Running a small business comes with pesky costs, probably none more frustrating than the fees you pay to accept credit and debit card payments. To combat pesky fees and protect your profit margins, follow these tips to find the cheapest way to accept credit card payments in your business.
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What’s the Cheapest Way for Small Businesses To Accept Credit Card Payments?
Which payment processor is the best deal for your company depends on the kind of business you run and how your customers pay.
Payment processing companies use various structures to charge you for the service—transaction and subscription fees, flat-rate or variable fees—depending on the credit card network.
Top payment processors include:
- Square. Mobile payment and POS system for retailers. In-person payments cost the merchant a fee of 2.6% + $0.10 per transaction. Remote transactions (like when you manually enter the customer’s card number or they make a purchase online) cost 2.9% + $0.30 per transaction. No monthly fee. Check out our review for more information.
- PayPal. Customers buy online or in store via QR code or mobile app. U.S. merchant fees range from 1.90% to 2.90% + $0.30 per transaction. No monthly fee.
- Stripe. Customers pay online via a Stripe integration to your website or invoicing service, and merchants pay 2.9% + $0.30 per transaction. No monthly fee.
- Shopify. Customers buy online through your Shopify store. Merchants pay between 2.4% to 2.9% + $0.30 per transaction, depending on which Shopify subscription tier you purchase. Shopify plans include payment processing and an online store website, with monthly fees ranging from $29 to $299.
- Stax by Fattmerchant. Process payments in person, online or over the phone. Merchant fees are on an interchange plus model, which means you pay the interchange rate—the percentage charged by Visa, Mastercard or other credit card company—plus a flat fee per transaction. The flat fee is $0.08 for swiped payments and $0.15 for remote transactions, and interchange rates range between about 1.5% and 3.5%, with more premium cards and those with higher rewards charging the highest rates.
- Payment Depot. Accept payments online, in person, over the phone or via invoice. A monthly subscription includes an online store, free POS equipment setup and mobile payment processing with your smartphone. Monthly pricing is between $79 and $199, depending on the setup you need and how much you process in payments each month. Interchange plus pricing includes a flat fee of between $0.07 and $0.15, depending on your membership tier.
- Zoho. If you mainly accept online payments via invoicing, use Zoho Invoice to accept PayPal Business payments, and pay just $0.50 per transaction, instead of PayPal’s typical fee.
Costs of Credit Card Processing
Depending on how you accept payments in your business and which service you use, you may pay these fees to accept credit and debit card payments from customers:
- Transaction fees. Pay these each time a customer checks out with their card, whether they swipe or enter the information online. Fees are typically charged as a percentage of the sale, ranging between 1% and 4%, plus a fee of less than $0.50. Some processors charge a flat fee that’s the same for every transaction, and some vary the percentage and fee depending on factors like which credit card is used or which membership plan you’re on.
- Service fees. Some processors charge a monthly or annual subscription fee to use the service, on top of transaction fees.
- Equipment setup. If you have to get a POS station and a credit card reader, you may have to purchase or lease those, or pay a refundable deposit to use them. Some payment processing companies give you equipment for free with a monthly subscription.
- Incidental fees. You pay these one-time fees in specific situations, like chargebacks, non-sufficient funds or special verification services.
Types of Credit Card Processing Fees
Payment processors use one of these three pricing models to charge fees:
- Flat rate. Pay the same rate for every transaction, usually a percentage plus a small fee. This is usually the best model for small businesses that have low-priced tickets or process less than $5,000 per month.
- Interchange plus. Pay a flat fee per transaction (the processor’s cut) plus a varying percentage of the transaction that matches the amount charged by the credit card company (interchange fee). This is a good model for businesses that process a lot in credit card transactions each month because they can negotiate the processor’s fee to save money.
- Tiered pricing. The processor bundles interchange fees and tiers pricing, so you pay a variable rate in three tiers, rather than different rates for each credit card. Experts generally advise against using a servicer with this model because pricing isn’t transparent, so it can be costly and difficult to negotiate.
Ways To Cut Down Credit Card Processing Costs
You’ll have a hard time eliminating the costs of credit card processing altogether, but you could reduce them using these tips.
