Are You Paying Too Much To Accept Credit Cards?

A business’s success oftentimes depends on thriving revenue and cash flow, making cutting monthly fees and saving money of utmost importance. One example of a monthly fee that consistently eats into revenue is a monthly credit card processing fee. Many business owners receive this bill, pay it and never think twice about it because they believe it can’t be lowered. The truth is, however, there are merchant processing companies that can lower your cost by offering transparent monthly fees and no contract, significantly reducing your bill each month.

Below are key elements to understanding your monthly payment processing statement, and some red flags to look for that indicate you should switch processors...

​Find Your Effective Rate
The format of monthly statements will vary by company and pricing model, but most lead with the big numbers, i.e. your effective rate. This is the total dollar amount of your monthly credit card transactions minus the total dollar amount of fees. In other words, the effective rate is what you paid for restaurant merchant services.

A simple way to make sense of those numbers and understand how much credit card processing truly costs is to divide the total amount in fees by the total amount in transactions, and multiply by 100. This will give you the percentage of fees you’re paying per transaction.

For example:

($2,279.26 / $53,557.78) x 100 =  4.26% in credit card fees this month.

Do this quick calculation every month to see if your credit card fees are increasing, decreasing, or staying about the same. If you see a variation, you may choose to dig deeper into your credit card processing statement to understand where those extra fees are coming from. 

It’s easy to miss a letter or email from your payment processor sharing news about increased rates, changing fees, or new charges they plan to levy. Finding your effective rate each month will help you know when to play detective on your monthly statement. If your effective rate varies every statement or shoots up or down one month, you’ll want to find the root cause and get in touch with your payment processor to make sure there haven’t been any big changes you should know about.

Review Your Credit Card Mix
One part of the processing fees breakdown is your credit card mix, which refers to cost associated with the type of card and method of payment. In a restaurant, it’s common for customers to use a wide variety of credit cards. However, you should keep in mind that credit cards that offer their cardholders lots of rewards cost you, the merchant, more per transaction than debit cards or basic credit cards with no perks.

For example, a student credit card with a low limit will have a lower processing fee than a platinum card with travel perks. So if you run a restaurant full of diners with fancy credit cards, it will cost you more in processing fees than a dining room of students who pay with debit cards. 

However, diners who have elite credit cards are also more likely to dine out – and rack up larger restaurant bills when they do – so the processing fees may be something worth absorbing.

Payment Processing Pricing Models
Even if your effective rate is relatively similar each month, it’s helpful to take a quick look at the credit card mix on your statement to make sure the pricing model you’ve agreed on is still the best fit for your business. And if you are reevaluating the pricing model you’ve agreed on, it’s important to know what your options are;

Cost Plus Pricing
The Cost Plus pricing model (aka Interchange Plus or Interchange Pass-Through) is the most common due to its age. This model makes the merchant responsible for the non-negotiable interchange fee and the processor markup, which consists of a fixed percentage of the total check, the card brand fee, and a per-transaction flat fee. All fees are transparent, so you can see a breakdown of all processing fees:

Interchange fee + % of total check + card brand fee + transaction fee = total processing fee

Example:

1.54% + 0.10% + 0.10% + $0.25 = 1.74% + $0.25 total processing fees

Under the Cost Plus pricing model, higher transaction volumes and a varied card mix make up for the additional fees you may have to pay when diners use higher-end credit cards and various payment types. While paying a custom rate per transaction means that your payment processing fees may be a bit less predictable, the tradeoff is that you generally get the most equitable rate.

Fixed Rate Pricing
Fixed rate pricing is a newer pricing model that has become very popular. Unlike the Cost Plus pricing model, other pricing models don’t break down the credit card mix in the same way on monthly statements. For example, a Fixed Rate or Flat Fee pricing model charges a percentage-based fee plus a dollar amount for each transaction. 

% of total check + transaction fee = total processing fee

Example:

2.75% + $0.25 = 2.75% + $0.25 total processing fees

The benefit of the Fixed Rate pricing model is that merchants know exactly what to expect when it comes to transaction fees with this pricing model.

One of the drawbacks is that payment processors often set higher fees to try to balance out the variations of the credit card mix and payment types. However, with a flat rate pricing model. Business owners are able to offset their merchant service fees by charging this flat rate to the customers and offering a cash discount.

Customer Bill + Transaction Fee = Total Charge (Total Charge - Processing Fee = Deposit Amount)

Example:

$10 + 4% = $10.40 ($10.40 - 3.8461% = $10)

Cutting Costs

Another money-saving factor is choosing a company that provides multipurpose hardware; the less hardware you have to purchase, the more money in your pocket. Or even better, find a provider that will provide you with free equipment while you process with them.
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Once they understand these components, business owners can easily see where they can cut costs and make smarter decisions about how they process payments. Extra fees, markups and hidden charges are things everyone should keep an eye out for and everyone can avoid. Making sure your provider is evident when explaining all these factors, and doesn’t require a contract. Fees can add up quickly so checking your monthly statement and making sure you understand exactly what you are paying for and why can help save your business a substantial amount of money.

At Evident Business Solutions we provide free no obligation merchant statement analyses to see how much we can save you. We have helped small businesses save as much as $2,000 per month in processing fees! Find out how much we can save you by calling or emailing us today. 

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Paul Adams

Paul Adams is the founder of Evident Business Solutions, a technology company in Northern California that specializes in enabling the hospitality industry. We specialize in POS systems, merchant services, online ordering, marketing & web design. We would love to connect and help you and your business in any way possible!