Should You Choose a Payment Processor Based on Price?

If you’re wondering whether changing processors will significantly reduce your credit card processing fees, you’re asking the wrong question. There’s a better way to save.

When it comes to how they pay, today’s consumers want choice. Payment processors help your business provide alternate payment options to cash. And studies show that customers spend more when they’re paying with credit cards. So, if your organization has determined that the ability to accept credit and debit card payments is a necessity, then you’re required to work with a payment processor. Payment processors connect merchants with the financial institutions involved to make the more than 100 million daily credit card transactions in the U.S. possible.

No matter which processor you select, you’ll pay processing fees every time you take a credit card payment. But with thousands of organizations offering credit card processing to merchants and business owners, how do you find the processor with the lowest possible processing fees? The answer may surprise you. You don’t. The bad news is that because credit card processor pricing is so complicated, it’s nearly impossible to comparison shop on fees alone. The good news is that in most cases, your processor doesn’t matter. That’s because there’s a much better way to reduce expenses than selecting a processor based on price. 

Processor pricing is complicated and not always transparent, making it challenging to find the right processing company based on price. Here are the top five reasons why it’s nearly impossible to do a side-by-side comparison of processor fees.

1. Fees Go to Multiple Places Did you know that you’re actually paying three different fees to accept credit card and debit payments? A small portion is paid to the credit card network and your processor, with the biggest slice of the pie going to the cardholder’s issuing bank. 
  • Processing Fees: paid to the processor to cover the cost to complete the transaction, move the money, and send the fees to the banks and payment networks.  
  • Assessment Fees: paid to the credit card network such as Visa, MasterCard, Discover and American Express.
  • Interchange Fees: paid to the financial institution that issued the card to your customer, primarily to fund cardholder reward programs.
2. Not All Fees are Negotiable Of the three different fees, only processing fees are negotiable. As you can see, though, they’re a small slice of the pie. Most of the total credit card payment fees are paid to the issuing bank as interchange fees—and they can be lowered regardless of your processor.
3. Complex Rules The rules governing these fees are incredibly complicated. Visa alone has over 800 pages of rules governing how these programs work. In addition, each credit card brand uses its own rate percentage calculations for types of cards and categories of transactions resulting in over 300 different interchange fee programs.
4. Constant Change The industry constantly changes and adjusts rates and rules. In 2022, Visa and MasterCard have announced changes that will significantly impact merchants. For example, interchange rates are increasing, affecting card not present (CNP) transactions, new standards for 8-digit BINs are being adopted, and subscription billing rules are changing.

5. Multiple Billing Methods

Behind every seemingly simple credit card swipe, one of multiple billing models will dictate what your business will pay in fees. 

  • Interchange-plus: the fees are all listed separately, so you see what you’re paying for each transaction. Many processors treat interchange and assessment fees as mere pass-throughs, although sometimes there will be a hidden markup that’s difficult to identify.
  • Flat rate: the processing fees are uniform regardless of the transaction type and other factors that affect pricing behind the scenes. So, while these rates make it easier to predict your expenses, transactions tend to be more expensive. 
  • Subscription: a monthly fee is charged in addition to the individual transaction processing fees to incentivize the processor to work toward the lowest possible transaction fees.
The good news is that you can optimize credit card processing fees for significant savings, no matter which processor you use. So instead of asking how to choose the processor with the lowest possible processing fees, the right question to ask is, “How do I optimize my pricing?”  Most businesses are being overcharged within their merchant account. Unfortunately, CFOs, Controllers and CPAs often believe that the only way to lower credit card processing fees is to change processors. This is a mistake since interchange fees, not processor fees, make up the bulk of processing fees.
Many processors will treat interchange as a pass-through and won’t have the ability to optimize on your behalf for lower interchange fees.  However, the account setup, processing methods, industry-specific discounts, and numerous other factors govern how these fees are calculated at any given time. A skilled merchant account expert specializing in credit card processing fees and cost consulting can make the necessary micro-adjustments to ANY merchant account for fee optimization. The results speak for themselves. When done correctly, most businesses realize a 10-30% cost reduction. And it doesn’t matter which processor is in place because the adjustments are on the back end of your merchant account. 
Don’t get us wrong, pricing should always be considered to weed-out processors that are clearly positioned too high. But it shouldn’t be a primary factor in vendor selection. Instead, pick the best processor for your business based on these considerations: 
  • Value-added services: smaller businesses gravitate toward more expensive platforms like Square and Stripe for the ease of use and somewhat turn-key setup.
  • Customer support: if your business operates online 24/7, shouldn’t your processor offer live customer support when you need it, not just during regular business hours?
  • Banking relationships: if your bank offers processing services, selecting it as your processor may benefit the overall banking relationship positively.
  • Technology requirements: some larger businesses may require complex integrations with ERP or other accounting systems. Not every processor is capable of every integration.
If you’ve been shopping for the best processor based on price, consider a better alternative. A credit card processing optimization engagement with merchant account experts is necessary to achieve truly substantial savings.

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.

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