Are Credit Card Processing Fees Negotiable?


Some credit card processing fees are negotiable, and some aren’t. So, please put the spreadsheet aside for a moment and read this article before you call another processor to ask the fateful question, “What’s your rate?”

Before you can negotiate credit card processing fees, you have to know which fees are flexible. Credit card processing is like any other industry in that there are fixed costs and markups. Fixed costs are those that a processor can’t change, and markups are open to discussion.

Understanding the components of credit card processing cost is the first step toward negotiating competitive fees. The second step, as we will explain in a moment, is to not negotiate fees before negotiating pricing. It may sound like the same thing, but there is an important difference.

Components of Credit Card Processing Cost

The three components of credit card processing cost are interchange fees, assessments and markups.

Interchange Fees (Not Negotiable)

Interchange fees remain the same no matter which credit card processor you choose, and no processor can offer you lower interchange rates than another. Interchange fees are charged by the banks that issue credit cards, and only the stakeholders of Visa, MasterCard and Discover (card-issuing banks) can update interchange.

Assessments (Not Negotiable):

Visa, MasterCard and Discover charge various assessment fees when businesses accept one of their credit or debit cards. Like interchange, a business will pay the exact same assessment charges regardless of which credit card processor it uses. All processors pay the exact same assessment fees to Visa, MasterCard and Discover.

Markups (Negotiable):

The only area of credit card processing expense that is negotiable is the markup above interchange and assessments. The processing markup includes the processor’s rates, credit card transaction fees, monthly fees, and any fees associated with software, gateways or processing equipment. The markup is where you want to focus your negotiating power because it’s the only area of expense you can change.

processing-fees-negotiableDistribution of Processing Cost

The goal when negotiating credit card processing fees is to get the markup portion of expense as low as possible in relation to fixed components of cost (interchange & assessments). A markup of 12% – 20% is considered very competitive.

The graph below represents the distribution of credit card processing expense for a business that has competitive pricing. A cost distribution such as this is what businesses can expect to see with the instant quotes received through CardFellow.

As you can see, interchange fees that go to card-issuing banks account for the majority of charges, followed by the processor’s markup, and then assessments that go to the card brands (Visa, MasterCard and Discover).

Cost Distribution After Using CardFellow
Your goal is to negotiate processing fees so the distribution of cost looks similar to this graph.

The following graph represents the cost distribution of a business that does not have competitive credit card processing pricing. As you can see, the processing markup accounts for the majority of expense, and it is a negotiable area of cost.

Cost Distribution Before Using CardFellow
Negotiate Pricing First

Never start negotiations with a processor by focusing on rates and fees. The first step to lower processing costs is to negotiate a favorable pricing model. Interchange pass through is the most competitive form of pricing, and it’s the one you want to secure.

Negotiate the Rate Second

Once pass through pricing has been secured, focus on negotiating rates and fees, keeping in mind the most important rate is the effective rate. The effective rate is one number that represents the amount of processing volume paid in fees.

For example, a business that pays $50 in fees in a month where it processed $1,000 in credit card sales has an effective rate of 2.00%.

Focusing on the effective rate ensure that you are negotiating for total cost, not an individual rate or fee.

Contact Justin Smith at 214-546-0983 for a consult!