For any business, big or small, managing expenses is key to success. One area where costs can quietly add up is payment processing. Every time a customer pays you using a card or a digital method, there are fees involved. Understanding and actively managing these fees can make a real difference to your business’s financial health. This guide will help you explore five proven strategies to significantly reduce your payment processing costs.
1. Understand Your Current Payment Fees
Before you can cut costs, you must first understand exactly what you are paying for. Payment processing fees can seem complicated, but breaking them down makes them easier to understand.
What are interchange fees?
Interchange fees are a primary component of payment processing costs. These are fees paid by your business’s bank (the acquiring bank) to the customer’s bank (the issuing bank) each time a customer uses their card. The amount of this fee can vary based on several factors, such as the type of card used (e.g., debit, credit, premium), the type of transaction (e.g., online, in-store), and the industry your business operates in.
What are scheme fees?
Scheme fees are paid to the card networks themselves, such as Visa and Mastercard. These networks provide the infrastructure for transactions to happen. Like interchange fees, scheme fees can vary depending on the card brand, transaction type, and other factors. They are typically a smaller percentage of the overall transaction cost but are still an important part of your total fees.
Understanding your payment processor’s charges
Your payment processor is the company that handles all your transactions. They add their own charges for the service they provide. These charges can be structured in different ways:
- Tiered pricing: Fees are grouped into different levels (e.g., qualified, mid-qualified, non-qualified), each with a different rate.
- Interchange-plus pricing: You pay the exact interchange and scheme fees, plus a small, fixed mark-up from your processor. This is often considered more transparent.
- Flat rate pricing: You pay a single percentage rate for all transactions, regardless of card type or transaction method.
It is crucial to know which pricing model your processor uses and what their specific rates are.
Reviewing other hidden costs
Beyond the main fees, there can be other charges that might not be immediately obvious. These could include:
- Monthly statement fees
- PCI Data Security Standard (PCI DSS) compliance fees
- Gateway fees for online transactions
- Chargeback fees (when a customer disputes a transaction)
- Batch fees for settling transactions
- Annual fees
Always read your payment processing statements carefully to identify all charges.
2. Negotiate Better Rates with Your Processor
Once you have a clear understanding of your current fees, you are in a much stronger position to negotiate.
How to prepare for negotiations
Before you speak to your processor, gather all the necessary information. This includes:
- Your average monthly transaction volume (how many payments you process).
- Your average transaction value (how much each payment is, on average).
- A clear breakdown of your current fees from recent statements.
- Any changes in your business operations that might affect your payment processing needs.
Asking for a detailed breakdown of costs
When you speak to your processor, ask for a full, itemised breakdown of all costs. Do not be afraid to ask questions about anything you do not understand. Requesting an interchange-plus pricing model can often provide greater transparency and could lead to lower overall costs, as you will see the exact interchange and scheme fees separately from the processor’s mark-up.
Comparing offers from different processors
Do not limit yourself to your current processor. It is wise to obtain quotes from several different payment processing companies. This allows you to compare their rates, terms, and services. Having competitive offers in hand gives you leverage when negotiating with your existing provider.
Highlighting your business’s transaction volume
Your transaction volume is a key factor in negotiations. If your business processes a high number of transactions or has a significant total value of payments each month, you represent a valuable client to a payment processor. Make sure to highlight this during your discussions, as it can often lead to better rates and more favourable terms.
3. Optimise Your Payment Technology
Using the right technology can streamline your payment processes, reduce errors, and ultimately lower your costs.
Using an efficient payment gateway
An efficient payment gateway is essential, especially for online businesses. A good gateway ensures that transactions are processed quickly and securely. It should be reliable, minimise downtime, and offer features that can help reduce fraud, which in turn saves you money on chargebacks.
Integrating payment systems smoothly
Connecting your payment systems with other business tools, such as your point-of-sale (POS) system, accounting software, or customer relationship management (CRM) system, can significantly improve efficiency. Smooth integration reduces the need for manual data entry and helps to avoid costly errors.
Reducing manual data entry errors
Manual data entry is prone to human error. Mistakes can lead to incorrect charges, reconciliation issues, and even chargebacks. By automating as much of your payment process as possible, you minimise these errors, saving time and money. Look for systems that automatically capture and transfer transaction data.
Exploring different payment terminals
For in-person payments, the type of payment terminal you use matters. Modern terminals offer faster processing speeds, enhanced security features, and the ability to accept a wider range of payment methods. Investing in up-to-date terminals can improve customer experience and reduce transaction failures.
4. Minimise Chargebacks and Fraud
Chargebacks and fraudulent transactions are not just inconvenient; they come with significant costs, including fees and lost revenue.
Understanding why chargebacks happen
A chargeback occurs when a customer disputes a transaction with their bank and the bank reverses the payment. Common reasons include:
- The customer did not receive the goods or services.
- The goods or services were faulty or not as described.
- The customer did not recognise the transaction.
- The transaction was fraudulent.
Each chargeback can incur a fee from your processor, and you lose the sale amount.
Implementing strong fraud prevention tools
Protecting your business from fraud is vital. You should use robust fraud prevention tools, such as:
- Address Verification Service (AVS): Checks if the billing address provided matches the cardholder’s address.
- Card Verification Value (CVV): The 3 or 4-digit security code on the back of a card.
- Fraud detection software that uses artificial intelligence to identify suspicious transactions.
These tools help to prevent fraudulent purchases before they are completed.
Ensuring clear customer communication
Clear communication can prevent many chargebacks. Make sure your customers understand:
- Your refund and return policies.
- Expected delivery times for goods.
- How your business name will appear on their bank statement.
- Easy ways to contact your customer service team if they have an issue.
Good communication can resolve problems before they escalate to a chargeback.
Following secure payment card standards
Adhering to industry security standards, such as the PCI Data Security Standard (PCI DSS), is crucial. These standards protect cardholder data and reduce the risk of data breaches. Maintaining compliance not only keeps you safe from penalties but also builds customer trust and reduces the likelihood of fraud-related chargebacks.
5. Encourage Cheaper Payment Methods
Not all payment methods cost your business the same amount. By guiding customers towards lower-cost options, you can reduce your overall processing expenses.
Promoting direct bank transfers
Direct bank transfers, where money moves straight from a customer’s bank account to yours, often incur much lower fees than card payments. For larger transactions or B2B payments, promoting this method can lead to significant savings.
Guiding customers towards specific digital payment options
There are many digital payment options available today. Some of these, particularly those that bypass traditional card networks, may offer lower transaction fees. Research which digital payment options are most cost-effective for your business and subtly encourage their use. This could include certain mobile payment applications or online banking payment services.
Offering incentives for lower-cost methods
You can encourage customers to use cheaper payment methods by offering small incentives. This might include:
- A small discount on their purchase.
- Additional loyalty points.
- A special offer for using a preferred payment method.
Even a small incentive can nudge customers towards options that save your business money.
Educating customers on payment choices
Many customers are simply unaware that different payment methods have different costs for businesses. You can educate them, perhaps subtly at the checkout, about the various payment choices available and the benefits of using certain options. This helps customers make informed decisions that can benefit your business.
By carefully reviewing your current fees, negotiating effectively, optimising your technology, preventing fraud, and encouraging cost-effective payment methods, you can significantly reduce your payment processing costs and improve your business’s financial performance.
Author
