7 ways merchants can lower the cost of processing card payments

5 December 2023 | 15 Shares

Small to medium-sized merchants often feel like they have no control over the costs associated with accepting card payments. This problem was exacerbated by the pandemic when the number of more expensive ‘card-not-present’ transactions increased thanks to consumers’ shift toward digital experiences. Additionally, chargebacks increased due to higher occurrences of fraud. Businesses must face the decision to either absorb escalating costs or pass them on to customers by raising prices. If the former, merchants will eat into their profits, and the latter could alienate loyal customers.

However, these are not the only two options. There are a number of steps businesses can take to lower the total cost of payment acceptance. TechHQ looks at seven actions that will help you regain control over expenses.

Source: PayJunction


1. Use a payment terminal for in-person transactions

Utilizing a payment terminal for in-person transactions significantly reduces the expenses tied to card payments. With streamlined EMV acceptance, these terminals minimize fraud liability, cutting potential chargeback costs. Enhanced recognition capabilities for EMV chip cards also curb fallback transactions, ultimately reducing processing fees.


2. Accept lower-cost PIN debit and ACH payments

PIN debit transactions, characterized by lower interchange fees, lessen the financial burden on businesses compared to credit card transactions. Under the Durbin Amendment, debit card fees charged by large card-issuing banks are capped at $0.21 plus 0.5 percent of the purchase. Credit card transactions are also linked to a percentage of the total purchase and are set at a higher rate.

At the same time, ACH payments have nominal transaction fees relative to paper checks, wire transfers, credit cards, and even debit cards. These should land somewhere between $0.20 and $2 per transaction. Ethical payment processors will be transparent about their rates for both debit and ACH transactions, ensuring businesses can comprehend the cost advantages.


3. Implement AVS prompting and settle transactions within 24 hours to avoid downgrades

Implementing the Address Verification System (AVS) lowers Interchange rates because it reduces the risk of fraudulent transactions. With an AVS credit card match, the merchant requests the customer’s address and ZIP code, and the information is verified with the billing address associated with the card.  The transaction qualifies for a lower Interchange rate, and the enhanced data helps prevent fraudulent transactions.

Settling transactions promptly can also reduce processing fees by allowing the business to avoid downgrades. Delayed settlements often trigger higher Interchange rate categories, and these are common since providers work on small margins, so they intentionally allow merchants to experience them. But, by settling within 24 hours, transactions meet the criteria for lower Interchange rates, effectively minimizing expense.

Source: PayJunction

4. Optimize B2B transactions by supporting Level 3 processing

Level 3 credit card processing captures detailed B2B transaction data beyond standard credit card information. It includes 10 to 20 extra line items, validating the cardholder and the transaction’s authenticity. Level 3 processing qualifies transactions made with corporate or purchasing cards for reduced Interchange rates. Bear in mind that the enhanced data must be added before the transaction settles, and to qualify for the best rates, the settlement must occur within 24 hours of authorization.


5. Choose a provider that offers Interchange Plus pricing

The transaction rate charged to merchants by payment providers comprises a wholesale Interchange fee defined by the card networks like Visa or Mastercard, plus the provider’s chosen margin. Ethical payment providers let customers choose an ‘Interchange Plus’ pricing plan, where the provider’s margin is fixed, in addition to the fluctuating Interchange rate. When the Interchange rate decreases, therefore, merchants gain the savings. With a tiered or flat rate plan, the provider increases its margin on top of the Interchange fee to keep the total fee passed on to the merchant constant.

6. Choose a payment provider with its own payment gateway

A payment gateway is an intermediate technology that captures, stores, and transmits cardholder data from the point of purchase to the payment processor for authorization. When a payment provider offers its own payment gateway, it integrates the necessary processing tools into its services, eliminating the need for third-party middleware or additional services and their associated fees. Thanks to this saving, the provider offers more competitive rates to the merchant, so it is a good idea to choose one that is open about this element of its fee structure.

7. Choose a payment provider that doesn’t charge nuisance fees

Sadly, nuisance fees, like risk fees, PCI non-compliance fees, and customer service fees are extremely prevalent in the payment processing industry. These charges often go unnoticed by small business owners dealing with other responsibilities. The complexity of statements and the business owner’s lack of specific knowledge about payment processing allow unethical practices to continue. It is essential that merchants diligently scrutinize their agreements or seek out providers committed to transparency.

These seven tips to lower the total cost of payment acceptance can all be taken by choosing the correct payment provider early. For example, PayJunction commits to ethical billing, transparent fee structures, and customer-centric practices, allowing its customers to effectively manage and reduce their payment processing expenses. It prioritizes long-term relationships over short-term profits, resulting in fair rates, transparency, quality products, and award-winning customer service.

PayJunction takes pride in educating its customers on how they can lower their payment processing fees and leverage all seven of the tips above. The company intentionally makes its rate plans easy to understand so customers can be confident they are not falling foul of unethical practices and nuisance fees. It offers month-to-month contracts and has no exit fees or startup costs, meaning merchants never feel locked in, retaining the ability to switch providers if they wish. Experience PayJunction’s differences by signing up for a no-strings-attached demo today.