For many small businesses, cutting costs especially for overhead items that do not produce income is a key area of concern. One of these areas is credit card payment processing, where a small business can pay multiple fees for these transactions. So how can you cut these costs? The first step is understanding how payment processing works.
The Four Parties
There are four parties involved in every credit card transaction. The first is the merchant accepting the actual payment. Then there is the bank used by the merchant to provide processing services, known as the acquiring bank. The bank that issued the card to the customer is known as the issuing bank and finally, there is the customer themselves.
Fees are taken by both the issuing bank and the acquiring bank, so the merchant ends up with less than the amount of the initial sale. The issuing bank has an interchange fee and the acquiring bank is called the discount rate. These are both figured as percentages, but the banks can agree to have a fixed rate instead. Therefore, it is important to negotiate the lowest rate possible with your acquiring bank. The rates for the issuing banks are determined by a few factors, including whether the card was present, the type of card and the merchant accepting the card.
Chargeback
What causes some these fees to rise is that the issuing bank wants to protect themselves from chargebacks, where a fraudulent charge occurred. The issuing bank then had to refund the customer and requests a refund from the acquiring bank. The merchant takes the final hit for the chargeback, as the money is refunded and they incur additional fees.
Therefore, charges considered the riskiest are ones where the card is not present, such as internet and phone sales. Since the acquiring bank is taking on the risk of a chargeback, they are essentially providing a loan to the merchant until all chances of a chargeback have been eliminated.
As a result, the riskier your business is considered, the more likely that you will pay additional fees. Cutting your costs can be as simple as taking steps to eliminate as many potential fraud risks as possible. Working with your credit card payment processing company, you can lower your transaction costs on a monthly basis.
Merchant Bancard provides credit card payment processing, as well as merchant account services and gateway processing. They can also provide consulting about the best hardware options based the business type.
