It has long been a challenge of small business owners to find ways to reduce credit card processing fees. Retail giants and other large corporations can reasonably absorb these fees due to the higher number of transactions they process. Unfortunately small business owners may not see the same number of sales, making each “swipe” of a credit or debit card a costly exchange. In fact, processing fees are often the main reason behind a small business deciding not to accept plastic as a method of payment. As a result of recent changes in the credit card processing industry, small business owners may be able to save money on fees making it more cost effective to accept credit and debit cards for purchases.
Credit Card Processing Fees
Each time a consumer uses a credit or debit card to pay for a purchase, the merchant is charged an “interchange fee” also known as a “swipe fee”. Right now many small business owners claim debit card transactions account for up to 80% of the monthly interchange fees their business is incurring. The total amount of fees will vary based on the number of transactions, however a small business such as a gas station/convenience store may be paying several hundred dollars per month in credit card processing fees alone.
Proposed Cap On Fees
The Federal Reserve has proposed putting a cap on the amount of interchange fees charged to merchants. As reported in CNNMoney.com, there are presently two different versions up for consideration. The first would allow for a sliding fee scale based on purchase price with a maximum of 12 cents per transaction. The other version proposes a flat rate on all transactions of 7 cents.
Impact on Credit Card Companies
These fees represent significant profits for credit card companies. The proposed cap on fees would greatly reduce the amount of money credit card companies would receive as a result of credit card transactions.
Impact on Merchants and Consumers
Just as these fees represent profits for the credit card giants, the opposite is true for merchants, especially small business owners. A cap on fees could save these owners hundreds of dollars per month. In an economy where every penny saved helps keep a business afloat, this move could have significant impacts on both merchants as well as consumers. In most cases credit card processing fees are passed on to the consumer by way of higher prices.
Another reason why the average consumer should pay attention to what is happening in the credit card processing industry is the impact reduced fees may have on the economy as a whole. When small businesses have the time and money to focus on the growth of their business, the end result may be more job opportunities as well as reduced prices. Both have a positive impact on the economy. When credit card processing fees are more affordable for merchants the positive benefits will have a trickle down impact for consumers and job seekers.
While credit card processing is a necessary cost of doing business, there are some ways to spend less on the service:
Understand Your Needs for Credit Card Processing
Not every business owner needs a credit card reader attached to a cash register. For smaller businesses, using a phone service processing system is more than adequate; while others can simply use internet credit card processing services. Before researching companies and merchant accounts, understand what your own needs are to avoid having a salesperson sell you something you don’t actually need to operate your business.
Find a Credit Card Processor Without a Cancellation Fee
It seems everything from cell phone contracts to credit card processors have a cancellation fee these days! Read the fine print in your contract before signing to see if the processing service you intend to use charges a cancellation fee if you decide to stop using them at some point. You might find cancellation fees in the range of a few hundred dollars to a few thousand dollars! Why should you pay to cancel a service you are unhappy with or which doesn’t provide the solution you need for your business? Before signing the contract, ask if the cancellation clause can be removed and have the contract amended to show the change. If not, keep looking for a different credit card processing company.
Skip Tiered Pricing Structures
Look for credit card processors which use an interchange fee plus structure of pricing. The majority of credit card processing fees go directly to Visa, Mastercard, Discover or American Express. These are the interchange fees and you can’t change them. Processors can then add an additional fee on top of the interchange to cover their service charges. Look for companies offering the interchange fee + processor fee structure of pricing to ensure there are no hidden fees.
Compare Several Credit Card Processing Companies
Before selecting a company to help you accept credit cards from your customers, compare several side-by-side. If possible, compare at least four or five different credit card processing companies to see which one offers the best pricing or the complete list of features you need. Forget your microphobia and dig into the tiny details! Once you’ve narrowed your list of companies down to three or so, contact each one and let them know you are comparing their company to a few others, and see which company gives you the best rates. They often will provide additional features or lower fees if they’re aware you’re comparison shopping.
Consulting Services
Founded by Robert Livingstone in January of 2009, Ideal Cost is a self-funded consulting service which provides insight as to how you can lower credit card processing costs. As a merchant, you undoubtedly understand that accepting credit cards is almost mandatory in our society. Credit card purchases account for 80% of face-to-face sales and almost 100% of online and telephone transactions. Knowing this, you probably already have a credit card processor to facilitate these transactions or you are in the market for one. Sadly, the cost of accepting credit cards can often diminish the benefits.
This is where Ideal Cost enters the picture. Instead of shopping around for the best provider or paying costly fees to make a switch that may or may not save you money, you can hire Ideal Cost to do the hard work for you. As stated in their website, “Ideal Cost’s mission is simple. We are hired by the merchant, represent the merchant, and move forward with only the merchant’s best interest in mind. Ideal Cost performs merchant account audits, consulting, and more. Our goal is to separate ourselves from the stigma of the credit card processing industry.”
This type of service should be a welcome relief for business owners who until this point were pretty much on their own when it came to deciphering complicated credit card processing contracts. With little regulation from the government, the credit card industry has had free rein in how they conduct business, sometimes making it difficult for merchants to get a foothold in the industry.
Ideal Cost offers business owners an opportunity to turn over the time consuming task of comparing and managing their credit card processing services to an impartial party interested only in providing useful information that can assist the merchant in better managing their costs.
With Ideal Cost you do not pay to switch processors but instead allow Ideal Cost to renegotiate with your current processor to realize additional savings. They will help you get lower processing fees and provide monthly savings reports making it easy to see where and how much you are saving. Additional services provided by Ideal Cost include merchant processing consulting for business owners who are just beginning to accept credit cards and ACH processing for reoccurring payments.
As a start-up it remains to be seen what type of impact Ideal Cost and other companies that may follow suit will have within the industry. The types of services offered however, definitely give merchants more options when trying to save money on credit card processing services.
