Credit card processing fees constitute some of the most expensive operations costs faced by businesses today. They are a common source of overpayment that are also extremely complex, requiring expertise to appropriately navigate savings.
While these costs may appear as only a small percentage taken on each purchase, they constitute billions of dollars of fees leveraged against merchants every year. Luckily, these costs can be reduced through a careful audit of interchange fees.
Interchange fees are transaction fees that occur every time a customer pays using a credit or debit card. They are levied as a means to protect the risk financial companies are exposed to when these cards are used to make purchases.
Major credit card payment networks, payment processors, merchant banks, and issuing banks each charge a small percentage-based fee on each transaction. While interchange fees appear as a single lumped cost, these fees are actually quite complex and can consist of hundreds of individual fees.
Interchange fees are not set in stone and fluctuate throughout the course of a year. Major credit card processors change rates every April and October. Some of these can be negotiated, while others cannot. Regardless, these fees constitute nearly 90% of the total fees merchants pay to banks.
Some of the factors that go into this calculation include:
Card Type – Each type of credit card has its own set of fees. For some companies that offer perks and rewards, these fees are higher, as they are passed down directly to the spender. This is intended to incentivize spending, but it comes at a greater cost to businesses.
Business Size and Industry – Depending on the transaction in question, industry plays a large factor in the rates charged to businesses. Larger businesses tend to have lower rates, as they have the expertise and manpower to negotiate with banks and credit card companies.
Transaction Type – Interchange fees are also calculated through the amount of risk taken on a particular transaction. For instance, point-of-sale transactions use chips to ensure the validity of a purchase, while payments taken when a card is not present rack up higher rates as they are less secure.
So which fees are unavoidable, and which can be negotiated?
To save on credit card processing fees, a merchant processing fee audit is generally conducted on your processing bills and agreements to determine where costs can be reduced or eliminated altogether. We do this by focusing on four different areas:
Below, we examine several of the strategies we use to reduce interchange fees.
Earlier, we mentioned how each business has different rates depending on their size and industry. What many people don’t know is that unpublished discount rates exist for those who know how to ask for them. Even slightly reducing these rates can have a significant impact on your bottom line and reduce your monthly bills.
Errors in your bill are a common way in which credit card companies can collect money that they are not owed. However, the complexity of bills makes it nearly impossible to discover where these errors are when they are not analyzed by an expert. The upside? Billing errors can be fixed up to five years after they have been incurred, opening the door to massive savings.
The sheer number of players involved in interchange fees makes it nearly impossible for non-experts to parse what is known as “interchange padding.” Interchange padding is when a payment processor adds additional costs to your interchange fee without informing you in advance.
Credit card companies might tell you that they don’t charge hidden fees, but take a magnifying glass to your bill and you’re likely to stumble upon plenty of them. There is no legal definition around the tern “hidden fees,” making it easy for vendors to define it in whichever way works best for them. This makes it easy for these companies to add fees provided that they fit within their own interpretations. Thankfully, these can be negotiated and eliminated from your credit card processing bills.
Most companies have the opportunity to reduce their credit card processing bills, so why aren’t they doing it? In short: a lack of resources. Finding and eliminating errors and fees in merchant services is a highly skilled task that few have. That’s where we come in.
At SIB, we help companies like yours reduce credit card processing bills by combing through your records carefully and providing solutions. We are a vendor neutral company, meaning that we can help you find savings on almost any merchant billing contract without changing the companies you work with. We have no up-front costs, and only get paid if you save, meaning there is no risk to your company at all.