a Cash Discount Program

A cash discount program allows you to pass credit card fees to customers who choose to pay with a card. You offer a small cash discount to customers who pay with cash, effectively transferring the cost of processing to those who use cards. Just be sure to check your state’s regulations, as the rules for this vary by location.

5. Reduce Fraud and Chargebacks

Work with your processor on data collection and pattern recognition to reduce fraud against your business. Provide return policies to your customers to further notify them of your right to decline a return. You can achieve lower rates through lower fraud and reduced chargebacks.

6. Set Minimum Purchase Amounts Strategically

Since fees are based on a combination of a percentage and a flat rate, a minimum transaction amount can help each transaction be more profitable. According to new rules on electronic payments, a business is allowed to set a credit card minimum of up to $10, as long as that same minimum applies to all credit cards the business accepts.

Take Control of Your Processing Costs with E-Complish

Payment processing fees don’t have to eat away at your profits. At E-Complish, we provide the tools to help your small business optimize your payments and combat higher processing fees. Reach out to us today to audit your current processing setup and discover how much you could save with optimized payment solutions tailored to your business needs.