7 Strategies for Reducing Payment Processing Costs

By Anand Goel

Businesses seeking new ways to reduce operating costs and bolster their bottom lines should take a look at their Credit Card processing statements. Credit card processing is one of the most confusing and complex services that companies buy today. This service is as vital to running your company as electricity and often far less understood. Here are seven strategies to help lower your payment processing costs and avoid paying excessive fees.

1.Increase payment options: According to a recent CyberSource survey, merchants who accept three or more payment alternatives see up to a 14 percent lift in sales conversion. Additionally, consumers want a choice in how they pay. When product and price are equivalent, the payment method becomes a key influencer in consumer purchase decisions. You can increase your payment options by accepting the following: credit cards, pin-debit cards, gift cards, ACH (direct debit from bank accounts), instant credit (Bill Me Later) and PayPal.

2. Promote PIN-debit acceptance: If your retail operations involve face-to-face interaction with customers, you should definitely offer and promote PIN-debit acceptance. A PIN-debit card lets consumers sign or enter their pin number to complete a transaction. The merchant is charged roughly 60 cents for a $50 sale when the consumer enters their PIN, and roughly 80 cents when they sign. Train your cashiers to ask customers to enter their PIN number. Also use signs to promote the use of PIN numbers. Depending on sales ticket size, a PIN transaction can save you 22–52 percent over signature-completed transactions.

3. Eliminate the middleman: Most payment processors (companies that process payments and deposit 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 valuable services such as foreign-language support, niche point-of-sale software support, etc., but the majority of the time they simply add additional costs 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 and 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 both purchasing a check imager and check conversion. Have your payment processor calculate the ROI and determine if it is worthwhile for you eliminate paper checks. Often, 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 pay a lower rate for credit card processing than they really do. Take one of your monthly statements and add up all the fees and charges from your payment processor and divide by your net sales (total sales minus credit or refunds) and calculate your effective rate. If your rate is more than 3 percent then you are definitely overpaying. If you are paying less than 2 percent, then you are in great shape. If you fall between 2 – 3 percent, there may be some cost-saving opportunities worth investigating.

7. Review your monthly statements: Credit-card processing statements are lengthy and confusing because they’re laden with industry jargon, have complex layouts, and contain numerous fees and charges that are not easy to understand or reconcile. Most business owners don’t 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, hire a consultant. Processors are known for regularly increasing their pricing so it pays to be vigilant.

Investing 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.

Anand Goel is an expert in the payments industry and founder of Optimized Payments Consulting. Optimized Payments has helped many companies from non-profits to grocery stores increase their profitability by reducing credit card processing costs on a risk-free basis (clients are charged only a percentage of the savings they deliver). He can be reached by e-mail at anand@optimizedpmts.com, by phone 404-542-8520, or visit his web site www.optimizedpmts.com.

Newsletter Signup

Your monthly Vistage newsletter provides relevant and timely information on the latest market trends and how they affect your business.

EXPLORE MEMBERSHIP

Interested in learning more about the Vistage experience? Submit your interest form to discover about CEO peer groups.