Payment processing is an essential part of any business, but it can also be a source of significant costs. Monthly fees from payment gateways, banks, and payment systems such as Visa or MasterCard often “eat up” a significant portion of revenue. For small businesses, this can be a significant problem, because every percentage of commission affects net profit.
But there is good news! There are many ways to optimize your [merchant services account] costs. Whether your business is operating with a large volume of transactions or is just starting to accept electronic payments, the right approach will help minimize costs and increase efficiency.
What is a payment gateway fee?
Payment gateway Commission is the fee charged by the payment gateway for processing transactions between the merchant (or business) and the payment system. The payment gateway works as an intermediary between the business and the buyer.
The payment gateway commission may consist of:
- fixed amount per transaction: regardless of the amount of payment, the Gateway may charge a fixed fee for each transaction (for example, 0.3% per transaction);
- percentage of the transaction amount: for example, 2-3% of the payment amount;
- monthly subscription fee: some payment gateways require a fixed fee for using the service;
- additional fees for refunds, chargeback, and currency conversion.
Payment gateway fees ensure data security during transactions. With these fees, you maintain a technical infrastructure for processing payments and integrating with banks or payment systems.
So, how does it work? When a buyer makes a payment, the payment gateway acts as an intermediary between the seller and the buyer's bank. The gateway processes the transaction and transfers funds to the merchant's account. And this is what gateway charges a commission for.
Let's look at real-world examples.
1. Stripe
Commission: 2.9% of the transaction amount + $0.30 for each transaction.
Example: if the buyer pays $100:
- Percentage: 100×2.9% = $2.9
- Fixed fee: $0.30
- Total: 2.9 + 0.30= $3.20
- The seller will receive: 100 - 3.20 = $96.80
2. PayPal
Commission: 3.49% + $0.49 for transactions in the US.
Additional 1.5% for international payments.
Example: when paying $200 via PayPal
- Percentage: 200×3.49%= $6.98
- Fixed fee: $0.49
- Total: 6.98 + 0.49 = $7.47
- The seller will receive: 200 - 7.47 = $192.53
3. Square
Commission: 2.6% + $0.10 for showcase transactions (physical cards) / 2.9% + $0.30 for online payments.
Example: if the buyer pays $100 (online):
- Percentage: 50×2.9% = $1.45
- Fixed fee: $0.30
- Total: 1.45 + 0.30 = $1.75
- The seller will receive: 50 - 1.75 = $48.25.
How to reduce payment processing fees?
Reducing payment processing fees can significantly reduce business costs. And this is necessary for all entrepreneurs who care about their business. So what should you do?
1. Compare offers from different payment gateways
Study the terms and conditions of various providers (for example, Stripe, PayPal, Square, Authorize.net). Check which ones offer reduced rates for businesses with a large transaction volume. Be sure to check if there are any additional fees (for refunds, international transactions, etc.).
2. Set up the payment process to minimize fees
Encourage customers to use cheaper payment methods, such as bank transfers or Automated Clearing House, which often have lower fees than credit cards. Use optimized payment systems that automatically select the best routes for processing transactions.
3. Review the terms of the payment gateway agreement
You can contact your provider and ask for a discount on commissions. By the way, some gateways offer flexible rates depending on turnover.
4. Use a fixed-fee gateway
Some payment gateways offer a fixed monthly fee instead of a percentage of each transaction (for example, Fattmerchant or Payment Depot are the cheapest merchant services).
5. Encourage payments through cheap platforms
For example, instead of PayPal or Stripe, which charge high fees, you can use cheap credit card processing platforms, such as:
- Zelle (almost no commission for local transfers).
- Venmo for Business (less expensive in the US than PayPal).
- For international payments-providers with lower rates, such as Wise or Revolut. Also you can check alternatives on our website.
6. Consider using Interchange Plus technology
Some gateways offer this model: in it, the commission is divided into a fixed gateway fee and a payment system fee (Visa, MasterCard, etc.). This allows you to better control costs and avoid additional surcharges that some providers apply.
7. Avoid “hidden” fees
Carefully check whether there are any additional fees for refunds, processing international transactions, or exceeding a certain number of transactions.
8. Use local gateways for international clients
For international clients, choose providers that offer local gateways in their country. This choice will help you avoid currency conversion and additional fees for international payments. For example, Adyen offers global services with local rates.
9. Optimize your website to avoid mistakes
For example, incorrect data entry or failed transactions can increase costs. Therefore, use tools that check the correctness of the entered data in real time.
10. Offer discounts on alternative payment methods
Encourage customers to make direct bank transfers by offering small discounts.
Reducing payment processing costs is a strategic step that will help your business stay competitive and increase profitability.
Don't forget that your business is unique, and so it's important to test different approaches to find the ones that work best for you. Be attentive to the details of contracts, maintain transparent communication with payment processors, and use available technologies to optimize costs.
