Processing fees are an annoying fact of life for merchants. Complex structures and various fee types are designed to be complicated, boring, and inaccessible for merchants.
The more a business understands about the fees they are paying, the more likely they are to catch processing errors or inflated rates. In addition, understanding the rationale behind certain fees can prevent a merchant from being charged in the first place.
Credit card companies issue assessment fees to cover the cost of managing their networks. The assessment fee amount varies based on several factors and will increase or remain at the base rate depending on how it aligns with each criterion. Read on as we break down three factors that affect assessment fees and show you simple strategies to reduce them.
Card brand and card type
Although brands such as Visa, MasterCard, and Discover each charge their own set of assessment fees, they typically charge similar fee amounts to stay competitive. The company can change their assessment fee twice per year, making it more difficult to track the exact amount issued by each brand at any given time.
In addition to the card brand, each brand supports different types of cards such as consumer credit cards, signature debit, rewards cards, commercial cards, etc. Standard issue cards are typically associated with lower assessment fees while cards with rewards programs cost more for businesses to process.
There isn’t much a merchant can do to change or reduce this fee other than deciding not to accept that specific card brand or type. Instead, it’s important to discover patterns around the cards that your customers use to pay. By understanding your customers’ behavior, you can work with your processor on implementing a pricing model to offset these card types. To learn more about pricing models, read our post where we dispel common processing myths here.
Understanding how your business primarily accepts cards is key in reducing your assessment fees. Also, if they know what to look for, acceptance method is one of the only factors a merchant can control.
It all comes down to risk. Higher risk transactions directly correlate with higher assessment fees as they are more likely to be fraudulent. A higher risk transaction typically stems from a card not present situation, such as an online purchase, while a lower risk transaction is one completed in person with the card present. If the merchant must key in the card information rather than swipe, insert, or tap the card, it has greater risk of being fraudulent because you don’t physically need the card in hand to read its digits.
This doesn’t mean you should fight to eliminate keyed-in transactions completely, nor does it mean that you should take down your online store. Instead, you must first identify where your assessment fees are becoming inflated, then take steps to mitigate errors that may be occurring.
Educating your front-line staff is the first step. In a busy store environment with numerous transactions checkout must be quick and easy, but pay attention to an overabundance of keyed transactions. Perhaps it’s as simple as reconnecting your device to the network or maybe you need a new terminal altogether. Note that higher assessment fees are high risk for a reason, and although it may seem like a cash grab by the credit card companies, it’s also a way to incentivize the merchant to prevent fraudulent charges from occurring in the first place.
Settlement frequency and timing
Forgetting to settle on a consistent basis is one of the most common errors a merchant makes and has surprisingly harsh consequences on your bottom line. Businesses who settle within 24 hours see significantly lower assessment fees than those who miss settlements or decide not to settle each day. However, not every business needs to settle in 24 hours and many have different settlement periods depending on the type of business and the nature of their processing contract.
As a simple rule of thumb, we recommend you settle every 24-48 hours (depending on the nature of your business). That way you won’t be hit with hefty penalty fees and you will get paid faster. That’s a win-win situation in our books!
Preventing fraud and helping your bottom line
Using the right processing pricing model for your business, accepting cards the smart way instead of the fastest way, and making sure to settle often and consistently are simple yet effective strategies to reduce your assessment fees. These tips will not only save your business money but will also help prevent fraud by lowering the frequency of higher risk transactions, and that’s something merchants and credit card companies can all agree on.
To learn more about how to lower your processing fees or to find a pricing model that works for your business, visit iQmetrix Merchant Services.