8 steps to lower card processing expenses

  1. Insist on an Interchange pass through pricing structure
    Although there is more awareness about card Interchange today than ever before, most small business merchant account providers still promote “rates as low as” offers and price accounts on tiered rate plans charging non-qualified surcharges.

    Tiered pricing plans typically downgrade many common card types like reward cards, business cards, corporate cards and transactions where the card is not present. The definition of the term "non-qualified" will vary by provider as will the surcharge fees they charge.

    Sophisticated merchants understand that without the proper Interchange rate structure, their business cannot benefit from the appropriate industry incentives. Also, without Interchange pass through pricing, merchants cannot benefit from investments in payment technology and best practices that drive their bottom line Real Rate lower.

    To avoid paying non-qualified surcharges and to take advantage of incentive Interchange rates available for your industry, you must insist on a merchant Interchange rate quote.

  2. Understand your Bill
    Working with clients daily, we see quotes, contracts and billing statements from merchant account providers from all across the country. What we have found is that a lot can change from merchant rate “quote” to “contract” to billing "statement".

    You may (or may not) be surprised that the too-big-to-fail banks, the "largest" processors and the “mega” big box retailers are some of the worst offenders. Their quotes are primarily marketed as "rates as low as" offers with application paperwork "hiding" fine print contract terms. They then count on merchants not reviewing their processing statements regularly. And they use merchant statements "designed" with a lack of processing activity details, purposely hiding rate and fee calculations from view.

    A merchant’s best defense is to ask a lot of questions, understand the fine print and get a copy and thorough explanation of how fees are billed on a merchant statement before selecting a provider.

  3. Steer payment choice
    Some of the lowest Real Rates are from merchants who exclusively accept debit transactions. There are two types of debit - signature debit (think Visa check cards) and PIN debit (which requires merchants to have an encrypted PIN pad at the POS). As of October 2011, the majority of these debit transactions are regulated by the Fed. While the government fixed debit pricing it didn’t benefit everyone. Small ticket merchants may need to implement alternative payment strategies, but for most merchant categories, debit will cost less to accept than credit.

    Steering can be accomplished by imposing surcharges on certain customer payments however there are numerous restrictions and requirements and in some states surcharges are barred by law. Merchants have long been able to offer a cash discount, rewarding cash carrying customers with lower prices, rather than a penalty for those paying with plastic. However before establishing a cash discount, promotion, rebate, coupon or other such payment steering policy, it is important to know your real rate for accepting card payments first. You don’t want to give a 3% cash discount or promotional value if your real rate is only 2.5%. And you should also consider the cost of handling cash, administering the policy and the potential impact to your sales volume and average transaction size.

    For the latest news, read more on Payment Card Usage Surcharges.

  4. Take advantage of Credit Voucher Interchange
    To lower your Real Rate, you must move to an Interchange billing plan where Credit Voucher Interchange is returned to you when you issue refunds to cardholders.

    From our daily analysis of merchant statements, a common situation we see are merchant discount fees charged on sales but not returned on cardholder returns. In some instances, merchants are charged the discount rates and fees to process the credit amount, too.

    If you have a liberal return policy and your merchant discount fees are not returned on cardholder refunds, then your Real Rate will be much higher. Follow these best practices so you don’t overlook merchant rate savings from cardholder returns.

  5. Set Payment Acceptance Policies and Follow Best Practices Managing your payment acceptance is critical to lowering your Real Rate. There are many examples of how policies and practices impact your bottom line across all facets of acceptance. For example:

    • Card payments are a convenience form of payment, not a guaranteed form of payment. What are your policies for dealing with customer-initiated chargebacks and fraud? Are you protecting your business with card acceptance Best Practices?
    • How are your policies of authorization, settlement and delivery impacting your rates? Are you being penalized for your current policies? Are they preventing you from qualifying for the best merchant rates available? Depending on your industry, transaction rules to qualify for the lowest Interchange rates can require authorization amounts to match settlement amounts and with both performed the same day.
    • Considering that authorization and transaction fees can have a major impact on your Real Rate, where possible, can you combine multiple transactions together? For example, if you have a restaurant, is your policy to close the bar tab before seating your guest verses transferring the tab to the table for a single larger transaction at checkout?
    • For business-to-business, when should you extend trade credit vs. accepting card payments? And while accepting commercial credit cards are an important component of a company’s payment policies, do your current policies include collecting and submitting line item detail to qualify for Level 3 Interchange? What kind of early pay discounts should you offer in light of your Real Rate to accept a commercial card payment?
    • How can you steer clients to eChecks & ACH to lower your overall payment processing expenses- effectively reducing your Real Rate?
    • Are you following these best practices when issuing card payment refunds?

    You may want to take a moment to read these 10 Questions to Plan your Payment Acceptance Strategy and work with a professional payment advisor that can help answer questions and provide advice on establishing the best payment acceptance strategy for your business. Please contact us to schedule a complimentary consultation.

  6. Shop Smart
    The purchasing decisions we collectively make shape the markets by rewarding both good and bad business practices. For example, if everyone was to stop awarding business to providers who push 36-month contracts with hidden fine print and early termination fees, we would quickly see these unfavorable terms vanish from the market place. Sure you may have managed to get unfavorable terms waived before but by not ruling these providers out completely in the proposal process, these anti-merchant practices continue to prevail in the market.

    Merchants by their very nature are good at negotiating, but if you don't start with the contract terms, you could find yourself feeling like you got the best deal but in fact end up with a vanishing introductory rate, locked into a long-term contract and owning a proprietary solution that is worthless outside of the company that just sold it to you.

    Take these simple steps to protect your business:

    • Recognize that there will be contract fine print governing the operation of your merchant account.
    • Obtain a copy of the legal Terms & Conditions before entertaining a quote and especially before signing the application.
    • Read all numbered headings and make sure you have a full copy, not a summary.
    • Pay close attention to the term and termination section and the formula for calculating the cancellation penalty.
    • Does the contract state that rates and fees can go up for any reason, at any time?
    • Who is 'party' to the agreement and who has authority to legally waive contract terms and fees.

    The bottom line is that if you want to lower your Real Rate, don't neglect to read and understand the fine print of the contract terms and then decide if you want to work with a company that presents itself one way but acts another way in the fine print.

  7. Compare your Real Rate with other businesses and take action if you find your costs are too high
    If you haven't reviewed your pricing recently or perhaps since first establishing your merchant account, now is the time to identify possible savings! In fact, normal changes such as an increase in the average transaction or an increase in sales volume may allow you to negotiate lower processing costs.

    If you are in a contract, don't let that stop you from shopping. Evaluate the savings you would receive from obtaining a lower Real Rate to the cost of your contract early termination fee. Don’t terminate one long-term, unfavorable contract for another; this time, insist on a month-to-month agreement.

    When calculating and comparing your bottom line costs with others, be sure to consider “Daily Discount” billing. If you are not funded in full for each deposit, then a daily discount is applied and subtracted before you are paid. Your month end merchant statement may say total card fees but look closely and add back “less discount paid” to find your true cost. This is just one of the tricks used to make merchants believe they are paying less than they really are.

  8. Monitor your Real Rate every monthPayView
    Calculating and comparing your Real Rate is an activity that you should do on a regular basis. To assist our clients, Vantage offers PayView reporting – a monthly merchant account analytics tool that charts sales by card type, breaks down Interchange qualifications and tracks effective "Real Rate" calculations month over month. Tracking your real rate will help insure you are accounting for card acceptance costs accurately in your pricing and aid in developing payment steering strategies to reduce bankcard fees, like offering cash discounts no greater than your Real Rate cost.