4 proven tactics to reduce your credit card fees

As we partner with more Shopify brands through our invoicing and payments platform, we’re often asked for advice on best practices to reduce cost centers associated with pricing. More specifically, our brands ask for more tactical support to reduce credit card fees.

To help merchants better understand the process around cutting cost centers, we’ve aggregated our most actionable advice on the topic spanning four proven tactics.

1) Negotiate for interchange plus pricing

Every merchant hits a point in time when they look at their Shopify transaction fees and realize they’re paying more than 3%. When it comes to saving money, transaction fees are a prime opportunity to quickly reduce a cost center. 

When brands start to near a 7-figure annual sales trajectory, we advise merchants to ask their provider about switching from blended pricing to interchange plus pricing (IC+). 

With regards to pricing on a typical purchase, it’s standard across payment players (Stripe, Shopify, Paypal, etc) to offer a blended price of 2.9% + 30 cents per transaction. 

Your customer cohorts will likely use a range of credit cards, spanning both high and low end options. With blended pricing, the transaction fee is predictable and constant no matter what type of card is used. With IC+ pricing, the fee varies based on the card itself and the acquirer’s percentage is split out on it’s own.

This visibility on the acquirer’s fee makes it easier to compare acquirers like Stripe vs Braintree or PayPal vs Adyen and helps future negotiations as your business continues to grow.

In this scenario for IC+ pricing, the effective discount rate fee can be brought down from 2.9% to around 2.1% and the per transaction fee can be negotiated down from 30 cents to 10 cents for an ecommerce business with low risk.

2) Supply additional data to providers

In the same conversation with their provider, we advise merchants to ask about the provision of additional Level 2 (L2) and Level 3 (L3) data within each transaction or invoice. 

Put simply, Level 2 and Level 3 data offer more details around order and shipping information and distinct customer profiles. If your payment’s provider is able to accept this data, it will decrease their overall risk exposure per transaction and in turn enable them to lower your fee.

As you can see using Visa 2021 fee programming, the rate applied to a transaction that qualifies for Commercial L3 is 1.90% + $0.10. The rate for a Commercial L2 transaction is 2.50% + $0.10. On the other hand, the Commercial Card Not Present transactions will cost you 2.70% + $0.10. 

That means that if you accept a commercial credit card and don’t provide level 2 or 3 data, you’ll pay .20% – .80% more.

3) Reduce your chargeback risk 

In line with the first two tactics, reducing the time to fulfill an order goes a long way in reducing the risk of a customer filing a chargeback. It's better to refund an unhappy customer than risk the customer filing a chargeback ($15/a pop). They do add up.

If chargebacks exceed a threshold the payments provider will force the business into a remediation plan that would include using additional services. Not to mention, they would delay payments (risk holds) which would impact cash flow.

4) Leverage volume and scale

Finally, at a certain stage in your brand’s life cycle, you’ll hit a point of scale and find your transaction volume has begun to increase exponentially.

When this happens, we advise merchants to leverage that volume and open a dialogue with their credit card provider to ask for better rates and an updated quote. We see this in real-time with larger retailers like Costco, which pay near zero in discount rate per transaction.

Put simply, larger volume gives you negotiating leverage.

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