Gravity Payments

How to Offset Credit Card Processing Fees

The costs of accepting credit card payments can really add up. In this article, we cover several ways to offset some of your processing fees and improve your profitability.

 Reading Time: 5 minutes

When we talk to small business owners, they often ask how they can reduce – or offset – their credit card processing fees. We understand why – if a lot of your customers pay by credit card, the fees can really add up and eat into your margins.

In this article, we cover 7 ways you can increase your profitability by offsetting (some) of your fees.

But first, let’s cover what the fees consist of.

Your total credit card processing fees consist of three different components:

  • Interchange fees: transaction fees that are paid to the bank that issued the credit card used for a payment. Interchange fees represent the largest portion of your total fees (usually 70-80%).
  • Card brand fees: these fees are charged by the different card brands (Visa, Mastercard, Discover, American Express, etc.). Visa’s FANF fee is an example.
  • Payment processor fees: fees charged by the payment processor for providing their services.

By using the methods outlined below, you may be able to offset (part of) all three, and lower your effective payment processing rate.

Let’s dive in!

Keep Tabs on Rates (Particularly Promotional Pricing)

While you may think – or have even been told – that credit card processing rates are set in stone, this is not the case.

A common mistake we see business owners make is picking a payment processor when they are starting out, often with promotional pricing, who dramatically increase their rates over time. We think this approach is predatory and destabilizing for small businesses, so we don’t do it! 

We aim to offer you the best rate possible and not increase your rates throughout your time with us. Plus, if your business grows dramatically, or the way you accept payments changes, we’ll consider that too.

Follow Payment Processing Best Practices

Your interchange fees can vary depending on whether you follow best practices for processing payments. Visa, for example, will downgrade your interchange rate to their EIRF rate (more expensive!) if you don’t meet certain criteria.

This is especially important when your customers pay online or over the phone, and no physical card is present – known as a card-not-present transaction – because the risk of fraud is higher.

Make sure to be PCI compliant and implement fraud prevention best practices for card-not-present transactions – such as requiring the CVV code and using an Address Verification Service (AVS).

Reducing fraud also helps prevent chargebacks. This is important because too many chargebacks can lead your payment processor to place you into a higher risk category – with higher fees.

Lastly, make sure that you settle your payment batches daily – not doing so can lead to higher fees.

Pass On the Fees to Your Customers

One of the most effective ways to minimize payment processing fees is passing them on to your customers – this is called surcharging.

For example, if you pay 3% in fees for each credit card transaction, you can cover your costs by adding an additional 3% surcharge to credit card purchases. There are numerous federal and state laws for surcharging that you must follow to avoid penalties and fines.

Read our articles on everything you need to know about surcharging and the differences between surcharging, convenience fees, and cash discounting if you are considering implementing one or more of these methods.

Reduce Refunds

When you refund a customer after the payment has been settled – for whatever reason – you have already paid the associated credit card processing fees.

Even though you refunded the customer, the processing fees of the initial transaction won’t be refunded back to you! So, reducing your refunds saves you money.

Consider reviewing your refund policy. Monitor the amount of refund requests you get, the reasons why customers ask for a refund, and try to find ways to avoid or reduce refunds in the future while being fair to your customer.

Pro Tip: if the refund request comes in before the payment has been settled, voiding the transaction is the better option. With a void transaction, it’s as if the transaction never happened – and you won’t pay processing fees.

Further Reading: Void Transactions vs Refunds: What’s the Difference?

Increase Your Average Transaction Value

If your payment processor uses a cost-plus pricing model – like Gravity – it means your processing fees consist of a percentage of the transaction value and a flat fee per transaction.

Because the flat fee component is fixed, a higher average transaction value results in a lower percentage of fees per transaction – this is especially beneficial if you process a lot of small transactions and/or have tight margins

Let’s illustrate the cost savings with an example:

A customer of a cosmetics shop comes in once a month to buy skin care products, body wash, shaving products, make up, etc. The average transaction value is $20 – paid by credit card.

Your credit card processing fees are calculated as follows: 2.5% + $0.10 fixed = $0.60. After ten of these transactions (total value of $200),, you have paid $6.00.

If, instead, this customer buys the same products in bulk for $200 each time, your processing fees would be 2.5% + $0.10 = $5.10.

You have just saved $0.90 in processing fees – with hundreds or even thousands of transactions per month, this adds up to a lot.

You can boost your average transaction value by offering upsells at checkout, offering a small discount for bulk purchases, setting a minimum spend amount, or incentivizing customers to buy more.

As a bonus, you can increase your revenue at the same time!

Offer Cheaper Payment Methods

Some of your customers will want to pay via credit card – no matter what – but you can nudge others towards cheaper (for you) payment methods.

For example, you can offer customers a small discount if they pay in cash – also called cash discounting.

ACH payments and bank transfers are cheaper to process, so you may want to encourage customers to use these payment methods.

And if you are a retailer selling staple foods, you may be able to accept EBT payments. This not only increases your customer base, but also, the fees for processing EBT payments are much cheaper.

Review Your Credit Card Processing Statements

Regularly review your credit card processing statements to check for irregularities, fee increases, or fees you don’t recognize.

There could be a categorization error for certain fees or your Merchant Category Code (MCC) could be wrong – resulting in unnecessarily high fees for your business.

If you see something on your statement that shouldn’t be there or that you don’t understand, do not hesitate to contact your payment processor to clarify what it means.

At Gravity, we pride ourselves on being one of, if not the most transparent merchant services provider in the industry. We give you everything you need to review your monthly transactions and make the best decision for your business. If you have questions, you can always contact us. 

Offsetting Your Credit Card Processing Fees: The Bottom Line

Your monthly credit card processing fees can really add up – especially if you have tight margins and/or process a lot of small transactions.

Finding ways to structurally lower those fees could be the key to improving your bottom line.

Depending on factors like your industry, the preferred payment methods of your customers, and your transaction volume, you can consider implementing one or more methods we covered in this article. Don’t leave potential savings on the table!

Gravity Payments offers competitive payment processing rates as part of our merchant services. If you suspect you are paying too much to accept credit cards, don’t hesitate to contact us.

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