How to Negotiate the Best Credit Card Processing Rates

The credit card processing industry is incredibly confusing and competitive, with each company having a slightly different pricing structure (tiered, interchange plus, ERR, flat and monthly memberships) and terms of service. If you’re not careful, you may wind up paying 1-2% per transaction more than you need to—a real hardship for startups that are often operating on already-tight margins. It often takes hours of comparison shopping and frustrating conversations with sales reps, not to mention a good measure of trial and error, to find the best product and rates for your business. In fact, merchant service providers are banking on the fact that your time is far too valuable to be spent shopping around, and that you’ll simply accept their deal to get it over with.

Unfortunately, it’s nearly impossible to avoid the credit card processor search, as credit cards are truly a necessity for today’s thriving businesses. According to the US Federal Reserve, 77% of all US and Canadian transactions are now using some form of plastic, and that figure is expected to reach 81% by 2017. To help you avoid some of the headache involved in searching for the best rates, here are some tips to help you navigate this confusing industry.

Know your numbers and focus on future growth. When it comes to processing credit cards, startups—and small companies, in general—are at a bit of a disadvantage because they don’t have the transaction volume of larger companies (translation: Credit card processors can’t make as much money off of them). Before you can even start shopping for a credit card processor in earnest, you will need to identify the size of your average transaction and project monthly sales volume. While you may not be able to boast a huge number of transactions right away, sell the processor on your future volume. Based on growth potential, you may be able to lock in better rates because the processor doesn’t want to lose your future business.

Always read the agreement, including the pesky fine print! You are entering yourself and your business into a contractual agreement with another entity that constitutes a small short-term loan situation. The last thing you should do is try to rush the process by not doing your homework. These agreements almost always work against the consumer. Some surprises may include language pertaining to limits on transaction size and frequency that are not always apparent on the company’s website, and may not come up in conversations.

Reduce the risk of chargebacks and fraud. Issuing banks offer different interchange fees to different business, depending on the level of risk they pose and their potential for chargebacks. From the banks’ perspective, the safest transactions involve inexpensive items that are standard and used quickly, and those that occur when the customer is physically present to swipe his card. The riskiest transactions are those that take place online or over the phone, and involve big-ticket items and merchandise that tends to cause dissatisfaction among customers. If your business falls into the latter category, there are a few things you can do to lower your interchange fees: If possible, encourage as many in-person transactions as possible to reduce the risk of chargebacks. And when you do accept online or phone transactions, provide extra security information (security code, billing zipcode) to verify cardholder identity and prevent fraud. For debit card purchases, always request a PIN.

Negotiation is welcome (and necessary)! Outside of the fixed costs they have to pay to the credit card companies for each transaction, credit card processors have very few costs, leaving room for pricing flexibility. There are certain concessions that are especially valuable for startups, none of which should come as a surprise to processors: removing monthly minimum fees, waiving equipment costs and eliminating termination fees. While you may not be able to obtain all of these exceptions, one or two are certainly not out of the question.  There a ton of competition in this field, and plenty of hungry companies who are willing to lower their costs to obtain customers—so don’t be afraid to speak up!

Reputation is everything. When searching for a credit card processor, it’s important to find someone you can trust. As such, look up the provider’s rating on the better business bureau’s website, search for any news of disputes (and resolutions) with that provider and check out their social media presence for customer reviews.

While you won’t be able to completely avoid shopping around for the best credit card processing fees, these tips should be able to help you focus your search and come out with the most favorable terms for your startup. Before you make your final decision, you’ll want to take into account the processor’s total cost to process and reputation in the industry. Ideally, you’ll be able to keep your overall costs below 3%, and save yourself some time and headache in the evaluation process.