27 JANUARY, 2022

More and more customers now want to pay by credit cards because they’re the most convenient mode of payment. Credit cards definitely have an upper hand over cash or debit cards as the customers prefer walking into stores or landing at those merchant websites that accept credit cards without any hassle. Most retailers that welcome credit card payments need to pay a ‘payment processing fee’ for each transaction.

The credit card processing fee is a small proportion of the original purchase value and is levied on the merchant by the bank. If you look at it singularly, the amount may seem small, but if you have a large business and have a pile of credit card payments happening every day at your store, the amount adds up to a substantial figure. This article will educate you on the strategies to reduce your credit card processing fee:

 

Factors Determining Credit Card Processing Fee

The credit card processing fee depends on various factors:

  • Business Type – Your business type is one of the factors determining your credit card processing fee. Payment processors levy different credit card processing fee slabs for all business types based on your registered merchant code as fuel, retail, travel, supermarket, and more.
  • Transaction Type – Credit card transaction type also determines the amount of processing fee each transaction may attract. Swipe cards, contactless transactions at POS terminals have a lower processing fee than the rest.
  • Business Risk Type – If you’re being categorized as a high-risk business by your payment processor due to the nature of the product and services you deal in or increased charge-back history, you will attract a higher credit card processing fee.

 

How to Reduce Credit Card Processing Fee?

1. Select a Right Pricing Model

When you are discussing the pricing plans with your payment processors, make sure you’re offered the right pricing model. Usually, the pricing plan offered to any business is based on the business type, the volume of transactions, business growth, and business risk type. Take your pick wisely and don’t hesitate to ask for a negotiated pricing plan from your payment processor.

 

2. Negotiate the Markup Free

While it is a bit challenging to negotiate interchange and assessment fees, you can certainly negotiate the markup fee determined by the merchant account provider. The way this world works is – a higher volume of transactions attracts lower fees and vice versa. If you’re able to establish yourself as a high-value business with a large volume of transactions done every day, you can get yourself a good deal on a markup fee.

The best way to approach the subject is by assuring and demonstrating increased sales in the coming years and a proven plan to demonstrate your annual business growth. You might even receive a discount if your volume is large enough for the payment processors to negotiate the terms with suppliers.

 

3. Demonstrate Credit Card Safety Norms

A tiny part of the processing fee goes towards the payment processor and the issuing banks to safeguard against the risks associated with credit card transactions. If you’re categorized as a high-risk business, you’re more likely to be levied a higher credit card processing fee. While, on the other side, if you are able to demonstrate and assure the bank that your business carries the least risk and fraudulent activities, they’ll be willing to extend you a lower credit card processing fee.

Your negotiation proposal should exhibit:

  • A clear refund and return policy for the customers
  • PCI standard compliance
  • Swiped credit card transactions
  • Entering required security information for payment validation & cardholder’s protection
  • Taking signature on all transactions
  • Having complete billing addresses for all customers
  • Saving receipts and recording transaction history properly
  • Having the recent and most secure POS terminals for added safety of cardholders

 

4. Have an Address Verification Service in Place

Address Verification Service (AVS) is a solid system to reduce the probability of credit card frauds and risks. This service simply validates the cardholder’s billing address with that in the issuing bank’s records to ensure that the credit card transaction is done by the authorised cardholder or someone in the family. This system adds yet another safety layer to the credit card payment processing process and eliminates any risk of credit card identity theft or fraud. This assures the banks and payment processors to trust the business explicitly and offer lower credit card processing fees.

 

Use the above-mentioned credit card processing fee reduction tips and see them sliding down. Also, keep checking back your processing fee payment analytics year after year to know the pattern. Once the payment systems are set up, businesses might take it for granted as everything runs like an auto-play cassette. Having said that, it doesn’t hurt to have a closer look at the credit card processing fee, more so when you’re on your way to business expansion and need every bit of savings for the purpose. This is indeed a positive move in the right direction towards valuable business growth.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.