Hidden transaction fees: How can small businesses avoid them?

It’s common for small businesses to overlook certain transactions — and not to no effect. These costs can add up and ultimately hinder businesses' ability to be profitable. 

What exactly are these often overlooked costs, and what can you do to reduce them? Read on as we cover these topics and key information on hidden transaction costs. 

5 hidden transaction fees every small business should know

Running a small business means dealing with a range of expenses, some of which remain hidden until they start to affect your profits. Transaction fees are a significant part of these costs, and if not managed properly, they can chip away at your margins. 

To stay profitable, you need to understand and effectively handle these fees. Below, we break down five hidden transaction fees that every small business owner should know about.

1. Interchange differential or non-qualified surcharges

Credit card processors categorize transactions into different tiers: "qualified," "mid-qualified" and "non-qualified." This categorization depends on factors like how the payment is processed, the type of card used and whether the correct security protocols are followed. Non-qualified transactions — often involving manual entry or insufficient security — typically incur higher rates. This additional charge is known as the interchange differential or non-qualified surcharge.

To reduce these costs, aim to ensure that transactions fall into the "qualified" category whenever possible. Use chip readers or contactless payments, verify all necessary security information, and avoid keyed-in transactions when other methods are available. These simple actions can help you keep transactions within the lower fee brackets.

2. Monthly minimum fees

Many payment processors charge a monthly minimum fee to ensure they generate a baseline revenue from each account. If your transaction volume doesn’t produce enough in processing fees, the processor will charge the difference. For instance, if your processor requires a minimum of $25 in fees per month and you only accrue $15, you'll pay an extra $10 to reach the required minimum.

During slow months, these fees can become a burden. To address this issue, negotiate with your payment processor for a lower minimum fee if your transaction volume tends to fall below the required threshold. Alternatively, consider switching to a processor that doesn’t impose a monthly minimum. 

3. Gateway fees

Online transactions require a payment gateway, which facilitates secure data transfer between the merchant, the processor and the customer. Most payment gateways charge a fee, which may be a flat monthly rate or a per-transaction fee. For businesses that rely on eCommerce, gateway fees are unavoidable, but the cost can vary greatly depending on the provider.

To reduce gateway expenses, shop around to find the provider that offers the best value. Some payment processors offer bundled gateway services at a discounted rate. And remember: minimizing gateway fees can make a significant difference, especially for businesses that process high volumes of online sales.

4. Batch processing fees

Batch processing fees are charged when merchants settle credit card transactions in bulk at the end of the day. While each batch fee might be small — just a few cents — these charges can add up quickly, especially if you process multiple batches each day. Every batch you finalize incurs a fee.

To manage these costs, try to settle all your transactions in a single daily batch whenever possible. Reducing the number of batches not only lowers processing fees but also simplifies bookkeeping. Consolidate your transactions and find the right balance between efficient processing and cost savings.

5. PCI non-compliance penalties

The Payment Card Industry Data Security Standard (PCI DSS) ensures businesses handle credit card information securely. If your business fails to comply, you'll incur non-compliance penalties — which can be substantial. Many processors add non-compliance fees to your monthly bill until you meet the necessary requirements.

Avoid these penalties by staying compliant with PCI DSS. To do so, consider using secure payment terminals, updating software regularly, and conducting regular compliance checks. Many payment processors offer resources to help their clients meet PCI requirements. Plus, staying compliant not only avoids fees but also protects your business from the risks of data breaches.

Best practices for minimizing transaction costs

Managing transaction fees is central to protecting your profits. Implementing best practices can go a long way toward keeping these costs under control. Here are some effective strategies to help small businesses minimize transaction-related expenses.

Review monthly statements

Transaction fees are often itemized on monthly statements, and discrepancies or unexpected charges are common. Reviewing statements regularly can help you identify errors, rate increases, or unfamiliar charges. If you spot any issues, contact your payment processor immediately. This habit prevents excess fees from accumulating and keeps your costs transparent.

Maintain PCI compliance

Maintaining PCI compliance helps avoid non-compliance fees and protects sensitive customer information. Compliance reduces the risk of data breaches, which could lead to significant financial losses and damage your reputation. Utilize PCI compliance tools, conduct regular security scans and implement secure payment systems. 

