How to reduce the cost of payment processing

Making sure your business is effectively managing payment processing costs is an important financial strategy when it comes to boosting your bottom line. Clearly understanding and effectively managing these costs can significantly impact your organisation’s financial health and ensure you’re not paying more than is necessary to accept payments from your customers. 

Businesses can benefit from reducing their payment processing costs both by enhancing their revenue and potentially attracting more customers by being able to offer more competitive prices. Those 1% to 3% charges can really add up and eat into your operational costs, particularly if your business relies heavily on card transactions.

Achieving the best payment processing rate for your business can involve choosing the right payment processor, using a multi-currency account, and employing effective risk-management strategies. Let’s take a clear look at how your business can reduce payment processing fees step by step, to ensure effective financial stewardship and a larger share of your revenue in your account at the end of the month. 

Understanding interchange rates

Interchange fees are transaction fees that merchants are charged when customers use cards to purchase from them. Your business, as the merchant, will be charged a fee whether the transaction is made online through your website or in a physical store.  

Interchange rates are set by card networks like Visa or Mastercard, and fluctuate based on various factors like the type of card being used, the transaction method, and the level of risk associated with the transaction. Interchange rates are one way credit card companies charge for their services - including the complex and well-developed systems they have in place to securely and safely collect money from your customers and send it to you as the merchant.

Although seen as a single fee for each individual transaction, interchange fees are actually a combination of charges from:

• The card issuer: the customer’s bank or credit card company

• The card network: e.g. Visa, Mastercard, Discover, American Express

• The acquirer: the merchant’s bank or payment facilitator 

The interchange fees a business is subject to will determine how much it costs them for a customer to make a transaction with them. Higher rates mean increased transaction costs, which can have a run-on effect of driving them to increase their prices to compensate. 

Step-by-step guide to lowering your business’s payment processing fees

Audit your current fees

The first step to lowering your business’s payment processing fees is to analyse your current fee structure and what you’re currently being charged by your payment processor, so you have a clear understanding of what costs are involved. Doing a thorough audit will mean you can identify the areas where you might be overpaying or where you could potentially negotiate better rates. There may be other fees included that you’re overlooking as well, such as cross-border fees and foreign exchange rates. 

Getting a clear view of your fee structure will put you in good stead for proactive management moving forward.

Understand your contract

Reviewing the terms of your contract with your payment processor can help you further understand what fees and charges you’re being subjected to, as well as knowing what opportunities there may be to lower your rates. A hot tip is to look for any clauses that pertain to your fees and the possibility of rate adjustments.

Research and compare payment processors

Your next step should then be to investigate a variety of different payment processors to understand the different fee structures and benefits they offer. Doing some market research will help you gain an understanding of the competitive rates, services and contract terms available in the market, which could lead to cost savings for your business if you choose to switch providers.

It’s important to make sure that you’re investigating payment processors that suit your specific needs as well. For example, if you sell internationally, you should research payment processors like Airwallex, that offer like-for-like settlement in multiple currencies. This offering will enable you to collect and settle payments globally, whilst avoiding unnecessary and expensive conversion fees. 

Balance cost saving with checkout optimisation

Optimising your checkout process and payment acceptance methods can be a great way to reduce your interchange rates and provide your customers with a seamless online checkout experience. Even though certain payment methods will incur higher fees for your business, the benefits usually outweigh the negatives, as your customers will be more likely to purchase from you if they can pay with their preferred payment method. 

Choosing a payment processor, such as Airwallex, that enables you to offer 160+ payment methods at your checkout is a great way to reduce friction and boost sales.

Improve your fraud strategy

Fraud prevention technologies; such as 3D Secure (3DS) and pre-chargeback programs, can help you reduce the cost of payment disputes and protect your business against card fraud.

Chargebacks happen when a customer disputes a transaction with their bank or card company, leading to a reversal of the payment. Chargebacks cost your business money, as even if you win a payment dispute, your business will incur a fee. Pre-chargeback programs are designed to help your business resolve disputes and fraudulent payments before they become chargebacks, typically by automatically refunding disputed transactions at a much lower cost than a traditional chargeback. The pre-chargeback programs that Airwallex supports include Visa Rapid Dispute Resolution (RDR) and Mastercard Collaboration.

With Airwallex’s new Risk Web App, you can proactively detect and block fraudulent transactions by gaining real-time insights into fraud performance, applying 3D Secure (3DS) to select transactions, and customising settings to match your risk tolerance.

Regular monitoring and review

Conducting regular monitoring and reviewing of your fee statements and business transactions can help you understand how much you’re spending on interchange rates, as well as learning about how your customers like to purchase from you. As you analyse the data you collect, you’ll be able to identify any discrepancies or potential areas for improvement.

It’s important to also stay updated on changes when it comes to the different rates being offered by payment processors, as well as how industry standards are changing year to year.

Airwallex: Global payment processing for your business

With Airwallex Payments, you can collect payments from your global customers in their preferred currencies while reducing costly foreign exchange fees, efficiently managing risk, and boosting payment acceptance rates. To find out more, sign up or get in touch with our team today.