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With inflation running rampant and skyrocketing costs for everything, intelligent business owners must consider every expense to protect their margins and profitability. Payment processing costs may be one of many things that come to mind, but they should be seriously considered. According to the National Retail Federation, “Regardless of size, the fees are most merchants’ highest operating cost after labor.”

Credit Card Acceptance

Accepting credit cards is a necessity. In 2023, card payments accounted for 50% of small businesses’ total sales. Of the 50% of card payments, approximately 50% will be debit cards, with the balance in credit cards.

While both card types have processing fees, the fees vary somewhat by card type, method of entry (Swipe/dipped/tapped), and payment channel used (online, mobile, etc.), among other factors.

Debit cards have an average interchange rate of around 0.3%. Credit card fees typically range from 2.87% to 4.35% on each transaction, which doesn’t include merchant service provider fees.

Credit vs. debit cards

Card networks charge higher rates for credit cards than debit cards, while others may charge higher rates when the transaction volume is greater. Like interchange fees, the Card Networks review assessment fees twice yearly, subject to change-read increases. The combination of interchange and assessment fees is known as “swipe fees, ” making up 80% to 90% of the transaction cost.

Notably, interchange and assessment fees are the same for all merchants and payment processors, regardless of size or credit card volume.

Processor Pricing

In addition to credit card network-related fees, payment processors charge fees for their services. Processors’ fees fall into one of the pricing structures below.

Flat-rate pricing

As it sounds, processors charge a flat fee that includes the interchange and Card Network fees plus its fee. The advantage is predictability. However, since interchange fees vary by many factors, you could end up paying more processing costs for a transaction than you otherwise would have.

Tiered pricing

The rate structure is divided into tiers — a lower-priced “qualified” tier and second and third tiers, known as “mid” or “non-qualified.” The processor sets what transactions qualify for each tier and varies from processor to processor. While the low qualified rate may attract you, it only applies to a few transactions; most transactions end up in higher tiers at higher costs. Tiered pricing is the most common pricing structure in the U.S.

The primary disadvantage is that the lower qualified rate only applies to specific card and transaction types. For example, if your customers use rewards cards (most do), you can pay higher fees since the rewards cards are outside your qualified tier. Therefore, check to see if the qualified rates in your plan will cover the credit cards your business typically sees.

Interchange-plus pricing

In interchange-plus pricing, the processor charges you the lowest applicable interchange fee plus a fixed fee. The advantage is you’ll pay the lowest possible interchange fees with a predictable fixed fee. However, like other fees, interchange-plus processor fees can vary by various factors, including volume, business type, number of monthly transactions, etc.

Membership or subscription pricing

Membership or subscription pricing is a monthly fee plus a fixed charge on every transaction. However, since the processor doesn’t add a fixed percentage fee, the overall charges can be lower.

While the charges may appear lower, your actual fees depend on the number of transactions and business volume. Also, remember you are paying a monthly membership, which has to be calculated to see if membership pricing works for your business model.

Internal Costs

Even after the interchange, assessment, and processing costs, there are some hidden costs to consider. For example, the purchase or rental costs of credit card terminals, internet and data connections, compliance requirements, software, supplies, IT support, accounting, and other related expenses vary by location, industry, and business model.

Your Payment Mix and Cost Structure

In the past ten years, credit card processing fees have increased by over 200%, primarily due to the overwhelming popularity of credit card rewards. Recent research estimated that over 92% of all credit transactions are on a rewards card. How these trends impact your bottom line is the mix of payments you receive.

For example, if premium or reward credit cards were twenty percent of your payment mix five years ago, now they are ninety percent. In addition, these premium credit cards have up to 2x higher fees than traditional non-premium and debit cards to pay for the vacation and mileage perks.

So, if your cost structure, mainly the portion allocated to processing costs, has stayed the same in the past five years, your credit card processing costs are eating into your margins. These higher processing costs are primarily due to the growing percentage of premium or rewards credit cards in your payment mix.

So What Can I Do? 

Now that you’ve got your head around the cost of accepting payments, especially rewards credit card payments, on your bottom line, what do you do with this information?

Encourage customers to use lower-cost payment methods.

Encourage your customers to use lower-cost payments like debit cards or digital wallets with lower processing costs than credit cards.

What are the advantages of digital wallets as a lower-cost payment method?

Digital wallets like mobile payment apps or online platforms have lower processing fees than traditional credit card payments. They provide a secure and convenient way for customers to make payments and often offer features like loyalty programs and quick checkout options, which can enhance the overall customer experience.

What about debit cards as a lower-cost payment method?

Debit cards have lower processing fees. Unlike credit cards, which involve borrowing money, debit cards allow customers to make payments directly from their bank accounts. This reduces the risk of chargebacks and card network-associated fees.

How can I encourage my customers to use lower-cost payment methods?

You can encourage customers to use lower-cost payment methods by promoting and incentivizing debit cards or digital wallets. This can be done through marketing campaigns, offering discounts or rewards for using these payment methods or providing educational materials to inform customers about the benefits of using lower-cost options.

Check to see if you are getting a good deal

First, you can use your effective rate to compare what you’re paying your current merchant services provider or payment processor to other payment processors to see if you are getting a good deal. That said, rates can vary by business type, percent of online transactions, and other factors.

Does negotiating payment processing fees result in lower fees?

