3 tips to reduce payment processing fees
People love to pay with plastic. It's the preferred method for most of us. According to Federal Reserve data, 67% of all transactions at the point-of-sale are done with plastic—credit, debit or gift cards. Only 27 percent of purchases are made with cash.
All those payment card transactions require a big infrastructure to make those payments move. And, of course, there are credit card processing fees associated with benefit of being able to accept payment cards. The benefits of accepting credit and debit cards generally outweigh the costs. The Small Business Administration cites studies showing that when consumers have more payment options, they're more likely to spend more including on impulse purchases.
Still payment card acceptance adds up to a meaningful expense for any business. Often transaction and interchange fees associated with payments are higher than the so-called qualified rate, the "ideal" rate, because certain conditions exist—for example, higher risk transactions, such as card not present; or, payment card type usage, such as a corporate or rewards card. Known as downgrades, these costs are unavoidable if you accept credit cards. It's important to remember that with expense also comes benefit. For example, some card types and transaction types are known for higher average ticket (i.e. total charge). Nevertheless, these tips can help you avoid unnecessary downgrade costs and potentially save on payment processing fees.
Reduce hand-key and telephone orders
Reduce unnecessary hand-key or telephone order transactions. These types of transactions are card not present (CNP) transactions, which also are considered higher risk by issuing banks and the card associations. As a result, they're subject to higher processing rates. You can save on related transaction fees when you reduce telephone or hand-key transactions that aren't necessary.
Accept PIN debit
PIN debit card transactions come with lower risk. Cardholder use of a four-digit PIN provides an additional security layer that makes them attractive for issuing banks. They're seen as less risky and are treated more favorably as a result. They've also become increasingly popular with and convenient for consumers.
Train your employees about how to avoid unnecessary downgrades
You should regularly audit your processing statements. Look for unnecessary downgrade patterns to optimize both your processing behavior at the point-of-sale and the subsequent rates you're paying for transactions. Fact is, payment processing fees are part of the overall consumer payment experience. Yet long-term the benefits of card acceptance outweigh the costs, providing your customers with plentiful payment options. That doesn't mean, however, that you shouldn't be smart examining and managing the costs associated with processing payments.