There are several steps that businesses can take to reduce the card processing fees; here are a few main points:
The first is to be sure that you fully understand the pricing method used by your processor.The best way to assure this is to only use Interchange plus pricing. This type of pricing allows the merchant to pay a fixed margin over the actual interchange or cost of the processing passed on from Visa MasterCard and Discover. For example, many processors still use a tiered pricing model that eludes the savings from the Durbin amendment debit cap merchants would otherwise benefit from. Ask to see the actual costs to be sure that none of the Association fees or assessments are inflated.
The second step every merchant must take is to avoid a long term contract and be sure to get it in writing. Most processors use the standard 3 year contract that includes an ETF or early termination fee. This can average $250- $500 or more. Once a merchant is locked in, it is typical to receive regular price increases via the tactic known as negative consent. In other words if you don’t protest, you are agreeing to the new terms. With no termination fee locking you into a contract, you are free to change processors anytime you are unhappy with the service.
Most importantly, never lease your terminal. This is where the processors and agents can make the most from a merchant in the short term: by leasing terminals over 4 years where the merchant will pay $800- $1500 or even as much as $3500 over the term of the lease for a terminal that can be bought brand new for a few hundred dollars. Years ago, this was the only option as the banks and processors kept the equipment out of retail distribution, but today, a quick internet search will reveal plenty of distributors willing to sell you the same terminals, brand new for a fraction of the price you would pay in a lease.
While it’s important to look for ways to save money, it may be best to avoid any strategies that may turn off your customers. Some policies, like minimum purchase amounts can backfire on certain merchants because of the clear dominance of plastic in today’s economy. The fact is that more and more people are moving away from carrying cash. Ten years ago you wouldn’t think or have the option of putting that burger and fries on a card, but today nearly every fast food chain accepts credit. Why? Because it’s more profitable to do so. Also, be careful with surcharges; not only does it turn a customer off, in some states (i.e. Florida) it’s even illegal. For most merchants the best strategy is to accept it as a cost of doing business and be sure it’s factored into your margins. Unfortunately, you must pass those costs on in the pricing of your products or services the same way they are asking you to pay for their rewards, miles, and cash back that is reflected in the higher interchange (cost) that a merchant must pay.