How to Avoid Pesky Payment Processing Fees

No one is a fan of payment processing fees, but they’re a fact of life for all business owners. Processing rates—the per-transaction fees quoted by your processor— are unavoidable for the most part, but what about those other fees that pile up on your statement each month?

No one is a fan of payment processing fees, but they’re a fact of life for all business owners. Processing rates—the per-transaction fees quoted by your processor— are unavoidable for the most part, but what about those other fees that pile up on your statement each month? They can be confusing, and in many cases, they may not even be properly explained to you. As it turns out, some of those fees are avoidable. It’ll take a little legwork on your part, but making the effort to remove these fees can drastically reduce what you shell out to your processor each month.So, what exactly should you look for? Here’s a list of some of the most common fees you’ll see on your processing statement:

Interchange Downgrades

Interchange fees are an inevitable part of every credit card processing contract. Your processor may not set your rates with interchange explicitly included, but this base cost of completing a transaction will absolutely play into the rates that you pay. Interchange rates are set by card companies and banks and are usually dependent on the type of card used (e.g. a debit card would incur lower processing fees than a high-rewards credit card), but other factors, such as the length of time the transaction takes to process, can play into these costs. When a transaction has to be processed in a category that’s more expensive than what it was originally sent to due to some change in the transaction, such as an extended processing time, you will incur an interchange downgrade fee.These downgrade fees can be caused by how and when you process transactions. For example, businesses that do not use card readers that electronically process credit cards by swiping them through the machine are more susceptible for downgrade fees because manually entering card numbers (whether for mail-orders or e-commerce shops) is less reliable. These fees might also rear their ugly head if you fail to batch out your transactions in a timely manner (more on that later). Additionally, knowing your interchange category qualifications is important for staying on top of authorization and settlement deadlines. Downgrade fees may be out of your control from time to time—and they aren’t super easy to find on your processing statement—but understanding the rules and regulations of the interchange categories can help you avoid these fees in the future.  

Rate Fluctuations

Interchange downgrades can also bring rate fluctuations (or changes to your quoted processing rates), but since we’ve already touched on that, let’s focus on how your rate can change due to tiered pricing structures and contract renewals. Tiered pricing looks good from the outside. If interchange rates are based on the type of card you use, then it makes sense that your processor’s rates would do the same. In reality, though, this system of tiered pricing just gives processing companies the freedom to increase your rates from transaction to transaction. Unlike interchange rates--which are published quarterly by card companies--tiered pricing rates are nearly impossible to discern. Tiers are ill-defined, constantly changing, and designed to squeeze as much money as possible out of your business. Electing to sign a contract with tiered pricing can lead to hundreds of dollars in unnecessary fees.Likewise, it may seem like the easy option to auto-renew contracts, or renew them without reviewing rates, but this, too, can bring unexpected rate fluctuations. To avoid these fees stay clear of tiered pricing at all costs and work on your negotiation skills to reduce rates when renewing your contracts.

Non-qualified Fees

These are some of the most heinous that come with tiered pricing contracts. Basically, they exist because some processors don’t like paying interchange fees on high-priced cards, so they categorize the transaction as non-qualified (outside all tiers) and pass the cost onto the merchant. Of course, if you can avoid them completely if you avoid signing a contract with tiered pricing.

Payment Terminal Lease Fees

This is a simple fee that is easy to avoid. If you’re using the hardware that your payment processor provides, you are likely paying a lease fee to cover the cost of that equipment. It may seem small, but in most cases, the cost of that equipment over the life of the contract will far exceed what the terminal actually costs to purchase.The easy fix? Purchase your own equipment—trust us, it’s less expensive this way. This doesn’t even have to be a big investment; you can get a basic reader for as little as $60. Every business is different though, so make sure you get the hardware that fits your unique needs.

Point-of-sale Software Fees

As with hardware fees, avoiding software fees is as simple as exploring your options. If you’re using the POS software offered through your payment processor, you’re also paying a monthly fee to pay for that service. Maybe this is the best—and simplest—solution for your business, but it would be beneficial to shop around a little for a POS system before committing to use any software. Again, this cost is not totally avoidable, but it can definitely be reduced with a little research.

