Credit Card Processing

Credit Card Processing Savings: Chasing the Unicorn

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November 14, 2018

I get it. Credit card processing fees are through the roof, the industry is chock-full of shysters, and every time you try to find a better processor you end up the same or worse off than you were before. That’s because you’re doing it wrong.

My guess is that you’re starting your search for a processor by heading to Google to read reviews on the “best” credit card processors, or to find the processors with the lowest “rates.” Or perhaps you’re trying to verify something you were told by one of the dozen merchant services salespeople that seem to call every hour of every day.

Here’s the truth: Any credit card processor can be the best or worst for your business. It depends on the pricing model, markup, and other details specific to your business. But if you don’t know what to look for, it’s easy for processors to manipulate the numbers, leaving you to constantly chase “savings” that never materialize.

In this article, we’ll go over what factors really matter and show you how to lower your costs once and for all.


Start from the Bottom

When trying to reduce processing fees, too many business owners make the mistake of starting at the top and work their way down. They look at their current rates and ask, “How much can I save?” When you shop on savings, you’re starting at the top and trying to cut the fees. There’s a lot more room to overpay, since you’re not sure of the baseline cost.

A better approach is to start at the bottom. You want to know, “What’s the least I can pay?” Your goal is to find that line, and pay as close to it as possible. When you shop for the lowest cost, you’re starting from the absolute minimum and trying to keep it low.

It may sound like a minor distinction, but working from the bottom up is the most reliable way to achieve your goal: paying as little as possible for processing.

Finding the “Bottom”

The least you can pay in processing fees is the amount that the banks and credit card brands charge. At CardFellow, we refer to those costs (called interchange and assessments) as wholesale cost. That wholesale cost is the “bottom” that you’ll start from.

However, if credit card processors only charged wholesale, they wouldn’t make any money. In order to generate a profit, processors add a markup to the wholesale costs of interchange and assessments. Markup is what you’ll need to focus on in order to pay as little as possible. Focus on the lowest markup over cost.

Wholesale cost is it what it is – it’s non-negotiable, and the same for every processor. You’re not able to secure lower costs at the interchange level. Markup is the only component of cost that you can negotiate, and that’s where you want to focus. The lower the markup, the closer you’re paying to wholesale.

Need a refresher on processing costs? Check out our guide to credit card processing.

Comparing Markups

To find the lowest cost solution, you can essentially ignore the wholesale cost, since it’s the same for all processors. Instead, you’ll want to compare processor markups. Markups include per-transaction fees, monthly or annual fees, statement fees, and any other costs that are in the processor’s control.

The easiest way to compare markups is to use CardFellow’s quote comparison tool. It’s free, and we show you all of the fees that you’ll pay. Try it here!

You’ll want to look at markups in the same format, side by side. The lowest markup will typically result in the lowest cost.

The exception is businesses that accept a lot of commercial credit cards. If that’s you, take a look at our article on credit card processing for B2B, as there are other cost considerations associated with accepting commercial cards.

For B2C businesses, focusing on markup is the way to go.

The Best Credit Card Processing Rates

You may think that the best way to save on processing fees is to search for the best rates. You’ve probably even called a processor and asked, “What are your rates?” But the truth is that rates distract you from the markup, which is what you want to focus on. Instead, you need to know, “What’s your markup over cost?” The “rate” doesn’t give the whole story.

Pricing model also plays a role. Is the rate for “qualified” cards? If so, that indicates a problematic pricing model called tiered pricing, where a processor quotes different rates for different “tiers” and then chooses which of your transactions are charged according to those tiers. That means that a processor can quote you a low rate for “qualified cards” and a more expensive rate for “non-qualified cards.” However, fewer of your transactions will receive the “qualified” rate, resulting in a higher overall cost even though you have a “great rate.”

When low cost processing is your goal, focusing on rates will not get you what you want.

Read more: Best Credit Card Processing Rates.

Beware the “Savings Analysis”

When you’re chasing the elusive “savings,” you’ll run into processors offering a “savings analysis.” The processor will request a recent statement so that they can conduct an analysis and tell you how much money you’ll save by switching to their service. While the idea is fine, the execution is problematic.

Often, these analyses promise substantial savings and may be the determining factor that leads you to sign up. However, just as often, those savings never materialize, leaving you frustrated, overpaying, and soon looking for a new processor all over again. Unless you stop chasing “savings, “ you’ll continue to run into this issue.

How do processors manipulate savings analyses? A common way is to underestimate interchange. The processor will run the numbers pretending that all of your transactions will receive the lowest available interchange rates, which in turn makes your current solution look more expensive and their own offer look more attractive. In reality, you’ll continue to have the same interchange costs that you do with your current processor. (Remember, interchange is the same for all processors.)

Unless the new processor’s markup is lower than your existing solution, you’ll pay the same (or more!) even if a “savings analysis” claims you’ll save a fortune.

Long story short, savings analyses can be manipulated and used as a tool to mislead you into switching to a processor that won’t deliver on its promises.

