Three Key Tips to Save on Your Merchant Account Fees in This Digital Economy, Both Consumers and Businesses Most Often Prefer to Pay by Credit Card

Three Key Tips to Save on Your Merchant Account Fees In this digital economy, both consumers and businesses most often prefer to pay by credit card. Since merchant account fees for processing credit cards can be a significant expense for business owners, it is important to understand how they work. These fees can be challenging to navigate, making it difficult for merchants to determine if they are getting the best rates possible. This guide offers three key tips for reducing merchant account fees.

Tip 1: Understand How Interchange Rates are Determined Interchange fees are the single largest expense in processing a transaction. Depending on the rate plan, interchange fees make up 70 to 90% of transaction processing costs. The processor and the credit card association make up the remaining 10-30% of the fees charged to merchants.

Many factors determine interchange, usually correlated to the level of risk the issuing bank takes on to approve a transaction. These include:

The industry of the merchant Rates vary based on the industry and the size of the merchant. Typically, smaller companies with lower transaction volumes pay higher rates than larger companies with higher volumes. The card type Rates for debit cards have a lower interchange cost than credit cards because they are subject to lower credit risk. Commercial cards and rewards cards also carry higher interchange rates to fund the rewards program or corporate purchasing. The type of transaction Key-entered and eCommerce transactions carry higher fraud risk. Therefore, swiped (or card-present) transactions offer a lower interchange rate than card-not-present sales.

Interchange is a delicate balancing act. If rates are too high, merchants may be less likely to accept cards. If rates are too low, banks will be reluctant to issue cards. While much of what determines interchange is out of a merchant’s control, there are a few ways to secure the lowest possible rates:

• Swipe the card whenever possible • Use Address Verification Services (AVS) for key-entered transactions • Obtain a valid authorization for each transaction • Submit enhanced data: Level 2 and Level 3 processing Tip 2: Know How to Calculate Your Rate Although base interchange rates are consistent across all merchant account providers, the processor pays the interchange fee and also charges for their services. To pass the expense on to merchants, the processor adds a markup fee on top of the wholesale rate. Merchants must consider both the interchange rate and the markup fee when evaluating credit card processing costs. There are numerous ways processors approach interchange fees. Here are the most common:

• Flat-rate pricing is easy to understand; merchants pay a single rate for each transaction, set at an amount to cover both interchange and markup. This model is suited more for small businesses with low sales volumes.

• Tiered or bundled pricing combines interchange and markup fees and categorizes transactions as qualified, mid-qualified, and non-qualified, each with different rates. Merchants may also pay account fees, gateway fees, PCI compliance fees, and others. Statements are easier to understand, but this model typically results in higher, less-transparent pricing.

• Interchange-plus pricing (or the pass-through model) is the most transparent model. The processor breaks out costs by category on the statement and fully discloses where fees originate. Statements can be difficult to read, but this is an acceptable tradeoff for lower overall costs. This plan typically works best for businesses with higher sales volumes.

Understanding the various pricing models and identifying which model best suits a merchant’s business type is crucial. For example, if a merchant is processing more than $5,000 in credit card transactions per month, or accepting a variety of card types, a flat-rate model may not be the most economical choice. The merchant will lower their monthly expenses by choosing one of the other options.

800-305-1534 | omnifund.com | [email protected] Tip 3: Look for Integrations with Your Software A payment provider that offers both a real merchant account paired with an integrated payment gateway saves time, money, and headaches. Developer tools and open application programming interfaces (APIs) allow seamless customization between payment processors and business software systems.

APIs can help merchants completely integrate payments with other systems such as:

• Back-office management software • Customer relationship management (CRM) programs • Proprietary systems • Industry-specific management systems

A fully integrated platform adds significant value to a merchant account and reduces IT overhead, ramp- up time, and human resources. Merchants should look for a payment platform that offers robust, scalable features like:

• Recurring billing • Electronic invoicing • Virtual terminal • Hosted payment pages

Finding the Right Payment Processor Partnering with the right payment processor is an essential step to reducing merchant costs. It is crucial to choose a processor that provides transparency into understanding the various fees and offers a pricing model that best suits the needs of the business.

Consider a platform with extensive features and tools to create a seamless experience that is backed by expert customer service and support. OmniFund helps streamline operations with our customizable Payments as a Platform® solution and offers a free third-party analysis of your current costs, to ensure the best rates possible.

800-305-1534 | omnifund.com | [email protected]

GotoBilling, Inc. is a registered ISO/MSP of Citizens Bank, N.A. Providence, RI. GotoBilling Inc. is a registered ISO of Wells Fargo Bank, N.A., Concord, CA. OmniFund® is a registered trademark of GotoBilling, Inc.