Does the thought of spending hard-earned revenue on credit card processing fees stress you out?
Many small business owners find credit card processing fees to be extremely overwhelming.
According to the 2020 Bureau of Labor Statistics, about 50% of small businesses fail within the first four years of operation.
By 2024, credit card payment volume is expected to increase by over 33%, while cash payment volume is expected to decrease to about 27% of all transactions.
Without the ability to accept credit cards, the future of your business could be in serious jeopardy.
So how can you accept credit cards while also turning a profit?
Average costs of credit card processing
Each business has a unique set of fees that they must pay to accept credit and debit card payments from your customers:
- Transaction fees. These fees are typically charged as a percentage of the sales and can range from 1% to 4%. Some payment processors will also have an additional fee below $0.50.
- Service fees. Some payment processors (or MSPs) will charge a monthly or annual fee to subscribe to their services. This fee is paid in addition to transaction fees.
- Equipment setup. Some merchants require a POS machine and a credit card reader. Some processors give you the equipment for free, while others lease or sell the equipment.
- Incidental fees. These are one-time fees that are paid in specific situations like chargebacks, insufficient funds, or special verification services.
Credit card processing pricing structures
- Flat rate. This pricing model allows merchants to pay the same rate for every transaction, typically a percentage and a small fee. The flat rate credit card processing fee structure is typically suggested for low-priced monthly transactions under $5,000 a month.
- Interchange plus. This is a good pricing model for businesses that processes a lot of credit card transactions because there’s tons of room for negotiation. Merchants pay a flat fee per transaction (the processor’s cut) plus an additional percentage that varies based on the fees charged by the credit card companies (also known as interchange fees).
- Tiered pricing. This model is pricy and difficult to negotiate. Experts typically advise against using this model because pricing isn’t transparent. Processors will bundle interchange and tiers pricing, so you’ll pay a variable rate in three tiers, rather than on each credit card type.
The top payment processors for small businesses
- PayPal. PayPal is a simple-to-use payment processor that utilizes a flat rate pricing method with no monthly fees. Customers pay either online, in store, or using the mobile application.
- Square. Square provides retailers with a mobile payment and POS system method of accepting payments. The transaction fees associated with Square vary depending on whether you’re using the POS system or mobile payment method. Square also doesn’t charge any monthly fees.
- Stripe. Stripe integrates to your company’s website or invoicing service and merchants pay a flat rate pricing method with no monthly fees.
- Shopify. Shopify is an eCommerce platform that also offers their own payment processing solution. Customers will pay you through your online Shopify website. Merchants transaction fees will vary depending on which version of Shopify you purchased. Using Shopify comes with many three different versions with varying monthly fees from $29 to $299.
- EBizCharge. EBizCharge chooses their pricing structure based on which option is best for your company and saves you the most money. With 7 different payment features, your business can easily accept credit card payments without worrying about heavy transaction costs or monthly fees.
Here are 6 ways to get the cheapest credit card processing for small businesses:
- Use a merchant services provider instead of a bank
- Choose a PCI-compliant payment gateway
- Integrate your payments
- Get personalized service
- Select a flat-rate pricing option; avoid tiered pricing
- Watch out for hidden fees and mandatory contracts
Prefer to watch it? Check out our video on how to lower credit card processing costs:
1. Use a merchant services provider instead of a bank
A merchant services provider will supply your business with a merchant account so you can securely process credit cards.
Banks don’t always provide their own merchant services. Instead, banks will typically contract out to a third party to process transactions for them, and can even charge you additional fees to hand your business to someone else.
With a merchant services provider, your business can process payments online without having to redirect customers to a third-party website. Additionally, you’ll gain fraud protection to guarantee safe credit card transactions and secure merchant services.
According to the U.S. Small Business Administration, 82% of businesses that fail do so because of cash flow problems.
Merchant services will help your business increase cash flow and manage finances more efficiently by encouraging a prompt collection of accounts receivable. An efficient merchant service should be able to automatically mark your invoices as paid and update your accounts receivable.
In addition, make sure that your merchant services provider can obtain the lowest charges on business-type and government purchasing credit cards. This will lower your overall costs and ensure the cheapest credit card processing for small businesses.
Lastly, you will need to determine the best way for your small business to accept credit cards. Since processing costs vary by each method, this will likely impact which merchant services provider you choose.
Best way to accept credit cards for small business
When it comes to accepting credit cards for small businesses, all payment methods can be broken down into three categories: in person, over the phone, and online.
- In-person: This payment method is typically the lowest-risk option and has lower fees. In-person payments are usually preferred by small businesses accepting credit cards since they tend to be brick-and-mortar. Getting a credit card machine for your small business is essential to accept in-person transactions. POS systems and card readers improve the customer experience and increase conversions.
- Over the phone: Since these transactions require a merchant to gather credit card information over the phone and manually enter it into a card reader, they’re typically more high-risk and incur higher fees. Despite this increase in cost, these payments are still used by small businesses, especially in the restaurant and food industry.
- Online: Like over-the-phone payments, online transactions include higher fees. For any small business taking credit cards online, you will need to set up an eCommerce website and choose a reliable payment gateway.
While it’s crucial to choose the right payment methods and merchant services for small businesses, finding the right software is just as important. Finding a payment gateway that allows you to securely process credit card payments will also be very beneficial.
2. Choose a PCI-compliant payment gateway
Essentially, a payment gateway is cloud-based credit card processing software. It facilitates credit card transactions, linking transaction information between the credit card network and the card-issuing bank to authorize the payment. Once approved, the payment gateway passes funds from your customer’s credit card into your merchant account.
Since this process deals with sensitive credit card information, it is crucial to ensure that data is being handled by a PCI-compliant payment gateway.
A PCI-compliant payment gateway should utilize both tokenization and encryption technologies and meet all PCI specifications set by the Payment Card Industry. This ensures that credit card information is protected throughout each stage of the transaction process.
A payment gateway that is not PCI compliant can result in severe data breaches and cause thousands of dollars in credit card fraud.
Processing with a PCI-compliant payment gateway minimizes security risks and protects your business from hefty fines. The fine for not being PCI-compliant can cost your business as much as $100,000 per month in fees.
3. Integrate your payments
Rather than processing transactions outside of your accounting software and manually marking your invoices as paid, you should consider a provider that offers a way to process transactions within your ERP/accounting software. This eliminates double data entry and the potential for human error.
Integrating your payments can automate the process and provide you with more time to focus on current customers and bringing in new clients.
Small Business Digest reported that 91% of small to medium business owners with integrated payment systems reduced back-office expenses by at least 21%.
4. Get personalized service
As a business owner, your time is valuable. Find a provider that can do it all.
If their idea of customer service is an outsourced phone number or email address, then stop and say no thank you.
In fact, according to the American Express Survey, 67% of customers are unable to resolve customer service issues when they cannot talk to a live person. What’s more, the averag