04 Oct Three Tips to Improve Credit Card Processing Costs
By Adam DiVeroli
As a business, each expense counts, including credit card processing costs. Credit card processing is a necessity to businesses today, but it comes at a price, is very complex, and complicated to understand. Furthermore, for online businesses and companies with recurring customers the threats of fraud and loss are very high. To improve your company’s profit margin and reduce risk, we discuss steps you can take to protect your sales and mitigate expenses, potentially saving thousands of dollars each year.
Chargebacks can be the death of a business, not only as a loss of revenue, sales and product, but with the potential loss of card processing services. The card brands have specific tolerances based on the ratio of sales to chargebacks and disputed transactions. Anything over a 1% ratio of chargebacks to sales, jeopardizes your ability to accept credit cards as a form of payment.
When shopping for payment processing services, processors look at each of the KPIs of your current processing to establish your risk profile. The more chargebacks that you have increases the processor’s risk of loss, as such your processing rates will be adversely affected. Merchant Boost employs a team of Certified Payment Professionals (CPP) with the expertise and experience in helping businesses better manage their payment ecosystem. We can help you to not only win a chargeback dispute, but also identify and reduce chargebacks from occurring in the first place.
The primary cost element of your processing rate and fees is the card brand interchange, which is roughly 85% of your total card processing cost. The monies collected for interchange goes directly to the card issuing bank of the customerâ€™s card used for purchase. There are over 900 different interchange rates and fees between Visa, Master Card, Discover and American Express. These rates are set by the card brands and vary based on numerous factors, such as: card type (debit, credit, rewards, business, international, etc.), card present vs. card not present, when you settle your payment batch, the data included with the payment record, and the various combinations of these elements.
There are a few things that you can do to take back control of this process and optimize interchange fees. First, you must be aware of all the variables affecting processing costs to adopt better processing habits to lower your overall processing rate. It takes a keen understanding of how this ecosystem works to be able to optimize how each transaction qualifies for the card brandâ€™s interchange. Just like going to a CPA to ensure you are getting the most out of your taxes, Merchant Boostâ€™s payment experts know how to extract the most value out of this ecosystem, to not only improve how your transactions qualify but to make sure that you are not over charged or suffering from poor processing procedures. Due to the complexity of the fees surrounding interchange, it is common for many processors to inflate pass-thru costs.
Reduce Fraud Risks
Inflated costs are enough to worry about; however, fraud is occurring at the highest rate in history. Since 2008, both first-party and third-party fraud have grown by nearly triple digits. This explosion has impacted everyone from consumers, merchants and the financial institutions. As the rate of fraud has increased so have the processing costs of higher risk transactions, most commonly those where a customer is not face-to-face at purchase. Regardless, the expenses associated with these fraud losses trickle down to your overall processing costs. There are best practices and certain tools that can be used to mitigate payment fraud that will protect your revenue and keep payment processing costs down. Utilizing Address Verification Services (AVS) offered by the card brands is an inexpensive and very telling fraud mitigation tool when used properly. Many businesses will get card billing information but do not rely on the AVS response with their decision to deliver goods. Here is a key tip, card brands will offer protection from fraud if product was shipped to the billing address of the credit card.
Although AVS is a good tool, it does not protect against trained fraudsters that know how to get around it, hence why it is critical to utilize multiple fraud tools to stop fraud before it causes significant damage to your business. Merchant Boost has built proprietary technologies to help merchants further decrease fraud with Card Account Validation (CAV) and Fraud & Reputation Database. The combination of these services provides insight to any known fraud associated with any card information provided to you by a customer. Additionally, these tools further reduce risk by allowing you to validate a card prior to accepting it as a form of payment in the first place, providing you with much needed insight and protecting the relationship with your payment processor.
As more businesses move online the increase of chargebacks and fraud continues to rise at alarming rates. Minimizing the costs associated with these losses as well as optimizing interchange can be done with expert knowledge and the implementation of the latest technologies. Working with partners like Merchant Boost, that have Certified Payment Professionals and multiple options to support your payment goals, is a critical step to building a credit card processing ecosystem that will reduce costs and keep your business growing.
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