How to Save on Payment Processing Expenses

During a down economy expense control is even more critical. Squeezing down your variable costs until the economy improves is one way to manage through the slow down. And while your payment processing expense may not be among your top expenses, because of the variability in pricing based on how you are processing, you can appreciably lower your overall expenditures by following best practices and appropriately selecting your payment processor.

“My hope is by sharing these basic rules, you may work with your staff to minimize your payment processing costs without impacting sales or limiting your customers payment options,” – Steve Kimberling

Tip 1

The first way to manage your overall payment processing expense is by not paying a penalty for being in the intimate apparel industry. Some payment processors accept intimate apparel merchants as an accommodation, much like some cities tolerate but disguise intimate apparel retailers. Though they tolerate non-traditional merchants, they charge intimate apparel merchants a premium because of their business type and the limited acceptance channels available to these resellers.

So as to avoid this premium, work with a payment processor that caters to the intimate apparel industry.

These providers know the banks and acquirers that will accept your account at a price equivalent to any other retailer and will not charge you a payment processing premium. Additionally, as always, select a payment processor that may place your account at more than one processor in order to provide you options and so you can get the best deal for your business.

By a large margin, the number one expense associated with payment processing is Interchange, which is the transfer pricing the processing bank pays to the cardholder bank.

Tip 2

Second, understand what you can do to minimize your costs. By a large margin, the number one expense associated with payment processing is Interchange, which is the transfer pricing the processing bank pays to the cardholder bank. There are literally hundreds of Interchange categories based on the card type used, merchant category and manner in which the card was processed.

The difference between the lowest and highest cost Interchange category is huge with the lowest being approximately 2.00% lower than the highest category. This is why most merchants have a tiered pricing structure where the Qualified Rate is much lower than the Mid-Qualified or Non-Qualified Rate. While many aspects of Interchange cost are out of your control such as whether the cardholder presented a check card or Rewards card, many are within your control.

Here are brief notes on what you can do based on your method of accepting card payments

For card present transactions:
– When possible, always swipe the card rather than manually keying the transaction. This ensures all the data points on the card are transmitted to the Issuing bank and lessens the risk for chargebacks. This transaction type represents lesser risk to the issuer and hence is associated with a lower Interchange and cost.

– If you must key a transaction, perform an AVS (Address Verification System) inquiry and include an order number with the sale. If your terminal is not set up to ask for these data points upon a keyed transaction, as your payment processing professional to include the prompts that request this information.

For card not-present transactions:
– If possible, authorize and ship the transaction the same day. Most acquirers do not allow settlement of the sale until the product is shipped. Consequently if you pre-authorize the transaction several days before the sale, then you will pay a higher cost for the transaction.

– Perform an AVS inquiry and include an order number with the sale.
For all merchants:

– If you accept a large percentage of foreign, business or commercial cards, talk to your payment processing professional about what you can do to provide extra data points or utilize Multi-Currency processing to minimize costs. Though this may require additional hardware or software, because of the cost differential, these actions may well pay for themselves in a short time frame.

Batch out daily. Doing so will ensure the time frame between your authorization and settlement is within tolerances to afford you the optimal Interchange. If the time frame between the authorization and settlement is longer than 48 hours, you could be paying higher Interchange because the delay between the authorization and settlement enhances the likelihood that the cardholder may no longer have the available funds leaving the Issuer exposed to a loss.

– Should you need to issue a refund at any time before you have batched out that specific sale, void the transaction instead of a sale. This will avoid you from having to pay the discount rate on the original transaction because a void is as if the transaction never occurred.

– Ask your payment professional to review your merchant statement with you so you may understand your specific situation and what you may do to minimize costs.

Ensure you are PCI compliant. Many acquirers charge a surcharge for non-compliance. Maintaining compliance will enable you to avoid the surcharge and protect you should a hack into your server or users occur.

My hope is by sharing these basic rules, you may work with your staff to minimize your payment processing costs without impacting sales or limiting your customers payment options.


Steve Kimberling is the EVP of Sales & Marketing for Intimate Payments, a merchant services provider focused on the intimate apparel and product industry. He can be reach at steve@intimatepayments.com or 877-476-0570

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