How to Save on Credit Card Processing Fees

By Jennifer Nieto, President; Best Card

If you’ve looked at your monthly bills, you know credit card processing fees can be hard to understand and unnecessarily expensive. It doesn’t have to be this way! With just a little information, you’ll be able to understand where the costs come from and what they should be.

Know Your Effective Rate.

Rather than look at an individual card’s rate (which is how many companies try to claim low costs), it’s best to look at your effective rate. Calculate it by taking the total amount you paid in all rates and fees and dividing it by the total amount run in sales for the month.

For example $420 in fees ÷ $20,000 processed = 0.021, or 2.1%. (Best Card’s average dental office pays an effective rate of 2.1%, which means it pays $2.10 to process $100 in sales.)

Follow These Two Rules.

Every time you run a credit card, there’s a fee paid to the card brand. It’s called the interchange fee; and the amount depends on the card type and method used to run the payment. (The system will automatically know the card type.) There are more than 1,200 different interchange rates for the huge variety of credit and debit cards accepted nationwide.

Because the interchange fee is a direct cost every card processor has to pay, all processors have the same price floor. It’s what’s charged on top where the companies compete.
That said, there are things you can do to limit your interchange costs and save money.

1. Have your staff ask for debit cards. Debit cards are far cheaper to run than credit cards (there’s no risk to the card company that card owners won’t pay their monthly bill, and there are no perks/rewards to pay). Debit cards can cost a fraction of credit card sales.
2. Swipe the card or use the chip. Avoid hand keying in the card number. If the card is present, there’s a lower risk of fraud, which results in the lowest possible transaction cost with any type of card. When you process card-not-present transactions (keyed cards), make sure to enter the street address and zip code associated with the card to avoid additional fees and get a slightly lower rate. Also, enter the CVV code to help protect you from costly chargebacks.

Choose a Better Pricing Method.

In addition to the interchange costs, there are also card brand fees—many small fees charged directly by the card brands for access to their networks (dues and assessments, FANF, data kilobyte usage, etc). While all processors pay those same fees, many processors surcharge above their actual cost. (Best Card passes them through exactly at cost.)

So all credit card processors have the same cost. But they don’t charge their customers the same price for their services. There are a few popular pricing models they use:

• Interchange Plus: Pass through all card costs with a fixed surcharge percentage (and sometimes per-transaction fee).
  We’re seeing more processors (especially those with autopost of payment into dental software) add additional surcharges to some or all cards to boost their profit. (Best Card offers any TDA member interchange + 0.30% + $0 per transaction, which is significantly below the industry average. For every $10,000 processed, it adds $30.)
• Tiered: Group All Cards (see above interchange) into 3-6 “tiers,” based on their pricing similarities. Some processors may have a base rate and surcharge for “non-qualified” cards that have higher interchange cost. If you see qualified, mid-qualified or non-qualified on your statement, you’re likely on tiered pricing.
• Flat Rate: Charge one fee for all cards, or sometimes a card-present fee and a more expensive card-not-present fee. These rates can be very high because, a processor has to make sure it isn’t losing money if there are too many transactions with higher-cost cards.

Which One is Best?

While any pricing method can be competitive, interchange and tiered are usually the most competitive, assuming you have an ethical processor. If your processor is looking for ways to boost its profit at your expense, then any system might be more to its benefit than yours.

Be PCI-Compliant.

The PCI Security Council mandates annual completion of a self-assessment questionnaire (SAQ) and quarterly network scans if you use ethernet/online connectivity when processing credit cards.

We prepare thousands of cost comparisons. On approximately 70% of analysis requests, we see processors charge $18.95-$39+ per month in non-compliance fees—which corresponds with what the industry is reporting. (Best Card maintains greater than 90% compliance, because it sends emails to and assists its merchants in becoming compliant.)