Saving Money on Credit Card Processing – Tips for Small Business

This is a guest post by Eric Stauffer of, your can find out more about Eric in his bio at the end of this post.

With customer spending down and cost of goods on the rise, small businesses need to find any and every way that they can save money. One of the most expensive and often frustrating cost can also be a source of great savings for the organization willing to put in a little work: credit card processing.

If you talk to a number of business owners about their payment processing fees you are likely to find a commonality when it comes to the level of dissatisfaction and confusion they experience each time their processing statement arrives in the mail. The truth is that the industry is designed around secrecy and misinformation, and uses both to extract large amounts of dollars from small business owners. The good news is that with the right knowledge, any business owner can save a small fortune when negotiating their payment processing deal.

Interchange Pass-Through

The typical credit card processing agreement breaks charges down into three categories; qualified, mid-qualified and non-qualified. Each of these categories (or buckets) carries a specific rate. The processor then takes all the different credit card types (there are over 400 at last count) and lumps them into the three buckets. Then they change each card in that specific category the same rate.

The problem for the merchant is that most of the cards within a given bucket are rounded up to the highest rate for any one card in the same category. Therefore, the majority of the cards run in that bucket are costing a premium.

Interchange pass-through is a type of wholesale processing cost that up until recently was only offered to merchants doing sizeable volumes. Essentially it gives each card the wholesale processing rate plus a small markup so the processing company can make a profit. So instead of having three different transaction rates that each card falls into, there can be over 400.

When negotiating a merchant services contract, it is important to request interchange pass-through pricing. If the rep is unwilling to offer it, move on to another provider. It is also common for reps to downplay interchange pass-through or act like they do not know what you are referring to. If they do this, do not do business with them.

Processing Fees

Most credit card processing contracts are littered with numerous fees. Some of these are industry and standard and difficult to avoid, however, there are often additional fees added on by the sales rep strictly as profit.

Independent sales reps are given a lot of freedom when writing fees into the agreement.  For example, many processors do not require a specific contract length but their sales reps have the freedom to add a term and a cancellation fee if they wish. If the merchant cancels the contract and pays the cancellation fee, the sales rep would receive the entire amount as a commission. This is not always the case, but it is important to find out if the underlying processor requires the fees listed on the agreement.

The best way to limit the fees is by getting quotes from multiple providers and push back on each fee individually. By comparing different processor agreements you can determine which ones are standard (such as statement fees) and which ones may be written in by the sales rep as added profit.

photo credit:posterize

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CEO at 3Bug Media
Gary Shouldis is the founder of 3Bug Media, a web marketing company that helps businesses create 360 Marketing Strategies to dominate their market. His blog is read by over 20 thousand small business owners a month and has been featured in the N.Y. Times Small Business, Business Insider and Yahoo Small Business.
4 replies
  1. credit cards processing
    credit cards processing says:

    Indeed a very nice post. I love to read the latest stuff and happenings on credit card merchant industry. I just came across your blog and find it so informative that I subscribed the same in my reader. Hope you will be posting sure worthy stuff over the coming days. Thanks

  2. George Stevens
    George Stevens says:

    I never heard of the term interchange pass through before. I’m going to find out about it from my bank. Thanks for the heads up

  3. Eric Stauffer
    Eric Stauffer says:

    Hi George,

    I cannot say I am surprised you have not heard of interchange pass through because many organizations do not mention it. It is unfortunate, but a lot of processors treat merchants as enemies rather than clients.

    For a full description of interchange and how to negotiate fees, you can check out the book Fee Sweep. It costs 10 dollars, but you can read the first six pages for free here:

    Hope that helps!

  4. Phone Swipe
    Phone Swipe says:

    Thanks for the useful post. I greatly enjoyed going through it. The credit card field has evolved recently and the business sector will have to move forward along with it.

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