How to Lower Credit Card Processing Costs and Obtain Improved Conditions, Part 3: Preparation

This is”Part 3″ at a four-part series about the best way best to decrease your credit and debit card costs and obtain more favorable terms and conditions. “Part 1: The Basics” and “Part 2: Attitude” we released previously.

Note that this series is unique to ecommerce merchants. It can be utilized as a general guide by brick-and-mortar businesses. But there’s information critical to those companies that’s not covered in this set.

You should be ready before you negotiate with your existing provider — or another supplier — about your credit card processing solutions. Those providers will certainly be prepared to sell you on their processing services, rates, and charges. To prepare yourself, understand the following information.

Know Your Contractual and Service Needs

Before starting any discussions, understand your key contractual and support requirements.

  • Deal length. I favor a month-to-month contract with no early termination fees. A two-to-three year contract might be acceptable provided that there’s not any early termination fee. At a minimum, never sign a contract which has (a) greater than a $300 early termination fee, and (b) a liquated damages clause for early termination. Usually, the more the contract duration and higher the termination fee, the more concerned you should be about the supplier.
  • Monthly discounting. Most suppliers debit the merchant’s account at the close of the month to get their processing charges. That’s known as”Monthly discounting.” Most merchants prefer monthly discounting for easier reconciliation. But some suppliers will automatically subtract their charges daily if you don’t specify monthly discounting. What’s more, some providers charge an extra fee for monthly discounting. If you would like monthly discounting, it shouldn’t cost extra.
  • Funding cycle. Know your funding cycle and settlement-time needs — particularly in the event that you would like next day funding. Most providers provide financing in two business days. That means sales settled now are on your checking account in two business days. Some providers soliciting your company may provide next-day financing but not necessarily say the daily settlement time to get it. Providers have different settlement times that could vary from noon to midnight. Know the supplier’s settlement time requirements or you can wind up paying for next-day financing and get two-day funding.
  • Refund policy. Many merchants believe that they have a excellent rate but do not understand the value of how refunds are handled in the contract. These merchants may be paying hundreds or even thousands of dollars annually for unnecessary processing charges on refunded sales. Understand that when a merchant credits a client, the majority of the Visa and MasterCard interchange fee is reimbursed to the supplier. Interchange can easily be up to 90 percent of the actual processing fee. Some suppliers properly return the refunded interchange to the merchant and just charge a transaction fee to track the refund. Some maintain the interchange and charge a transaction fee. And a few not only keep the interchange but also charge the merchant an additional processing fee and transaction fee on the refund. In the first scenario — i.e. return the refunded interchange to the merchant and just charge a transaction fee to route the refund — the merchant would just pay two transaction fees, say 20 cents. Require this situation so that any returned is handed back to you.
  • Gateway, supplier, and shopping cart compatibility. Open gateways like Authorize.Net work with the huge majority of suppliers and shopping carts. However, if you’re now using your provider’s proprietary gateway you might be restricted to processing with it just. Both proprietary and open gateways have their benefits. But know your gateway restrictions. I also recommend merchants always renegotiate their processing prior to switching into a proprietary gateway as merchants may drop some bargaining power as soon as they switch.

Know Key Rates and Fees

There are numerous prices and fees — and countless interchange rates — from the card processing industry. I really don’t expect merchants to know all them. But, here are a number of important rates and fees to use when negotiating. In my experience, if the chip is fair on such rates and fees, there’s a really good chance that it is being fair with the others.

Key interchange rates:

  • Regulated debit interchange speed: 0.05% + $0.22 (max );
  • Visa Rewards 2 credit card: 1.95% + $0.10;
  • MasterCard Corporate data speed 1 — company: 2.65% + $0.10.

Key pass-through charges:

  • Visa dues and assessments: 0.11%;
  • Visa int’l service fee: 0.40%;
  • Visa APF — debit card: $0.0155 per-item;
  • Visa APF — credit card: $0.0195 per-item.

Another crucial pass-through fee is the new Visa”Fixed Acquirer Network Fee,” or”FANF,” that is based on sales volume. The fee will vary depending on the total amount of credit card sales. I dealt with it in detail, at “Credit Card Providers Increasing Rates and Charges,” my May 2012 article.

Do Not Give Your Merchant Statement into a Provider

Below is information I sent to many suppliers in a quotation request to bid on my customer’s processing business. This is all of the information I sent — and they all needed — for this little merchant.

Sample description into a credit card supplier.

  • “My customer dissolved the prior partnership in February and reformed as an LLC.”
  • “Ecommerce merchant.”
  • “Product is swimwear and other relevant water activity solutions.”
  • “Underneath the newly-formed LLC, company has doubled in the past couple of months and is growing at 5 to 10 percent a month. The present monthly volume for V/MC/D is $9,000. But, that will grow to $25,000 a month during the next year.”
  • “Average ticket is $65.”
  • “Gateway: Currently utilizes Skipjack gateway but will be changing to Authorize.Net.”
  • “Percentage retrievals/chargebacks less than one percent.”
  • “Percentage returns less than 3%.”
  • “American Express: Not currently with present supplier, but might change.”

In a nutshell, salespeople and providers don’t have to understand your statement. It is none of their business who you are processing with, what rate plan you , or what you’re presently paying. Their business is to supply and honest and fair quote for your own processing. To accomplish this, they should comprehend your processing risk, which can be set by understanding your years in business, industry, products, chargebacks, and yields. They will need to learn your business volume and average sale amount, and they should learn your payment gateway. You want to offer this information — not your merchant statement.


  1. Be Ready.
  2. Know your contractual and support requirements.
  3. Know your key rates and charges.
  4. Provide salespeople crucial information, not your announcement.