How to Lower Credit Card Processing Costs and Obtain Better Terms: Follow-up

Editor’s Note: This is a follow-up article to the just completed four-part series on how to lower your debit and credit card costs and obtain more favorable terms and conditions. “Part 1: The Basics,” “Part 2: Attitude,” “Part 3: Preparation,” and “Part 4: Negotiations” we published previously.

First, I want to thank everyone for the positive feedback I received on my “How to Lower Credit Card Processing Costs and Obtain Better Terms” series. Some merchants told me they have already used the information to lower their processing costs in time for the holiday season.

I received specific questions that require detail to explain. I will address some of these in this follow-up article. I stated in the previous article that I would discuss aggregators — PayPal, Square, others — in December. I will now discuss aggregators in my January article.

Brick-and-mortar Businesses

Several merchants with brick-and-mortar and online businesses asked questions. They understood that my article was written for ecommerce merchants. However, they wanted to know more about issues impacting their physical locations. Here are four important items brick-and-mortar merchants need to understand, in addition to those covered in the series.

  1. Confirm Durbin Amendment pricing. The lower debit card interchange rates implemented in the U.S. in October 2011 as a result of the Durbin Amendment applies for PIN debit — i.e., debit transactions where the customers enter their PIN number — as well as other debit transactions. Many retail merchants think they negotiated interchange-plus pricing and do not realize that they are being charged a flat rate on their PIN debit transactions and therefore not receiving the lower rates passed by Congress. Retail merchants should make sure their PIN debit transactions are on interchange-plus pricing.

  2. Never lease a credit card terminal. One simple rule I have for all retail merchants is this: If a salesperson suggests leasing a terminal, then show him to the door because you are dealing with the wrong provider and wrong salesperson. The reasons are too plentiful to cover in this article. However, heed the rule. You will be glad you did.

  3. Beware POS systems. Retail merchants should always make sure they are receiving the lowest possible processing cost and best terms and conditions before investing in any point-of-sale system. Many POS-system distributors sell processing services or are getting paid behind the scenes by the provider they recommend. Should you choose their POS system and then later attempt to change providers, the distributor may charge thousands of dollars — if you are able to change at all. Also, understand that many providers now sell their own proprietary POS systems that work only with their processing. Always ask which processors are certified — not just providers — with the POS system. In short, make sure you are getting the lowest credit card pricing and best terms and conditions before investing in a proprietary POS system. It may be difficult to renegotiate once you have made the investment.

  4. Be cautious of endorsements. Anyone — merchants, associations, chambers, other entities — that endorses a specific provider could be receiving payment for that endorsement.

Interchange-plus Questions

I also received questions from merchants who are on interchange-plus pricing. They reviewed their statements to make sure their interchange rates, pass-through fees, and annual and monthly fees were clearly disclosed. These merchants asked if that meant they were priced fairly, since nothing was hidden on the statement.

The answer is no. It simply means their providers have them on the right pricing plan and are not hiding extra cost. The percentage and per-transaction mark-ups may still be high. I audit statements routinely that are on interchange-plus pricing but are not priced fairly — see my three-part series on interchange-plus pricing.

Understand, there have been significant price reductions over the last three years. Merchants who have not renegotiated their pricing during that time should use the methodology in my article to ensure they are not currently overpaying.

One Salesperson, Many Providers

One merchant told me that his salesperson represents several providers, ensuring the merchant is receiving the lowest cost and best terms and conditions. This is not necessarily true. It is not uncommon for a salesperson to represent more than one provider. These providers offer varying bonuses and other incentives. A salesperson may be more focused on receiving these bonuses and incentives than selecting the provider that has the lowest cost and best terms and conditions for the merchant.


There are many good services that help merchants lower their costs and obtain better terms and conditions. Be aware, however, that there are also companies that say they on the merchant’s side, but they actually sell card processing, or are affiliated with the card providers they recommend, or are being paid by card providers. I’m not saying that these companies can’t help you. But use common sense.

All merchants should have their statements audited by independent services and consider those services for renegotiation to obtain the lowest cost and best terms and conditions. However, when seeking an outside service, make sure you understand how it makes money and what affiliations it has.

Phil Hinke
Phil Hinke
Bio   •   RSS Feed