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VIEWPOINT: Evaluating & Optimizing Credit-Card Processing Costs

By Amanda Smith-Socaris


The hectic pace of life for today’s CEOs and entrepreneurs often finds them consumed with putting out the fires of daily operations. Consequently, the attention to credit-card transactions and the corresponding costs are not being properly addressed.

The use of credit cards as the preferred form of payment continues to rise with more and more businesses transitioning to cashless operations. It’s important to avoid the pitfalls associated with your business accepting credit cards and to understand the issues that will affect profitability. Let’s review the components of what you are charged to accept a credit-card payment at your business.

First, the rate. Many credit-card companies will offer a low introductory rate which will seem too good to pass up. How long will they guarantee that rate? What will the rate be a couple of years from now? The lowest rate possible for your business classification is determined by its risk exposure. A business with few merchandise returns and 100 percent in-person transactions has lower risk than a business with 10 percent returns and 100 percent internet-based transactions. This may seem like the only number you need to pay attention to, but base rate is only part of the total equation.

Second, interchange. You can visit or to see the published interchange rates. They are all are disclosed in black and white. What you may not know is there are more than 600 classifications of interchange. It is important to “optimize interchange,” which means ensuring that all transactions hit the lowest interchange fee possible. For example, if consumers pay their restaurant bill on a corporate card versus a rewards card versus a personal credit card, they will create different fee classes and corresponding costs for the merchant. Additionally, whether most of your transactions are swiped, manually entered, or transacted through a mobile app and/or the internet will affect the interchange classification. Think about your own business and the percentage of swiped transactions versus card-not-present transactions throughout the month. The ratio will help determine the cost expectations and needs of your merchant-services system. 

Third, transaction fees. When a processor advertises that there are no transaction fees, that does not necessarily ensure the best cost structure. Processing and point of sale (POS) companies will bundle their rate, combining the discount rate and the transaction fee, to give businesses the appearance of lower costs. 

Fourth, hidden fees. The credit-card industry has numerous hidden fees that can and will inflate costs. When analyzing your credit-card statement, there are gateway fees, PCI compliance fees, annual fees, regulatory fees, transaction fees, cross-border fees, and more that comprise your “effective rate.” Some of these are completely unnecessary. A significant spike in bogus fees occurred during when spending decreased during the COVID-19 pandemic. Those fees became permanent if they were not disputed with the processor. 

Finally, as more technology and integrated solutions emerge (for example: Toast in the restaurant industry), merchant-statement line items are even less transparent. Many of the solutions bundle a flat and/or blended rate into their monthly fee. Additionally, some integrations will allow a choice of credit-card processors, while some lock you into one processor, which undermines your negotiation position in the future. 

Understanding the components of what is being charged is the first step. Combining that knowledge with assessing the needs of your business will help determine the ideal system for you. Due to the complex nature of processing costs and varied needs across industries, a cost-consulting firm can analyze your current system, as well as uncover the hidden fees you are paying that are prevalent in the payments industry. 

Once discovered, these can be negotiated to reduce your overall effective rate. This can avoid the need to switch your current processor and POS system to save money. Evaluating and optimizing credit-card processing costs can save money that will directly improve your bottom line.        

Amanda Smith-Socaris is an independent sales representative for Merchant Advocate, a cost consulting firm in the merchant-services industry. Contact her at or (607) 333-1375.