Negotiating payment processing fees can sometimes result in lower fees. However, discussions with your current payment processor may uncover ways to reduce costs associated with their fees and potentially additional service charges; it never hurts to ask.

What factors might influence a payment processor’s willingness to negotiate fees?

Payment processors may be more willing to negotiate fees with businesses with high transaction volume or a good track record with low chargebacks and fraud. These factors demonstrate stability and reliability, making negotiations more favorable.

Which fees can be negotiated?

While interchange and card network fees cannot be negotiated, other fees, such as processor and additional service charges, can be reduced through negotiation.

How does  a merchants transaction volume affect payment processing fees?

Businesses with a higher transaction volume or larger average ticket size can negotiate lower fees with their payment processor.

How does the merchants’ industry affect processing fees in payment processing?

Businesses that operate in industries with higher instances of fraud or chargebacks may be subject to higher processing fees.

How can businesses compare different payment processors to find the most cost-effective solution?

You must calculate your net effective rate as a baseline for comparison. Total processing fees divided by total sales multiplied by 100% equals your net effective rate percentage. Under three (3%) is an excellent net effective rate. If your net effective rate is under three (3%), evaluating other processors may not be worth the effort. However, if your net effective rate is over three (3%), you should meet with your current provider to see if they can lower your net effective rate.

If you can’t lower rates with your current provider and your net effective rate is three percent or higher, it is time to find a new merchant services provider. Please remember that a payment processor needs to make money on your business to provide support. If the margin is too low, the payment processor will likely pay less attention to your business than others where they make a higher margin. 

Payment processors charge fees for their role in facilitating transactions. These fees can be a fixed per-transaction fee, a percentage of the transaction value, or a combination of both. Processors may also charge additional fees for account maintenance, customer support, PCI compliance, or chargeback handling.

Negotiating with a Merchant Services Provider (Payment Processor)

Can you negotiate payment processing fees? The answer is yes; you can negotiate payment processing fees with your payment processor or merchant services provider. While certain fees, such as interchange and card network fees, are set by the card networks and cannot be negotiated, other fees can be reduced through negotiation.

In summary, to help you navigate the negotiation process, we suggest considering the following steps recommended by industry experts:

  1. Understand your current fees: Take the time to review your current payment processing fees and statements to gain a clear understanding of what you are paying.
  2. Research other processors: It is always beneficial to compare the fees and services offered by different payment processors. This will help you familiarize yourself with the industry standards and identify more competitive rates. Use this information as leverage during negotiations.
  3. Evaluate your transaction volume and history: Payment processors may be more willing to negotiate fees with businesses with high transaction volume or a good track record with low chargebacks and fraud. Highlighting these factors during negotiations can strengthen your position.
  4. Be prepared with specific details: Thorough preparation is vital when approaching your payment processor for negotiations. Communicate your concerns, focusing on specific fees or services you want to discuss. This will help facilitate a productive conversation.
  5. Consider multiyear contracts: Some payment processors may offer better rates if you agree to a long-term contract. It is worth exploring this option as it could result in cost savings for your business.
  6. Ask for a pricing review: Request that your payment processor conduct a pricing review to ensure that you receive the best possible rates based on your business’s transaction volume and history. This can help identify areas where fees can be further reduced.

A Word About IntelliPay

IntelliPay has offered reduced-cost payment options to private and public sector merchants for over 12 years.

Our PCI DSS Level 1 compliant payment suite and proprietary payment gateway, combined with our robust API, make transitioning to IntelliPay and integrating existing systems easy.

Accept It All

Our payment suite enables acceptance from virtually any source and every major credit and debit card brand, eChecks, and eCash. In addition, if you opt to add a fee, our payment suite automatically handles the details behind the scenes. Hence, you are always 100% compliant with card network rules and applicable regulations.

More Customer-Facing Options

Our twelve customizable front-end options. From hosted payment pages to customer portals to an innovative email and text payment link portal, allow your company to give customers more ways to pay. Research has shown that offering more payment methods speeds up customer payments and reduces late payments and receivables while improving customer satisfaction. In addition, our Google cloud-based suite makes all this functionality accessible anywhere you need it.

Centralized Control and Management

Our parent/child reporting structure supports multiple locations, users, and fee-based models, giving you complete control over how the site and employees accept payments. In addition, reporting is highly customizable to your business’s processes, while real-time data flow between our payment suite and your systems via our API simplifies payment management and reconciliations.

Superior Reliability and Unlimited Capacity

Because our payment suite is hosted in the Google Cloud, the same provider as YouTube and Gmail, you can rest assured you’ll have the capacity to meet today’s and tomorrow’s needs. Even more importantly, we will be there when you need us, with superior reliability – no service outages in 2021 and 2022 despite unprecedented demand. IntelliPay has you covered no matter what comes next.

Payments for All

We also support Paysafe ecash payments for those who are either unbanked or underbanked. Unbanked or underbanked customers download the Paysafe app onto a web browsing device, create a QR code on that device, then take the code to one of the thousands of convenience or retail locations nationally and pay the staff. Payments are then quickly transferred to your business bank account.

IntelliPay‘s payment suite is the only PCI DSS Level 1 compliant platform you will need for payment processing. To learn more, call or email our sales team at 855-872-6632 or You can also visit our website,, to schedule a free, no-obligation demo.