Authorization Fees

Unfortunately, authorization fees cannot be avoided, but it is still important to understand where your money is going. Basically, for every card transaction, there is a charge associated with it to request authorization, whether or not the transaction is actually completed (if a card is declined, for example). After a customer completes a purchase, the merchant submits the transaction to the acquiring bank during the batching process. Once this is verified, an approval code is produced and an authorization fee is charged to the merchant. These fees can be paid daily, monthly, or some other predetermined cycle.

Gateway Fees

If you use a POS system and a payment processor that doesn’t directly integrate, then gateway fees are another expense to watch out for. Your gateway will facilitate your customer’s transactions (among other benefits), but each transaction will cost you anywhere between 10 and 25 cents. The best way to deal with gateways fees is simply to factor them into your choice of processors and understand that your regular payment processing rates will actually be a few cents higher.

Statement Fees

If you’re still receiving paper statements in the mail, odds are you’re paying a small fee for them. Luckily, this fee is easy to avoid by simply switching to receiving only electronic statements.

Chargeback Fees

Chargebacks are like safety nets for customers anytime they need to deny a transaction, but to merchants, they can be a real pain. Each time a customer disputes a charge with a chargeback, merchants incur a fee.Although you don’t have a ton of control over these situations, there are a few ways you can be proactive in making sure your business isn’t setting itself up to pay them. Chargebacks are most common in businesses that offer any sort of auto-renewal or auto-enrollment option. If at all possible, avoid incorporating these into your business. That should keep chargebacks (and their associated fees) from showing up in your statement often.

PCI Compliance Fees

All merchants are required to be PCI-compliant for security reasons, so those who don’t comply will get hit with a monthly charge. However, if you’re using a legitimate POS system and payment processor, odds are you’re already PCI compliant. You just have to prove it and that fee will magically disappear.The simple solution is to get your business certified as PCI compliant. It’s quick and easy and will save you money every month.

Batch Fees

Batching is the process of submitting a transaction for completion. Basically, it’s how merchants go to their bank and say “I’d like my money now, please” at the end of every day.Getting paid is always nice, but what’s not nice is the fee that batching incurs. While this fee is unavoidable, you can change your business’ batching frequency to reduce these fees. Some processing contracts are set up to automatically batch each individual transaction as it’s run through, which we can’t recommend. Depending on how your business operates, you can choose to batch once at the end of the day and receive your revenue in one big chunk, or you could even less frequently than that if your budget allows for it.

Early termination fees

There are lots of things to consider before ending a contract early, but make sure that an early termination fee is one of them. The good news is most of the time you can negotiate the fee away when you sign a new contract.

International card fees

Anytime a customer uses an international card you’ll get hit with a fee because they cards are not as secure as US ones. The only way to avoid these fees is to restrict your business operations to US only, but make sure you weigh the costs of the fees versus the business you will lose before making any decisions.As a merchant, you will pay your fair share of fees. It’s easy to become complacent about the fees showing on your monthly statement, but failing to address them can be a costly mistake. The above list is not totally comprehensive, so don’t think a fee is unavoidable if it’s not listed here. When it comes to processing, fees can come in many forms, so it’s important to make an effort to understand why they’re charged and (if possible) negotiate them down.

Taft Anderson

Taft Anderson is the former Product Marketing Manager of Swipesum. A graduate of Washington University in St. Louis' Olin Business School, Taft is a content and branding expert.

Read more
SCHEDULE a CONSULTATION

Meet one of our payments experts to see if working together makes sense.

We will schedule a quick consultation call to go over how you're currently handling merchant services at your bank, show you our menu of options, and plan for a successful launch.

Swipesum.Insights

SWIPESUM.CONSULTING

We help businesses make intelligent payment decisions.

Learn more about Swipesum
audit

Start with a free audit of your payments processing statements

Schedule an audit
consultation

Connect with a payments expert and get a free initial consultation

Book consultation