💰 💳 If you want to reduce your credit card processing fees, research different processors and compare their rates, learn how credit card processing fees work, and avoid downgrades.


Start by comparing processors and their rates. Every processor has different pricing structures and fees, and what works for your business may not work for another.

Next, learn how credit card processing fees work.

Know the difference between fixed costs and markup. Fixed costs include interchange and assessment fees, which are controlled by Visa, MasterCard, and the other card brands. You can’t change these.

But you can change the markup. Also called the discount rate, the markup is the percentage your processor charges you above and beyond fixed costs.

You should also learn about different credit card processing pricing models so you can choose the model that makes sense for your business.

Know the difference between interchange plus and flat rate pricing and the pros and cons of each.

With interchange plus, merchants pay a different percentage each month. Interchange plus is based on interchange rates, which change depending on how and which credit cards are processed. You’ll get the lowest pricing, but your statements will change from month to month and you’ll be responsible for ensuring your transactions aren’t downgraded (more on that later.)

To negotiate a low interchange plus rate, focus on reducing the processor’s markup and make sure your cards aren’t downgraded.

Flat rate pricing guarantees one flat rate no matter what. You’ll know in advance what your processing fees will be. And you won’t have to worry about downgraded cards. However, you won’t get the lowest price possible.

To negotiate a low flat rate, look at your last three credit card statements. Find your average processing rate and negotiate for a rate that’s lower than your historical average.

Finally, avoid tiered pricing. Tiered pricing models are the least transparent and often the most expensive, so if a processor is aggressively pushing that model, it’s time to move on.

Round out your research by determining your effective rate. If you’re currently processing credit cards, your effective rate will give you a comprehensive picture of your overall processing costs.

To calculate your effective rate, divide your total processing fees by your total sales volume and convert to a percentage. Use this percentage when negotiating with processors.

On top of learning about the credit card industry, you should learn to avoid downgrades.

A downgrade means that a card is classified in a higher interchange bracket and you pay more to process it. How does that work?

When a credit card transaction occurs, the interchange rate is determined by the type of card and how it was processed. For example, it costs more to process a corporate card over the phone than a personal card in a grocery store.

Certain frowned-upon processing practices cause your transactions to be downgraded. The riskier a transaction seems, the higher its interchange rate and the more you pay to process it.

Too many downgrades will raise your monthly processing bill. Here are three simple ways to avoid downgrades:

1. Preauthorize and capture for the same amount.
When the preauthorization amount and the capture amount differ, it raises red flags about the legitimacy of the transaction.

2. Batch out every day
Close your batch every day to avoid stale authorizations.

3. Include AVS
Include AVS (address verification system) with every transaction by entering the billing zip code.

Those are the basics!

0:00 - How to Reduce Credit Card Processing Fees
0:19 - Processors and Their Rates
0:30 - How Fees Work
0:50 - Different Credit Card Pricing Models
2:26 - Your Effective Rate
3:00 - Determining the Interchange Rate
3:30 - How to Avoid Downgrades

Other helpful blogs:

➡️ 7 Ways to Save Money on Merchant Account Fees
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➡️ What Are the Average Credit Card Processing Fees That Merchants Pay?
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