Credit card spending has grown significantly over the past decade, leading to higher costs for businesses. For retail executives, finding ways to reduce these processing fees is crucial to improving profit margins and staying competitive in today’s increasingly cashless economy. However, the complex and often unclear credit card processing system can make this difficult. Here, we’ll outline practical steps to help retailers streamline their credit card processing and save thousands in avoidable fees.
Understanding Credit Card Processing
The credit card processing industry is full of challenges. A single transaction involves multiple parties — processors, card brands, networks and banks — all of which take a portion of the transaction amount. Processors frequently raise rates and introduce hidden fees, making it difficult for businesses to spot opportunities for savings. With hundreds of different card types and various fee structures, reviewing your processing statements can feel overwhelming.
This confusion leads to unnecessarily high fees — 72% of businesses are overcharged for their credit card processing. This means many retailers are losing revenue to unnecessary charges, penalties and hidden fees. By learning how to spot and address these issues, businesses can reduce costs and increase their revenue.
Strategies to Reduce Fees
1. Improve software integration.
Many businesses rely on point-of-sale (POS) systems that use integrated software. These systems often work exclusively with one processor, limiting a retailer’s ability to negotiate better rates. Additionally, using outdated software can result in incomplete transaction data, leading to higher fees.
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Steps to take:
- Keep your POS software updated to meet current processor requirements.
- Audit your transaction data to identify potential errors or missing information not being passed from the software to the processor.
- Consult independent advisors to help ensure your rates and fees are fair and competitive.
Taking these actions can reduce fees and improve operational efficiency, creating a better experience for both businesses and customers.
2. Manage chargebacks effectively.
A chargeback happens when the credited amount from the initial charge to your business checking account is reversed. The issuing bank reverses all or a portion of the transaction amount to your acquirer/processor, citing a violation of Payment Card Networks rules or regulations as the reason for the chargeback. This often occurs for businesses that have a monthly membership program. Other reasons for chargebacks include suspected fraudulent activity with the card, non-receipt of the product or service or cardholder disagreement regarding the quality/receipt of merchandise. Frequent chargebacks not only increase costs but can also harm a business’s reputation.
How to handle chargebacks:
- Use tools from your processor to dispute chargebacks quickly.
- Respond to chargeback notifications promptly to avoid penalties (failure to respond within the time frame will result in additional fines).
- Train employees to ensure accurate transaction data and better customer communication.
By addressing chargebacks effectively, businesses can save money and build stronger relationships with their customers.
3. Before considering a surcharging program, understand the restrictions.
Some retailers have implemented surcharging programs to offset processing fees, but this approach has risks. Regulations vary by state, often capping surcharge percentages or adding other restrictions. Errors in setup can lead to overcharging customers, fines or reputational damage.
A better first step: Work with your processor to lower fees by negotiating better rates or eliminating unnecessary charges. This approach reduces costs without the challenges of surcharging.
If you’d like to move forward with surcharging:
- Check your state’s rules and guidelines (surcharging is prohibited in several states).
- Use a registered program for credit cards only (it is illegal to surcharge a debit card).
- Audit your program and legislation regularly for accuracy and compliance.
Alternatively, offer cash discounts to reduce fees without regulatory hurdles. This incentivizes cash payments and avoids customer dissatisfaction with added fees.
4. Ensure PCI compliance.
The Payment Card Industry Data Security Standard (PCI DSS) sets guidelines to protect customer payment data. Noncompliance can lead to steep fines and increased risk of data breaches. Achieving compliance requires adopting strong security practices.
Steps to become compliant:
- Use hosting solutions that meet PCI standards and update passwords regularly.
- Employ third-party services to monitor network security.
- Provide ongoing training for employees on data security protocols.
- Review your merchant statements for noncompliance charges and address them quickly.
Maintaining PCI compliance not only reduces risks but also helps build customer trust by demonstrating a commitment to protecting their information.
5. Recognize the value of independent audits.
For many retailers, the complexity of credit card processing makes it difficult to uncover hidden fees or negotiate better rates. Independent audits can help businesses understand their processing arrangements and identify areas for improvement. By conducting audits, businesses gain the clarity they need to make informed decisions and maximize their savings.
Benefits of an audit:
- Analyze your merchant statements to find hidden or unnecessary fees.
- Negotiate directly with processors to secure better rates.
- Monitor your account regularly to prevent unexpected charges or rate increases.
Empowering Retailers to Take Control
Lowering credit card processing fees requires a proactive approach. By improving software integration, managing chargebacks, critically evaluating any surcharging programs and achieving PCI compliance, businesses can significantly reduce their costs. These strategies will free up resources that can be reinvested in growth and innovation.
Retail executives don’t need to tackle these challenges alone. Many tools and resources are available to help simplify the process and ensure savings. By taking the time to understand their processing arrangements and implement best practices, businesses can thrive in an increasingly competitive market.
A veteran of the finance industry, Eric Cohen founded Merchant Advocate. in 2006. After his extensive experience in the merchant services industry, he was determined to create a fair value proposition and transparency for merchants with their credit card processors. As the CEO and Founder of Merchant Advocate, Cohen has helped develop an entirely new industry of advocacy in Merchant Services, and his passion stems from saving merchants over $300MM in excess fees.
