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Evaluating the Health of Your Payment Processing Program: Part 1 – Pricing

Five Simple Questions to Prevent a Painful Payment Condition

Is it just me, or does it seem like there is a lot more advertising lately for preventive health screenings? Maybe they’ve always been there and I’m just paying closer attention these days. Either way – awareness and early detection of a potentially serious health condition is a very good thing.

It occurs to me that periodic screenings apply to so many different aspects of our lives – both personal and business. On the personal side, I wish I had completed a health screening on my central air conditioner before the sweltering July heat rolled in. I would have avoided a painful and costly situation. On the business side, I frequently talk with merchants that wish they had evaluated their payment program earlier. They too may have avoided a painful and costly situation.

Borrowing from the early detection strategy of the healthcare industry, our team of Wind River payment experts has developed a brief payment health screening questionnaire to help identify potentially serious and chronic conditions in a payment environment. It centers on three key areas of payment programs: Costs, Service and Security.

For this first part, we’ll focus on payment processing pricing and your program’s health from a cost perspective.

Diagnosing Overpayment

To identify risk factors associated with overpayment, we start a Payment Health Assessment with five simple questions:

1. Do you understand what you pay for credit / debit processing and what you get for it?

You may be in a bundled, tiered or flat rate plan, which makes it difficult to decipher what all you’re getting for that rate. Often we find those types of fee structures are not in the best financial interests of the merchant.

Take a look at your invoice to see if you’re in one of those plans. If so, you may want to explore other options. Also look for perpetual line items that are unclear, such as “Non-Qual Sales Disc” and “Non-Compliance Fee.” If you have them, you may want to explore a new provider as very often they are completely unnecessary.

2. Have your payment processing costs remained the same since you signed with your provider?

This is a biggie. Time and again merchants suffer from a condition called “rate creep.” It’s pretty common and can lead to great discomfort to your bottom line. Revisit the pricing you received when you signed on with your current provider. Now compare that to the pricing you are receiving today. Your price may be lower if your processor is proactive at identifying cost saving opportunities to pass along. Conversely, it may have crept up over the years. Regardless, the disparity between what you were promised and what you’re actually paying is an important factor to consider when assessing your costs.

3. Do you feel you’re paying a competitive rate for card processing?

How you feel is often an indicator of your health. If you feel like you’re paying a fair rate for your processing and you’re happy with it, that’s a good sign. However, if you’re unsure whether or not your rate is competitive or if you definitely do not think it is, that’s a clear sign of a less than healthy payment environment and further action is recommended.

4. Are you passing additional data with card-not-present transactions?

If you accept B2B payments, passing additional information with card-not-present transactions may qualify you for reduced interchange rates and shorter Days Outstanding (DSO). It’s called Level 3 processing, and your payment processor should be discussing this saving opportunity with you.

5. Do you own your processing terminals?

Leasing your credit card terminals from your processor rather than buying them means that, with 99% certainty, you are paying too much. Please remember that your processor is the primary financial beneficiary of terminal leases not you. The hardware isn’t going to change any time soon so there really is no compelling business case for leasing versus buying.

What Your Answers Indicate

If you answer “yes” to all of the questions above, congratulations – your payment costs are very likely where they should be, and your program has passed the first phase of the health screening.

If you answer “no” or “I don’t know” to any of the questions above, it could be an early warning sign of overpayment, and you should seek a more in-depth evaluation or talk to another provider.

What to Look for in a Merchant Services Provider

Because costs are such an important part of your business, your merchant services partner needs to have your back. If you do decide to explore other providers, here are a few things to look for:

  • Transparency: You should have a very clear understanding of your payment processing costs and what you get for every penny you spend. No vague line items on the invoice. No rate creep.
  • Proactiveness: Your business changes. Fees and regulations change. Customer behavior changes. All of those can have an impact on your costs, so you’ll want to partner with a provider that stays on top of the changing landscape and proactively looks for opportunities to save you money.
  • Relationship-Minded: Your partner should be your trusted advisor on all things payments related and always, always, always keep you at the center of the relationship. Slipping in vague line items on your invoice or sneakily raising your rates are signs of a partner that is just in it for the money.

The seemingly easiest path is to do nothing. However, knowing there’s a problem and doing nothing about it comes with a hefty price tag. Because, like air conditioning woes in the middle of a hot summer, the preventable costs will just keep on mounting.

In part two of this series, I’ll tell you the questions you should ask to evaluate the service you receive from your payment processor. Finally, in part three, I’ll give you a few simple questions you can use to gauge your security risk.

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