How to Minimize Your Merchant Fees

Accepting credit cards is a fact of business life these days. Customers prefer and expect the convenience of credit card payments, and in any case, they often don’t carry cash or checks anymore. But along with accepting cards comes the fees associated with them – fees that are borne by your business. Some of these are unavoidable, but many businesses end up needlessly overpaying and cutting into their bottom line. Let’s briefly look at how payment processing works, and where you can take action to ensure that your business is coming away from credit card transactions with the most profit possible.


First, you need to understand how merchant fees are calculated, since some cannot be changed while others can. Typical merchant fees include:

  • Interchange fees – these are the fees charged by credit cards themselves, e.g. Visa, Mastercard, Discover, and American Express. These fees are fixed and cannot be changed, no matter who you use to process your transactions. They are commonly a percentage of a given purchase – currently anywhere from around 1.3% to 3.3% – plus a small flat charge of five to ten cents. You should be able to do a simple search for current rates since they are fixed and do not vary by processor.

  • Assessment fees – these small percentage fees are also not adjustable. They are “assessed” by the credit card companies themselves on your total monthly sales volume. If you, for example, paid interchange fees per transaction on a Citibank Visa charge, a Wells Fargo Visa charge, and a Capital One Visa charge, at the end of the month Visa itself will charge you an assessment fee of around 0.01% on all those transactions.

  • Payment processor fees – these are the fees that can vary. Different processors offer different pricing models, amongst which you can look for the best model for the type, number of transactions, and sales volume that suits your business. And within those models there may be some room for negotiation, usually depending on the size of your business.


Different processors typically use one of the four following processing models, one of which will likely minimize your individual business’s overall merchant fees:

  • Flat rate pricing – using this model you pay a flat fee for each transaction. PayPal, Square, and Stripe are widely used examples of this model. In the case of Stripe, for example, you will typically pay something like 2.9% + 30₵ for every transaction you make. This model can be good for very small businesses, but if you have a high volume of transactions or high sales revenue, this model will likely penalize you for it.

  • Subscription pricing – a popular model for small and mid-size businesses, you only play a flat monthly fee, or subscription, plus a small, fixed rate per transaction, usually just five or ten cents. In this case, even though interchange and assessment fees are always fixed, the processor covers them all at the price of your subscription or membership. Fattmerchant and Payment Depot are a couple of the larger names in this space.

  • Interchange Plus – In this model you are charged the interchange fees, and then a fixed percentage fee and a transaction fee. You might, for example, have a merchant account which would charge you the fixed interchange fee plus 0.35% plus a 15₵ transaction fee. It is similar to subscription pricing, but different enough that you may find differences in your final profit.

  • Tiered Plan – In a tiered pricing model, different types of cards are assigned different percentage charges, so how much you pay depends on how the processor classifies the card that your customer uses. The “best” cards may only result in you paying 1.5%, for example, while others may cost you 2.5% or 3.5%. Tiered plans tend to have a poor reputation overall as the card assignments can be opaque, and what might seem to be a “best” card is classified differently by the processor – to their benefit. 


  • The first is simply to compare the types of plans above to determine which would result in the lowest fees. If you have a high volume of low-priced transactions, for example, you will benefit from a different fee structure than a business who has a low volume of high-priced transactions. And as always, shop around providers within each model as well.

  • Second, reduce fraud risk. This is one of the most-overlooked factors but can be one of the most impactful. Generally, when processors see a higher risk of fraud from a transaction, they charge higher fees. So be proactive about using methods that demonstrate a lower risk of fraud. For example:

    • Physically “swipe” cards if possible – processors will almost always charge lower fees for a swiped card than a “card not present” transaction

    • For non-swipe transactions, get the customer’s zip code, or even better, their complete address. Providing these details to the processor reduces their perception of fraud risk

    • Get the customer’s CCV code as well. It’s another step, but well worth taking. Many processors will add an extra charge if no CCV code is provided – even though they will process the transaction.

    • Always use the latest card reader technology. Currently, EMV chip readers are the standard for the industry, and if you are still swiping magnetic strips, you may be paying extra.

  • Third, read your monthly statements. Business owners tend to “set it and forget it” when it comes to setting up payment methods, but processors have been known to add unexpected fees, like “monthly maintenance fees” or other charges, so keep an eye out. And if you find your processor’s statements are too opaque, which is not unusual, seriously consider switching.

  • Fourth, consider offering other forms of payment, like ACH transfers and debit cards, which usually have a much lower fee structure than credit cards

  • Fifth, remember that credit card fees are deductible. This one seems obvious, but you’d be surprised how many businesses overlook it.

  • Finally, depending on your business, your typical customer, and your location, you may decide to pass along some processing fees directly to your customers in the form of a surcharge. This is not an uncommon practice, but be aware that there are sometimes legal requirements, such as clear notification to payers, as well as outright bans in some areas.


If your business is going to accept credit cards, you are going to give up a portion of profits on each sale. There’s no way to completely avoid it, but there are steps you can take to minimize those “losses.” Be proactive about finding the best pricing model for your individual situation, and then ensure you are taking advantage of every pricing discount (or avoiding any unnecessary charges) that your chosen processor offers. 

If you’re looking for more insight on minimizing your merchant fees, BKE can help. BKE offers bookkeeping and accounting services, along with reporting and payment solutions. … And that’s just the beginning. We’ll provide you with a team of bookkeepers with expertise in your industry. We work with your existing accounting software and tools, but can also help you make the move to newer technologies.