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How to Cut Credit-Card Fees

How to Cut Credit-Card Fees

The cost of accepting credit cards is a sore point for merchants. As Washington mulls regulation, here's some advice on negotiating lower rates now

John Tozzie | Businessweek

When shoppers swipe their credit cards at Dollhouse Bettie, a vintage-lingerie purveyor on San Francisco’s Haight Street, it used to cost the store 2.3% to 4.2% of every sale, depending on the type of card. Now the retailer pays 1.7% to 3.8%. Co-owner Michelle Athanasiades says the lower rates, along with a bunch of other fees she got her processer to drop, will save her business $4,000 this year.

Business owners have long grumbled about the cost of taking credit cards, and for the first time, Congress is considering regulating how the fees are set. But small shops like Dollhouse Bettie, which has annual revenue of over $350,000, can reduce how much they pay to accept credit cards, to a point, with some effort.

Merchants paid $62.7 billion in “swipe fees” in 2008, according to David Robertson, publisher of payment-industry Web newsletter The Nilson Report. That includes fees to card processers, networks like Visa (V) and MasterCard (MA), and the interchange fees set by the networks but paid to the banks that issue customers’ cards. Interchange makes up the largest chunk, at nearly three-quarters of every Visa or MasterCard swipe fee.

Card processers outline these charges in baffling documents that many small-business owners don’t take the time to crack. They may also levy an assortment of other fees. Companies that train a sharp eye on these costs and negotiate with their processer will find savings. “There is a lot of competition in the business, and competition offers the opportunity for merchants to really shop around and see what is the best deal or the best service they can get,” says Jamie Savant, a partner at the Strawhecker Group, a payments-industry consultant. While only a handful of true processors actually route payments, they’re served by thousands of merchant-level reps that compete for the retail accounts. (These reps must register with banks.) Savant says merchants should get detailed price quotes in writing from three different providers about 45 days before opening a new store or renewing an existing contract.

$50 a month to lease the machine

Athanasiades didn’t shop around for merchant processing when she opened her store in 2007. Dollhouse Bettie already had accounts at Wells Fargo (WFC), so she signed up for processing through the bank. She only reviewed the costs when Dollhouse Bettie’s credit-card machine malfunctioned in March—which happened days before her two-year contract ended and fees were set to rise.

She noticed she was paying $50 a month to lease the machine for two years, more than double what it would have cost to buy one outright. Athanasiades went through the contract and recorded all the fees in a spreadsheet. She compared her processing costs with other merchant accounts online and got price quotes from other providers. Then she went back to Wells Fargo to negotiate. Here’s what else she saved:

A $7.50 monthly statement fee. Athanasiades opted to get statements online instead of in the mail.

A $5 monthly service fee. She asked that this be dropped—and they dropped it.

A $40 compliance fee. The bank charged to certify that Dollhouse Bettie met certain security standards associated with taking credit cards. Athanasiades chose to do the paperwork herself.

A $45 “membership” fee. She’s still not sure what this is: “It’s just some crap that they tack on.”