Choose the Right Payment Processor for Your Business
Evaluate your options before selecting a payment processor, and choose one that minimizes your costs for the services you need. For example, if you don’t need an online store, you don’t need to pay the monthly fee to use Shopify; you could use Stripe or PayPal for free. Also, consider the size and volume of your sales to choose the most economical fee structure.
Use a Merchant Services Provider
Major banks provide many of the same services as payment processing companies, but they tend to charge more. Go with a dedicated merchant services provider, like PayPal or Stax, for better rates.
Use a Mobile Payment Processor
If you’re a very small or brand-new business, start with a mobile payment processor like Square. These services charge a flat rate and use minimal equipment, so you’re not saddled with a contract, monthly fee or setup costs.
You can typically use a mobile payment processor with a free swipe attachment for your smartphone or tablet, and a free app. And apps like Square can grow with your business, so you can always upgrade to add more equipment or capabilities later.
Avoid Lengthy Contracts
Especially if you’re new to business, a years-long contract with a traditional payment processor could lock you into rates that don’t work for your business long term. And they can be difficult to get out of and charge high termination fees.
Avoid the costs and keep your flexibility by using a payment processor that lets you pay month to month or doesn’t require a subscription at all.
Cut Services You Don’t Need
If you sign up for a subscription-based service, shop around to make sure you don’t overpay for a bunch of services you don’t need. Subscriptions tend to be tiered, and if you need just one capability that a company includes in its second-tier but not the rest, your costs can quickly add up.
Negotiate Discounts
The benefit of using a subscription-based service (if your business processes a large amount in credit card purchases) is the ability to negotiate the processing fee. You’ll usually be stuck with the interchange fee because that’s set by credit card companies. But you could ask to reduce the fee that represents the processor’s cut.
Opt for Flat-Rate Pricing
Avoid tiered pricing, which is opaque and difficult to negotiate. If you’re a small or new business, choose a service that uses flat-rate pricing. If you’re more established with a higher volume of purchases, choose a service that uses interchange plus pricing to get the most affordable rates.
Restrict the Cards You Accept
Most retailers you walk into accept Visa and Mastercard. But you might have a harder time finding a business that accepts Discover or American Express. That’s because the latter two charge higher interchange fees—since they offer greater rewards to their customers.
You could save money by declining to accept payments from networks that charge higher fees. But keep in mind that this could mean losing some potential customers who prefer those payment methods.
Set Minimums for Credit Card Purchases
To combat processing fees cutting into your profits on small-dollar items, you could set minimum purchase totals for which you’ll accept a credit card payment.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (a.k.a. Dodd-Frank Act) allows merchants to set credit card minimums of up to $10. You may not be allowed to do the same for debit cards, however; credit card network rules might prevent minimums, and Dodd-Frank doesn’t affect debit purchases.
Offer Cash Discounts
You can pass the cost of card processing fees onto your customers by raising your prices and offering a discount to those who pay in cash.
Or, if your state allows it (most do), you could add a surcharge to each card transaction at the point of sale. Check the rules of the credit card networks you accept to make sure they allow surcharging.
Featured Partner
1
Podium
Free Version
Yes
Price
Rates as low as 1.99% + $.15 per transaction
Special Offer
Free Credit Card Reader
Frequently Asked Questions
How can I accept credit card payments without fees?
Credit card networks and payment processors need to be paid for the service they provide merchants, so you can’t avoid fees altogether. You can, however, negate fees and maintain your profits by adding a surcharge to credit card payments or raising prices and offering a cash discount.
What is the best way to accept credit card payments for small businesses?
The most affordable way to accept credit card payments for your business depends on factors including what you sell, where you sell it, how much you sell and which payment methods your customers prefer. Flat-rate processors are best for businesses that make less than $5,000 in sales per month, while interchange plus models are best for higher-volume businesses.
How much does it cost a small business to accept credit cards?
Payment processing fees vary and include an interchange fee set by the credit card network (Visa, Mastercard, etc.) and a processing fee set by the processor (PayPal, Square, etc.). Typical interchange fees range between 1% and 4% of the sale price, and processing fees range from $0.10 to $0.30 per transaction. Some payment processors charge a single rate to cover the interchange fee and their cut, while some charge a rate that varies with the interchange fee.
Can you negotiate credit card processing fees?
Yes. When you use a payment processor that charges an interchange plus fee, you may be able to negotiate a lower processing fee if your sales volume is high enough to make it worth it for the servicer.
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