Analyses and Tiered Pricing

For processors that use tiered pricing, it’s common to see a savings analysis calculate most transactions using the “qualified” rate, with very few at the “mid-qualified” and “non-qualified” rates. The problem is that qualifications are completely up to the processor and can be changed at any time.

A processor could consider all of your transactions “qualified” long enough to get you to sign up and start processing, and then switch the bulk of them to more expensive “mid-qualified” or “non-qualified” tiers. Asking for your rates to be lowered on a tiered pricing model will have similar results. The processor will “lower your rates” but then simply charge more of your transactions according to the more expensive tiers.

Remember, a processor’s goal with a savings analysis is to entice you into signing up and the easiest way to do that is to promise you big “savings.” You’ll have better results when you focus not on savings, but on paying as little as possible over cost.

Doesn’t CardFellow do savings analyses?

We do, but our analyses focus on cost, instead of savings. After all, that’s the key to finding the most competitive credit card processing company. Like many things in this industry, savings analyses can be easily manipulated and aren’t necessarily a reliable indicator of low cost processing.

However, we understand that some people prefer to see a savings analysis to better understand their expected costs if they switch processors. In an effort to provide that service while maintaining our core values of honesty and transparency, there are a few key differences between a CardFellow analysis and open market analyses:

  • We approach it from the opposite direction.
    Many processing companies provide “top down” savings analyses that use unrealistic interchange fees to make their quote appear to offer significant savings and look more attractive than your current solution. CardFellow ignores interchange in savings analyses, because it will be the same no matter which processor you use. Instead, we show you the markup, working from the ground up.
  • We don’t set your rates.
    CardFellow’s analysis uses your current pricing and a quote you’ve received from a processor through CardFellow, but we’re not the processor. We don’t control the costs in your quotes. This allows us to provide you with an impartial analysis that simply uses the hard numbers.

Processors use savings analyses as a hook to get you to sign up with the promise of great savings over your current solution. CardFellow uses savings analyses to illustrate how costs really work in order to show you the lowest amount you can pay for processing.

Remember, it’s not about shopping for “savings” on your current solution. It’s about shopping for the lowest possible costs.

Saving on Processing Fees Once and For All

So how do you choose a lower cost processor with savings that actually materialize? It’s all about narrowing down the right fit for your specific business. Ignore the reviews. Ignore “best processor” lists. Processors set pricing and terms on a per-business basis, so reviews and lists don’t give an accurate picture. The lowest cost solution for one business won’t necessarily be lowest cost for another.

Instead, follow these tips to work from the ground up.

Determine the Right Pricing Model

Most businesses pay the least when they have competitive interchange plus pricing. However, a limited subset of businesses will pay less using flat rate processing companies.

Which situation is most like your business?

You accept payments primarily in person by swiping, and:

  1. Your average transaction is under $10 or you only accept a few thousand/month in credit cards.
  2. Your average transaction is over $10 and you accept at least $5,000/month in credit cards.

You accept payments primarily online, and:

  1. You only accept a couple thousand/month in credit cards, or less.
  2. You accept at least $2500/month in credit cards.

If you said 1, you’ll want to look at flat rate credit card processing options. This includes companies like Square, Stripe, and PayPal.

If you said 2, you’ll want an interchange plus credit card processor. Many processing companies offer this type of pricing.

However, it’s important to note that interchange plus pricing is not silver bullet that guarantees low pricing. Rather, it provides the framework for low cost processing. Which brings us to…

Find a Processor

Interchange plus pricing is available to businesses of all sizes. You do not have to be a large corporation to get great pricing. But it’s not enough to simply sign up with any processor offering interchange plus. You’ll still need a competitive markup, and you’ll need a processor that passes interchange to you at true cost. Interchange plus pricing can be manipulated just as easily as other types of pricing, so it’s important to ensure your processor doesn’t “pad” your interchange costs.

The easiest way to find such a processor is to use CardFellow. That’s because we require processors to sign a legal agreement stipulating what they can and cannot do. We require that processors pass interchange to you at cost as well as disclose all their fees, so there are no surprises. When you compare quotes through the CardFellow system, you can be sure you’re comparing apples to apples, with all the numbers.

Once you have your quotes, we can show you how much you’ll pay over cost, giving you the true “ground up” pricing so you can feel confident that you’re paying as little as possible for processing. And yes, you can even see the “savings” over your current solution. The difference is that you’ll know the savings will actually materialize because you focused on the markup over cost. And with CardFellow’s lifetime rate lock, you won’t have to worry about your rates creeping up over time.

If your goal is paying as little as possible for credit card processing, come see your instant quotes. It’s free, private, and no-obligation. Try it now!

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Ellen Cunningham

BY Ellen Cunningham

Ellen has a degree in English, which she puts to work every day researching and writing articles, processor reviews, and social media posts. She enjoys the challenge of explaining complex topics - making her a perfect fit for credit card processing - and strongly believes in CardFellow's mission of empowering business owners through education.When she's not busy following the latest industry news, Ellen can be found cycling the beautiful trails of southern New England, narrowly losing at pub quizzes, or practicing her trapeze skills in aerial circus class.

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