As a small business owner, receiving the bill from your credit card processing company can be intimidating, with a long confusing list of fees and charges. Some of these fees can actually be negotiated and you can receive lower rates. However, the first step in negotiation is understanding credit card processing fees and how they work.
Types of Fees
There are three main types of fees charged by the credit card processing company:
Interchange fees: These are sent to the bank or credit card issuer, and can vary depending on credit card network, card type used in each transaction, payment processing method for each transaction, and your merchant category code, or MCC. These are all predetermined costs and cannot be negotiated.
Assessment fees: These fees go directly to the credit card company (Visa, Amex, etc.), and are dependent on the nature of each transaction, such as card type and location, as well as transaction volume. These fees are also predetermined and, unfortunately, non-negotiable.
Processing fees: This is the markup determined by your credit card processing company. Since this represents the actual profit margin of the processing company, it is the only negotiable type of fees!
Pricing Models
When you search for a credit card processing company, these three types of fees will be represented to the merchant in different ways — these are called pricing models. The pricing model can have a major impact on your negotiation ability or even access to cost breakdown. There are four major types of pricing models:
Tiered pricing: This pricing model blends all of the types of fees into predetermined categories based on your business type and the nature of each individual transaction. It is usually the most expensive and lease flexible option, as not much information is provided in terms of cost breakdown. Negotiation options are limited with this pricing model.
Flat rate pricing: Similar to the tiered model, flat rate pricing offers one basic cost to all customers. This is a popular model for major online or mobile processing companies like PayPal and Square. The over-simplified nature can be attractive to small business owners, however it gives the merchant the least amount of control over charges. This model is extremely difficult to negotiate, and usually results in the highest markup fees, since the processing company receives the same amount regardless of the business risk factor or transaction type.
Interchange Plus pricing: This model distinguishes interchange and assessment fees from markups, making it the most transparent pricing model. Typically it features a percentage and flat rate combination fee for each transaction. As you can easily determine the credit card company’s profit margin, this model is easily negotiable, especially if your business produces a high transaction volume.
Subscription/Membership pricing: This model also distinguishes between wholesale costs and markup fees, but in a slightly different manner. It will consist of a very small transactional fee and a larger, flat-rate monthly fee for using the processing company. This model is more cost-effective for businesses with high transaction volume, and can also be negotiated easily.
Other Negotiation Factors
In addition to pricing models, there are a few factors that can influence your ability to negotiate processing costs:
Company size: Large corporations have high customer volume, and therefore value each merchant less. Smaller companies like Double Helix will always be more open to negotiation, as they will personally work with your business to determine what pricing situation works best.
Business standing: Understand what your business contributes to the processing company, especially in terms of transaction volume and risk factors. The more valuable you are as a customer, the more negotiation power you have. Establish trust by reducing risk of fraud and consistently making timely payments. This makes you more viable for lower fees as well.
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