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By understanding crucial components, you can more effectively manage payment processing costs and make informed decisions regarding your payment acceptance strategy.
By Marci Gagnon

Accepting customer payments can be costly and often confusing for merchants. Understanding the actual expenses involved is crucial to managing these costs effectively and ensuring your company gets the best rates.

Your payment processor will send you a merchant statement, sometimes referred to as a merchant processing or credit card processing statement, each month. This document serves as a financial snapshot of your business’s payment-related activities.
The statement offers a detailed overview of your transactions, sales activity, and the payment processing fees you incurred throughout the month. However, it is more than just a record; it contains valuable insights that can help you optimize your business operations.

Best Practice #1: Understand Processing Costs
One of the most important functions of your payment processing statement is to detail all the fees associated with accepting credit and debit card payments. To accept and process credit card sales, your business needs three key components contributing to your costs.

Interchange Fees
Interchange fees are a crucial component of payment processing costs and represent the largest expense category. Card networks set these fees, which are paid to the banks that issue the cards. The interchange rate generally includes a percentage of the transaction amount and a fixed fee for each transaction. Interchange fees vary based on several factors, including:
• Type of card used (credit or debit)
• Transaction method (card-present or card-not-present)
• Merchant category code
• Size of the transaction
• Type of business and industry

Card brands like Visa and Mastercard enable businesses to secure the best rates for transactions, but it is crucial for companies to be set up correctly to qualify for the desired interchange rate. If not properly configured, businesses risk being downgraded. A downgrade happens when a transaction fails to meet the criteria for its intended interchange category, resulting in it being processed at a higher rate.

Dues and Assessments
Dues and assessments are fees that card networks charge to cover the costs of maintaining their payment networks and brands. Although these fees are often grouped with interchange fees, they are distinct charges that go directly to the card networks. These non-negotiable expenses usually represent a very small percentage of the total processing cost.

Acquirer Costs
Acquirer costs refer to the fees the payment acquirer charges for processing electronic payments. These fees cover services such as:
• Transaction authorization
• Fund settlement
• Fraud prevention
• Risk management

Acquirer costs vary by:
• Transaction volume: Higher transaction volumes may lead to more favorable rates.
• Merchant Industry: Different business sectors have varying risk and processing requirements.
• Method of payment: Different transaction types (in-person, online, mobile) incur varying fees.
• Company size: Smaller businesses typically face higher payment processing costs.
• Risk factors: The perceived financial and fraud risk associated with the merchant’s business can significantly influence costs.

The key to understanding how these three elements influence your final payment starts with carefully examining your card statements, revealing precisely where and how your money is being spent through these three cost elements.

Best Practice #2: Understand Merchant Account Fees and Additional Charges for Credit Card Processing
Recognizing that fees can vary significantly between different merchant account providers is crucial. While some providers may charge all of the following fees, many only impose a select few:
• Setup Fees: Some merchant account providers charge a one-time fee for establishing your merchant account and payment processing system.
• Monthly or Annual Fees: Many merchant account providers charge recurring fees for maintaining your account and payment processing services.
• Transaction Fees: These fees are charged for each payment processed through your merchant account. These may include per-transaction charges for handling each payment and percentage fee or the discount rate.
• Interchange Fees: Specific rates are charged for processing different types of card transactions.
• Monthly Minimum Fee: Some providers require a minimum processing volume or associated charge if the minimum volume is unmet.
• Statement Fee: Charge for providing a monthly transaction and fee statement.
• PCI Compliance Fee: Cost of maintaining Payment Card Industry Data Security Standard compliance.
• Chargeback Fees: Charges are incurred when customers dispute transactions.
• Gateway Fees: Additional costs for online transaction processing services. Sometimes a third-party company, the payment gateway, checks if the customer has sufficient funds or credit to complete the transaction.
• Early Termination Fees: Charges for ending a processing contract before its agreed conclusion.
• Additional Service Fees: Depending on your merchant account provider and your required services, you may encounter additional fees for extra services like virtual terminals, recurring billing, or fraud prevention tools.

By understanding these components, you can more effectively manage payment processing costs and make informed decisions regarding your payment acceptance strategy. While some fees are non-negotiable, others may be reduced by selecting the right payment processor or implementing cost-saving measures.

Best Practice #3: Understanding Your Merchant Processing Statement
By learning about each fee on your merchant processing statement, you can gain better control over your processing costs and identify opportunities for potential savings. To effectively read your merchant processing statement, follow these steps:
Review the account information and the statement period.
Check the transaction summary.
Examine the daily summaries and card-type summaries.
Analyze the detailed fees section.

How Do You Know if You are Paying the Correct Fees?
The first step in determining whether you benefit from the interchange rate that offers the most savings is to request a free evaluation of your credit card processing statements. This custom audit will analyze your interchange charges to see if you are overpaying, a process referred to as meeting the target interchange.

Look for a provider that offers this service for free. Once you find one, ensure they can help you set up everything properly, with all the qualifying data needed to comply with the card brand’s rules. | WA

Marci Gagnon is the Senior VP of Sales for Qualpay and has been in the payments industry for more than 15 years with a concentration in the Energy space. Marci currently leads the Energy channel at Qualpay and works with customers and partners to develop processing solutions and tools designed to provide real-time reconciliation and cost reduction. She can be reached at [email protected]