Credit Card Processing 101 – 5 simple steps you can do to reduce your credit card processing fees, starting today

By Andrew Moran, CPP

“Credit or debit?”

Far too often when I go to a retail location that accepts debit cards, I hear “credit or debit?” While it seems like a natural enough question, it’s a clear indication that the person asking the question has not been given a proper explanation of how these two options vary.

With few exceptions, a card that draws from a checking account can be run as either as “credit” (or more accurately, signature debit) or PIN debit.

  • If you run the card as signature debit, the transaction goes over the Visa or MasterCard network, and the cardholder signs the receipt.
  • If you use PIN debit, the cardholder enters their PIN number, and the sale goes over the Debit network. These networks are represented by the icons on the back of the card – STAR, Pulse, Interlink, NYCE, Accel, Maestro, etc.

Typically the PIN debit network rate is going to have a higher per item fee, but take a lower percentage of the total dollar sale. For instance, on a PIN debit sale you may pay a total fee of .05% and $.42. A signature debit takes a lower per item fee, but a higher percentage off the dollar amount. For example, 1.19% and $.20.

Therefore, on a smaller ticket sale, you’re better off taking the transaction as signature debit due to the lower item fee. On a larger dollar transaction, you’re better of on PIN debit due to the lower percentage netted off the dollar amount.

Therefore, the key is to determine where this “break even” point is on your rate structure. Below that dollar amount, simply run the sale as signature debit. Above that dollar amount, train your staff to ask “can I run this as debit?”

Based on the example above, any sale over $20 or above is going to be less expensive on PIN debit:

PIN Debit: ($20 x .05%) + $.42 = $.43 total processing fee

Signature Debit: ($20 x 1.19%) + $.20 = $.44 total processing fee

And as the dollar amount increases, the savings increases. For example, on a $200 transaction:

PIN Debit: ($200 x .05%) + $.42 = $.52 total processing fee!!

Signature Debit: ($200 x 1.19%) + $.20 = $2.58 total processing fee!!

Also, if fraud is suspected, using PIN debit is always a good idea. A PIN debit transaction is nearly impossible to dispute. And if someone steals or finds a credit card number, they’ll still never know the PIN number.

AVS info on keyed sales

As a consumer, we all know that when fill out a credit card payment form online, there is always a field that asks for the billing address for the card. But when we give a card over the phone, sometimes we’re asked for a billing zip code and sometimes we are not. Have you ever wondered why? Merchants in the know will always get the billing address on the card. Here is why.

The AVS (Address Verification Service) check is a service that matches the billing address the issuing bank has on file with the address provided by the cardholder at the time of the sale. Your terminal should prompt for this information – if it does not, then this is an issue right off the bat. And while many terminals let you bypass this field and will still allow the transaction to process, by doing so you get a hidden surcharge usually of about half a percent ($.50 on a $100 sale).   In processing terms this is called a “downgraded” transaction type; unless you really understand your statement, you’ll never know you’re paying these additional fees.

Swipe cards

The lowest cost way to process a transaction is to swipe cards, and with new mobile integrations with smart phones and tablets, this is now becoming easier than ever.   Card networks reward swiped transactions with the lowest rate because they are the most difficult to fake. While someone can call in and give you a stolen credit card number over the phone, it’s much more difficult to create a physical card that can be swiped.

For example, for a basic consumer credit non-rewards Visa card taken by a retail business, the underlying interchange costs are:

Swiped: 1.51% + $.10

Keyed: 1.8% +$.10 (with AVS match)

Keyed: 2.3% + $.10 (without AVS match)

Keyed: 2.7% + $.10 (without AVS match and with delayed batch cycle)

So why pay .29%, .79%, or even 1.19% higher fee than you have to on the same transaction?

Not only does swiping a card save you on the rates, it saves you time. I can’t tell you how often I’ve seen a cardholder give their card to a delivery driver, service tech, etc only to have them pick up the phone and call the office to key it in. This means you’re taking a minute of two people’s time to do something that one person could do in 10 seconds.

