In the current economic climate, businesses are seeking ways to reduce their operating costs and bolster their bottom lines. Credit card processing is one of the most confusing and complex services that companies buy today. Here are 7 strategies to help lower your payment processing costs and avoid paying excessive fees.
7 Strategies for Lowering Payment Processing Costs
1. Increase payment options
According to a CyberSource survey, merchants that accept three or more payment alternatives see up to a 14% lift in sales conversion. Consumers indicate that, given equivalent product and price, accepting a payment type they prefer is a key influencer in their purchase decision. Consider the following payment alternatives for your organization: credit cards, pin-debit cards, gift cards, ACH (direct debit from bank accounts), instant credit (Bill Me Later), Paypal, etc.
2. Promote Debit acceptance
With implementation of the Durbin amendment in October 2011, PIN-debit and signature debit transactions cost 70% to 90% less than credit cards. In retail stores, place signage for PIN-debit and/or signature debit acceptance. With e-commerce stores, make signature debit your first choice in card acceptance.
3. Eliminate Middlemen
Most payment processors (the companies that process the payment and deposit the money into your account) are actually resellers of the top U.S. payment processors. You can save money by signing up directly with these top processors. Some resellers provide valuables service like foreign langauge support, niche point-of-sale software support, etc. but the majority of the time they simply add additional cost to your service. The top U.S. payment processors are Chase Paymentech Solutions, First Data Merchant Services, BA Merchant Services, Elavon, Fifth Third Processing Solutions, Global Payments, Heartland Payment Systems.
4. Explore Eliminating Paper Checks
If you take paper checks to the bank to deposit them, you should consider electronic check conversion. This service electronically deposits your checks right from your computer. No more going to the bank. Typically, you get next day funds availability and access to your funds 2-3 days sooner than depositing paper checks. There are costs associated with purchasing a check imager and for check conversion. Plus, there many flavors of check conversion depending upon if the check is converted at the point of sale or back office. Have your payment processor calculate a ROI and determine if it is worthwhile for you eliminate paper checks…often times, the benefits outweigh the costs.
5. Request Unbundled Pricing
Most payment processors offer bundled pricing whereby you are shown a low “Qualified Rate” but a majority of your transactions are charged a higher “Mid-Qualified Rate” or an even higher “Non-Qualified Rate”. Bundled pricing hides the true cost of processing and is typically higher than unbundled or pass-through pricing.
6. Calculate Your Effective Rate
Most business owners think they are paying a lower rate for credit card processing then they really are. Take one of your monthly statements and add up all the fee and charges from your payment processor and divide by your net sales (total sales minus credit or refunds) and calculate your effective rare. If your rate is over 2.5% then you are definitely overpaying and if you are paying below 1.5% then you are likely in good shape, and if you fall between 1.5% – 2.5% then there may be some cost saving opportunities worth investigating. This rule of thumb doesn’t apply to niche markets like small ticket payments, utilities, and grocery stores.
7. Review Your Monthly Statements
Credit card processing statements are confusing because they are lengthy, are laden with industry jargon, have a complex layout, and have numerous fees and charges that are not easy to understand or reconcile. Most business owners don’t even bother looking at these statements other than the amount deposited in their bank account. You or someone on your team should take the time to understand and monitor this service. If you don’t have the time or expertise, consider hiring a consultant. Processors are known for regulary increasing their pricing so it pays to be vigilent.
Investing the time to understand the nuances of the electronic payments industry can improve your bottom line now — and pay significant dividends when the economy picks up.
