Breaking Down Costs: Understanding Fees in Payment Processing

payment processing

Just how important is understanding payment processing fees for businesses? The easiest way to show you is with a short story about two similar businesses with very different outcomes. That’s coming up, but you need helpful details right from the start, correct?


So, we’ll get going with interesting payment processing insights you won’t find just anywhere:


  • Complicated processor fee structures can keep businesses from knowing which provider has the best rates.


  • 45% of businesses say payment processing fees are too high (67% reported high fees reduced enjoyment of running their business).


  • Asking for a detailed breakdown of fees is smart when shopping around— request a clear, concise, ‘no-jargon’ breakdown.


Those four facts give you solid starting points on how to reduce payment processing costs.


Now, let’s be sure you’re aware of various fees involved with accepting payments for your business.


Comparison Of Payment Processing Fee Structures


Interchange Fees— Paid directly to the card issuer (i.e. Mastercard or Visa).

Assessment Fees— Charged by the card issuer based on monthly sales rather than per transaction.


Payment Processor Provider Fees— Can include a per-transaction fee, monthly fee, equipment rental fee, etc. Some providers offer innovative pricing models for extra potential savings. One model is interchange-plus pricing (offers transparent breakdown of card issuer fees versus processor provider fees). Tiered pricing is another model (lowers rates on qualified transactions). 


Those comparisons of payment processing fee structures apply to in-person credit and debit card transactions. Your best bet for saving on fees? Choosing a reputable provider that takes time to clearly explain all fees your particular business will pay (also ask if they offer a guaranteed lowest rate).


Online payments have similar fee structures to in-person fees but with a key difference. These fees are usually higher since fraud risk increases with credit/debit cards not being physically present.


*Typically, debit card processing fees are lower than credit card fees.


How To Reduce Payment Processing Costs


Here are three specific ways to save on processing costs:


  • Talk with other business owners to see if they are getting hit with hidden fees.


  • Avoid “simpler” fee structures if they won’t truly save you money. 


  • Do an audit of your online store to ensure all wording for sales, shipping, returns, etc. are crystal clear (more on this coming up).

By networking with other merchants, you can likely avoid signing with a processor that has hidden fees. As for a fee structure that’s easy to understand? Simple can seem smarter but fail to equal a better deal. So, use caution when presented with a pricing model that charges a fixed percentage of each transaction regardless of card/transaction type.


How does being crystal clear with your website wording (aka copy) reduce transaction fees, though? It can greatly reduce chargebacks (where a customer disputes a charge). See, it isn’t always fraud that causes a dispute… 


71% of e-commerce shoppers disputing charges do so because of service errors such as shipping mistakes, billing mishaps, or late arrivals. ~PYMNTS report



Clarity Means Lower Payment Processing Fees For Businesses


Clear communication on your website, sales emails, landing pages, and product descriptions is an easy, actionable way to avoid having funds taken out of your bank account due to chargebacks. 


The Key: A good audit is more than reviewing your copy (wording). It is smart to go through the online purchase process so you can spot confusing steps. Go through the customer journey yourself! 


This helps remind you online transactions don’t have a face-to-face store associate to assist the shopper. Any confusion can keep shoppers from completing the checkout, or worse, cause them to file a credit card dispute afterward due to feeling something was misrepresented. 


This takes money out of your account and hurts your risk ratio and can lead to higher processing rates. It can even cause your merchant services provider to terminate your account.


That takes us into certain business types affecting fee structure.



Understanding Payment Processing Fees For Businesses In High-Risk Industries

Some businesses, through no fault of their own, are categorized as high risk for any number of reasons. Broad examples:


  • Certain sales models 
  • Riskier customer base
  • High-ticket items
  • Intangible products/services


Those are just a few examples that cause merchant services providers to use caution, charge higher transaction fees, and have more stringent contract terms.


Need more specific business examples? 


  • Furniture stores (pricey products)
  • Dropshipping (quality concerns)
  • Subscription boxes (disappointing ‘surprise’ items) 
  • Fantasy sports (possible gambling regrets)
  • SEO services (expensive, sometimes intangible results)


The list could go on and on, but the point is this— perfectly legitimate businesses can get labeled as high risk and have it increase their payment processing costs.


Fortunately, there are strategies available to save you money in those cases.



How To Reduce Payment Processing Costs For Higher-Risk Businesses 

Clear communication with customers and clients matters even more in these industries.


Also, look to technology for maximum fraud prevention. One example is 3D Secure Authentication. This requires a one-time password or biometric authentication during the payment process, which reduces unauthorized transactions.


Next, know your customer base, especially when you expand your business. Different customer bases have wide-ranging expectations and tendencies. For instance…


Australian e-commerce shoppers dispute more charges than British and American shoppers. ~PYMNTS report


What about ways merchants can have chargebacks/disputes overturned?


  1. Keep great records for when you need evidence in a dispute
  2. Respond immediately to disputes (note card issuer deadlines for disputes)


The best tactic is to avoid disputes altogether. Even though an overturned dispute gets your funds returned to your business, your chargeback ratio (gauges merchant’s riskiness) can take a hit.


So be ready to nip problems in the bud. That can even mean banning a customer with a history of disputes. This is another reason to keep organized transaction records. A quality payment processor has tools to help you manage that data.



Now for a Tale of Two Situations with Similar Businesses

You’ve likely seen businesses resembling these examples. 


Two shops selling home decor in a downtown area with nice foot traffic. Both do well in their first year and are smart entrepreneurs.


Eventually, they both want to reach more shoppers. So they launch online stores and invest time learning the e-commerce ropes. They take marketing courses and stay updated on the latest trends so they can reach and serve their customers on a high level.


The differences emerge when one shop opens a couple more locations and hires extra staff to help the owner focus on the big picture. The differences only grow after that point.


Yet, the other shop didn’t fail. It just never quite succeeded. Some people would chalk it up to luck or a better location for the successful shop. Yet, the reality is that one owner paid more attention to financial aspects and managed the business finances better.


  • Noticed extra fees early on
  • Kept pristine records
  • Enrolled in money management courses 


A penny saved is a penny earned. A percentage saved is a percentage earned, too, and percentages add up to growth and real success versus “just staying in business.”


When you’re ready for a payment processor you can rely on, go with a provider with the guaranteed lowest rates—National Processing. Get started here.


Payment Processing Frequently Asked Questions


Why are payment processing applications necessary for businesses?


Due to government regulations. Plus, the bank account information requested is for depositing funds into a business’s account. Some newer processors offer services without an application, but the business is risking being shut down afterward.


What is a hidden payment processing problem facing some businesses?


Expiring customer credit/debit cards increase chances of a business losing that customer. A recent study found: In an average month, subscription services lost 2% of their customers, but in months of card replacement (expired cards), these companies lost 8% of their customers. 

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Shane McLendon

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Customer focused

If we can't beat your current rates, we'll give you $500!*

We happily accept merchants processing any amount. Price guarantee for merchants processing $10,000 or more per month. Free terminals and other promotions depend on processing volume, credit and qualifications.

Customer focused

If we can't beat your current rates, we'll give you $500!*

We happily accept merchants processing any amount. Price guarantee for merchants processing $10,000 or more per month. Free terminals and other promotions depend on processing volume, credit and qualifications.