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Credit card processors are essential partners to businesses, enabling seamless transactions for customers. But not all processors are created equal, and some may quietly cost greater than they need to. If you watched your bank card processor could also be hurting your bottom line, it might be time to re-evaluate your relationship.
Here are five red flags that signal it might be time to break up with your bank card processor.
1. Your discount rate is greater than five basis points or is not disclosed
The discount rate is a key element of processing fees and represents the percentage charged on each transaction. If your CPU discount rate exceeds five basis points (0.05%) or is not clearly disclosed, this is a serious red flag.
Action step: If you do not see the discount rate, ask your processor to show it to you on your statement. Again it ought to be 0.05% or less.
2. Your overall effective rate is greater than 2.5%
Effective rate – the total fee you pay divided by your total processing volume – is a easy way to measure the cost of processing bank card payments. If your overall effective rate is over 2.5%, you are probably overpaying.
Processors often smuggle in additional fees or hide them. However, calculating your overall rate will allow you to see the true cost of processing.
Action step: Divide the processing fees by the total processing volume – this gives you an overall effective rate.
3. Your Interchange fees are not fully disclosed
Interchange fees, set by card networks akin to Visa and Mastercard, are non-negotiable. However, processors are responsible for passing these fees directly to you, without adding unnecessary overhead. You could lose money if your processor overestimates your exchange rates. This may be determined by the undeniable fact that they do not fully disclose all the data required to substantiate their fees. You need to see 1) exchange categories – akin to Data Rate II. 2) processing volume for each category and 3) fees charged per category.
Action step: If you do not see all three elements above, it’s essential to request an amendment to a statement that does. They must make this alteration in their next return.
4. Your processing fees have increased by greater than 10 basis points in the last yr
Interchange fees have remained relatively stable over the last 15 years. For example:
- In 2009, Visa’s highest rate was 2.95% compared to the current 3.15%.
- According to a report by the Government Accountability Office (GAO), this is (*5*) highest rate only increased from 3.25% to 3.3% in the same period.
If your overall processing fees have increased by greater than 10 basis points (0.10%) over the last yr, your processor, somewhat than your interchange rates, is more than likely responsible for the increase. Processors often raise fees without justification, citing the complexity of statements and offsetting the interchange fee increase with a rate increase, despite the fact that they were barely budging.
Action step: Compare your overall processing fees today with those from a yr ago. If you notice a significant increase, ask your processor to show you on the Visa and Mastercard web sites where fees have increased. Unjustified fee increases are a clear indication that it is time to look elsewhere.
5. You don’t receive reports about alternative downgrades or how to fix them
An exchange downgrade occurs when a transaction does not meet the criteria for the lowest possible rate, resulting in higher fees. If your processor doesn’t provide a detailed report on downgrades – including the variety of transactions that were downgraded, the amount lost and the steps you would like to take to fix it – you are probably leaving money on the table.
Why it matters: Without this information, you are acting blindly and unable to optimize your processing costs. A superb processor should actively aid you minimize downgrading and maximize savings.
Action step: Request a CPU Downgrade Report. If they are unable to provide this recommendation or offer practical advice, find a partner who can.
The most significant thing
Your bank card processor ought to be a trusted partner, not a hidden cost center. If any of those warning signs appear in your online business, you have a responsibility to explore higher options. there are transparent and honest processors; making the switch could save your organization 1000’s of dollars a yr.
Breaking up is not easy, but in this case it may very well be one of the best decisions you make for your online business. Take control of processing fees, demand transparency and make sure your processor works for you – not the other way around.
If you’d somewhat sort it out than split it, an alternative choice is to have your fees audited by a skilled bank card processing auditing firm. For full transparency, I run weAudit.com, which helps firms solve these problems. However, other firms are operating in this space and you must explore all available options and determine who and what most closely fits your needs.