Batch transactions efficiently

Batching transactions can reduce per-transaction fees, but batching too often can increase overall batch fees. Establish an efficient batch schedule that minimizes fees while ensuring timely processing. Finding the right balance will help reduce costs without impacting your business operations.

Leverage volume-based discounts

If your business handles a high volume of transactions, negotiate with your payment processor for volume-based discounts. Many processors offer lower rates for businesses that consistently process a large number of transactions. Remember to present a solid history of your transaction volume when negotiating. These discounts can significantly reduce your overall processing costs, especially during peak business periods.

Monitor and prevent chargebacks

Chargebacks can be costly and can damage your standing with your payment processor. Monitoring transactions to prevent chargebacks helps maintain your profitability. Make sure product descriptions are accurate, customer service is prompt and disputes are handled efficiently. Have a clear return policy, and make sure customers understand it. Preventing chargebacks keeps your costs down and protects your business from additional scrutiny by your processor.

Negotiate lower rates

Negotiation is key to reducing processing fees. If your business maintains consistent transaction volumes and has few chargebacks, use this as leverage to negotiate lower rates. Loyalty and a strong transaction history can help you secure better terms. Reach out to your provider and ask for rate reductions or additional perks — it never hurts to ask, and the savings can be substantial. Or, rely on third-party experts to negotiate on your behalf. 

Compare different providers

Payment processing fees vary greatly between providers. Regularly compare different processors to ensure you get the best rates and services. Switching to a more affordable provider or renegotiating your current terms could lead to significant savings. Staying informed about market rates and options will keep you from getting locked into an overpriced or outdated contract. At Sekure Payment Experts, we work on behalf of small businesses to ensure they’re matched with a tailored solution provider that meets their needs. 

Understand your fee structure

To effectively manage transaction fees, you need to fully understand the fee structure of your payment processor. This includes knowing about interchange fees, assessment fees, gateway fees and any other charges that may apply. When you understand each type of fee, you can better manage your processing costs and identify unnecessary expenses. Ask your payment provider for a detailed breakdown of fees and question anything that seems unclear.

Choose a suitable pricing model

Payment processors offer different pricing models, such as flat-rate, tiered or interchange-plus. Depending on your transaction types and volumes, one model may suit your business better than another. Flat-rate pricing can work well for businesses with consistent sales volumes, while interchange-plus may offer greater transparency and potential savings for others. Consider speaking with one of Sekure’s Payment Experts who can guide you through choosing a pricing model specific to your business’ needs. 

Opt for integrated systems

Many small businesses use separate systems for point of sale, inventory and payment processing. Integrated systems can help reduce costs by eliminating redundancy and improving efficiency. By choosing a payment solution that integrates seamlessly with other business tools, you reduce processing times and minimize errors, which ultimately helps in lowering transaction fees.

Train your staff on best practices

Your employees play a significant role in how transactions are handled. Train them to follow best practices, such as using secure methods for card transactions, verifying customer information and efficiently batching payments. Proper training helps ensure that transactions are categorized correctly, which can reduce fees associated with non-qualified transactions.

Avoid dynamic currency conversion fees

If your business handles international transactions, be cautious of dynamic currency conversion (DCC) fees. DCC allows customers to pay in their home currency, but it often comes with added costs that can either be passed to you or your customers. Opting out of DCC or ensuring transparent currency conversion can help avoid unnecessary fees and maintain customer satisfaction.

Keep an eye on card brand fees

Major credit card brands often charge additional fees for transactions. These brand fees can fluctuate and may not always be transparent. Keeping an eye on card brand fees and understanding how they affect your bottom line can help you make informed decisions about which types of cards to accept or how to manage related costs more effectively.

Tailored POS rates, with Sekure 

With Sekure, your business can gain access to next-generation POS technology at custom, predictable costs — with no hidden costs. Our team of experts negotiates on your behalf to ensure you gain the solution that's right for your operations. 

Sekure offers complete transparency in processing so you know exactly what you are paying — ensured through our Rate Sekurity Guarantee®. Plus, through our Edge program, you can save up to 100% of your credit card processing fees.

Learn more about how you can save using Sekure’s Edge program.