Accessing Optimal Credit Card Processing Discounts for a Major Payment Facilitator
A Payment Facilitator, or PayFac, is a payment service provider that makes it easy for organizations to accept credit card and other electronic payments without the need to set up or manage their own merchant accounts. Instead of each business or organization dealing with the processors, the banks, and the inherent complexities, a PayFac groups them together under its own merchant account. The PayFac also handles compliance and risk management.
This simplifies operations for PayFac clients, which can be especially important for state, county, and municipal organizations that allow credit card payments for utilities or taxes, for example. Any business that doesn’t have the infrastructure to manage the merchant account internally may benefit from using a PayFac.
Most PayFacs offer a flat fee for facilitating the transactions, so their clients can benefit from a predictable fee structure.
Thus, stringent cost control is critical for PayFacs. But with the large volume of transactions they process, and the constant changes and complexities of the merchant processing industry, it can be extremely difficult to achieve and maintain optimal fees.
Verisave recently implemented a merchant account optimization project for a large PayFac, resulting in significantly minimized fees throughout their processing mix.
It proved to be a challenging project in need of some very unique solutions.
The challenge:
The PayFac’s finance team had identified higher-than-average fees within their processing mix.
Being a PayFac, they already had thorough knowledge of how credit card processing works and of the nuance involved in fee calculation.
Understanding where the problems existed was important, but identifying and implementing the necessary changes to their merchant account was another matter entirely. Ultimately, they needed help achieving additional cost reductions that they had identified but weren’t able to accomplish on their own.
The root of their challenge was this: each card brand (Visa, Mastercard, American Express, Discover) has its own distinct and complex set of rates, and each brand offers different discounts and programs that can achieve significantly lower rates.
However, knowing all of the various discount rates and knowing how to set the merchant account to achieve those rates isn’t enough to reduce overall processing costs. Often, those discount programs conflict. Optimizing for certain Visa transactions, for instance, might actually cause some Mastercard processing fees to increase.
For this PayFac, optimal processing for all Visa transactions brought the effective rate for those transactions to 1.8%, but it increased the Mastercard effective rate to 2.5% and negated the overall savings. They would need to untangle the conflicting criteria so that they could achieve maximum savings from ALL card brands simultaneously.
Visa transactions were optimized to a 1.8% effective rate, but this drove Mastercard transactions up. They would need to find a better way.
The solution:
Verisave worked with the PayFac finance team to first catalog all of the optimal rates available to their processing mix.
It was then necessary to determine where and how the various ideal discount programs conflicted.
With this data in hand, a unique technology solution was developed to avoid those conflicts.
Verisave worked within the backend setup of the merchant account to implement a system that would identify card types in real time and process the transaction differently based on this data, funneling each transaction to the optimal discount structure.
As a result, every transaction now achieves an optimal rate, regardless of card brand or type.
This solution minimized the PayFac’s processing fees, resulting in an annual savings of $905k.
Quick Facts: PayFac Processing Optimization
- Transaction routing decisions are automatic and seamless
- Optimal rates are triggered regardless of card type
- Total Annual Cost Reduction: $905k
Would this solution work for other businesses?
Basically, yes — but every implementation would be unique.
The solution developed for this PayFac could be applied to any business, especially other PayFacs. But the routing decisions that come into play with each transaction will be different for every business, and every processing stack or transaction mix.
No two merchant accounts are alike. Finding exactly the right set of solutions to minimize processing fees, for any business, is always varied and complicated.
For many businesses, the solution utilized with this PayFac might not be the most effective cost reduction approach. But there are always ways to reduce a company’s processing fees. Determining the best fit is one of the first steps in any cost reduction project.
Additional information:
For more details about this project, or to discuss how it might apply to your merchant account, the Verisave team would be happy to discuss and provide a demo of the process:
Verisave is a third-party cost-reduction firm specializing in merchant accounts and credit card processing fees.
Verisave is not a payment processor, and is not affiliated with any processors, card brands, or banks.
Verisave has more than 20 years of experience optimizing and monitoring the credit card processing industry.