The Underside of Low Credit Card Processing Cost

Credit card processing cost remains the key payment processor selection factor for many companies. Beside it, there are, of course, other criteria that should be considered while choosing a payment processor. Plus, at a closer look, the cost of credit card processing is not always as high as it initially seems in terms of value-for-money. And some “cheap” credit card processing solutions resemble the famous Trojan Horse. Let us explain why.

Things to consider beside credit card processing cost

Low credit card processing cost is a target that many present-day companies want to hit, first and foremost. True, processing cost is a powerful factor, because, to a large extent, it defines the size of your company’s revenues. To put it simple, if you are paying low processing fees, then more money remains in your pocket after their deduction. However, in reality, things are not always this simple. In addition to low fees, a company should also take other things into consideration. Most common requirements to a new processing solution are: smooth funding mechanisms, clear reconciliation of funds and transaction settlement, transparent reporting, and reliable payment security features. More advanced requirements might concern batch processing functionality, support for particular kinds of payments and recurring billing, smooth deduction of taxes and fees, and others.

If some provider offers low credit card processing fees, but does not meet some of the listed requirements, the partnership might call for additional costs and efforts in the long run.

Indirect cost of credit card processing.

The devil hides in the details, they say. Indirect costs, related to electronic payment processing, concern these very details. Particularly, we are talking about the cost of development, integration, migration, certification efforts, needed to get the new processing solution up and running. Your team might spend long time migrating your data (merchant data, cardholder data, subscription data, transaction data etc.) to the new processing partner’s system. Integration might require days of coding. Certifying your new processing solution with the acquirer might take weeks. So, instead of dedicating more time to improvement of customer experience with your core products or services, you have to struggle with technical challenges. As a result, you are losing precious time and money, or, in other words, incurring large indirect and opportunity costs.

Although these costs are not specified anywhere in the processing agreement, they can offset all the savings, promised by alluringly (or should we say suspiciously) low processing fees. The situation reminds of another ancient myth also mentioned by Homer (in “Odyssey”, not “The Simpsons”): the sweet-voiced sirens that lured sailors to treacherous rocky shores.

4 common reasons for high credit card processing cost

Businesses, especially, small-size ones, often complain about high fees they have to pay for transaction processing. High processing fees make you wonder whether you should demand better terms from your processor or migrate to a new one. However, often the best option is to do nothing and stay where you are. Let us consider the most common reasons for relatively large processing fees charged by payment processors.

1. Issues with processing history. These might include high chargeback and refund rates, fraud, or other staff that seem suspicious to the processor during background verification.
2. High-risk MCC code. High-risk industries often seem tempting, because they promise fast income. However, they are associated with high chargeback rates and fraud levels. Examples of such industries range from medical CBD sales to tech support services and from adult web-sites to airlines. (This last example becomes even more vivid in the current situation when so many flights are suspended and canceled because of coronavirus epidemic). In order to offset the associated risks, processors might charge higher fees or withhold merchant services reserves.
3. High-risk geographical location. If you come from a geography where acquirers and processors cannot reach you in case of fraud, then you might expect surcharges for processing services, intended, again, for offsetting of respective risks. 
4. Low transaction processing volume. In the world of merchant services 1% does make a difference. However, this difference becomes visible only on large processing amounts. If your monthly processing amount is $10,000, then the processor will get, roughly, $200 for the service. So, some just do not want to bother, while others set minimum fee amounts. As a result, your options are either to pay higher fees or quit.

Conclusions

Not every cheap credit card processing offer is some kind of “cheese in a mousetrap”. However, the price you pay for implementation of a new processing solution should not exceed the savings, resulting from it. If you are a small-size or high-risk merchant, it makes sense to stick to large processors and aggregators, even at somewhat higher price. Their offering might be the best value-for-money you can get.

Feel free to request case-specific recommendations on credit card processing cost reduction from our payment experts at UniPay Gateway.