Non- Compliance fees

A PCI Non Compliance fee is, more often than not, simply a fee you’re getting assessed for either: A) having a non-compliant terminal or software integration or B) a fee for not simply taking your annual PCI SAQ (Payment Card Industry Self Assessment Questionnaire). And 9 times out of 10, it’s B.

Typically, this fee ranges from $19.95 and I’ve seen as high as $35.95. Or an annual basis, that’s a surcharge of $240 to $431 simply by not going and checking off a few boxes on a questionnaire! Not only that, you leave yourself open to the potential for a data breach.

Avoid Chargebacks

Chargebacks are a huge hidden cost of credit card acceptance for many businesses. While a chargeback will never show up on a rate review, a single sale charging back can be greater than an entire month’s worth of processing fees. So avoiding chargebacks is key to keep down the overall cost of credit card acceptance.

Chargebacks are ultimately settled by the card networks (Visa / MC / Discover / Amex), not your credit card processor. While a chargeback can arise for a number of reasons, there are some simple steps you can follow to be in a position to defend when they arise. The reality is that the networks really care little about whose in the right or the wrong when it comes to a chargeback, they really care about is if you followed proper procedure. Here are some steps to mitigate potential chargebacks:

RESPOND!!!: You’ll lose a chargeback 100% of the time if you fail to respond. Often times the first indication you’ll have of a chargeback is a debit to your bank account. From there, about a week later you should receive in the mail a chargeback notice that states the transaction in question, the reason the cardholder is disputing the charge, along with a field for you to respond and list of what documentation should be included with the response.   Many processors now offer email notification of a chargeback, which can help you stay on top of chargebacks as soon as they pop up.

Get swiped transactions: Swiped transactions make it very difficult for a cardholder to dispute a sale as being unrecognized or unauthorized. Getting a swiped transaction will cut down on the ways a cardholder can dispute a transaction.

Get AVS and CVV matches: In the event you do need to key in a credit card number, make sure you enter the billing address (building number and zip code), along with the CVV info. CVV info is also called CVV2, CVC, CID, etc depending on the card brand, but this is simply the 3 digits on the back of the card or 4 digits on the front if its an Amex. This number is powerful in preventing chargebacks as it proves that the cardholder has the physical card in their hand, since this number is only printed on the card and not contained on the magnetic stripe. This makes it nearly impossible for the cardholder to say they don’t recognize the transaction.

Verify large sales: If you ever have a large sale from a customer you’ve never met and something seems “fishy” about how easy it was to get the sale completed, then you may want to verify the card first through your processor. While not foolproof, you can confirm that the billing address the supposed cardholder provided matches against the address the bank has on file.

Keep signed copy of receipts, work orders / contracts, and tracking numbers: this is probably the most important step, since if you cant provide documentation, you’re going to lose a chargeback.   A signed receipt is critical because it proves that the cardholder “participated in the transaction”, which is a key element they are going to consider in deciding the chargeback. Tracking numbers are helpful, but typically only if you ship to the billing address on the card, and the cardholder signs for receipt. If you ship to an address other than the billing address, the tracking number holds little weight.   Finally, be sure to keep copies of your work orders / contracts, and be sure that these documents list your terms of sale. If for instance you take a non-refundable deposit and your cardholder charges back the deposit, you better have a signed document where they explicitly agreed that deposits are non-refundable. Simply “posting” it as a notice on the wall or on your website will have little effect.

Have an ally: the response to each chargeback is different based on the reason code for the chargeback.   Having a specific ally – a knowledgeable, dedicated account representative – is much better than simply calling in and getting a random support person at the processors help desk.   While you may get excellent advise from a seasoned support person one time, the next time you may get a very different (and very wrong answer) from a newbie.   Having one consistent person to help manage your chargebacks is key.


If you are interested in a comprehensive rate review that will take into account not only “the rates” but all the above considerations that will affect your total cost of credit card acceptance, I invite you to fill out the form below for a no cost / no obligation consultation with myself or one of our knowledgeable representatives.

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