Stripe’s increased transaction rate goes into effect this week. You can be certain other payment processors are watching closely to determine if they too will increase their rates.
Price increases always put merchants in a difficult situation. Accepting credit card payments is a necessary aspect of business. However, the processing rates have a substantial impact on a bottom line. Many merchants feel they have to choose between two terrible options:
- Raise their prices and risk losing customers to their competition.
- Find a cheaper processor that provides less features and services.
We’re here to tell you there’s a better option: find a cost-neutral payment processor.
What is a cost-neutral payment processor?
A cost-neutral payment processor brings in enough additional revenue (through specific payment tools) to pay for the cost of its services.
Seems pretty simple, right? But if it’s as simple as it sounds, why isn’t every payment processor cost neutral?
The payments industry is extremely complicated with a plethora of fragmented systems. Some processors are unable to invest in the technology, tools, or strategic partnerships that are necessary to make their services cost neutral.
What features or services make a processor cost neutral?
The net cost of your payment processing solution is dependent on several factors including processing volume, transaction rate and fees, payment terminals, etc. Many businesses mistakenly believe that rates and fees are the most expensive aspect of payment processing and assume cheaper rates will automatically equate to more revenue. This isn’t true.
Merchants lose substantially more money dealing with fraud, chargebacks, and declined payments. Depending on your processing volume, improving your management of these payment disruptions can dramatically increase the revenue you bring in.
Adding fraud protection to your payment processing solution often increases the upfront cost. If you think skipping over this feature will increase your revenue, you need to think again. According to a recent study, every dollar lost in a fraudulent transaction actually cost the merchant $3.75.
If you work in an industry with low fraud rates, you may be able to justify not paying for this feature. However, the money you save by preventing fraudulent purchases alone may help your payment processing become cost neutral.
A chargeback is a disputed credit card transaction. When a customer requests a chargeback, the credit card company issues a refund for the purchase amount. The merchant then has to dispute the chargeback in order to recover the funds.
Typically, merchants pay between $20-$50 per chargeback. The best way to protect your business from costly chargebacks is by utilizing responsive, adaptive chargeback management software. It may seem like an unnecessary expense at first, but a quality solution empowers you to gain more control over the dispute process and saves your business substantial time and money.
Visa reports that 24 percent of subscription credit card payments are declined by authorization systems, two-thirds of which result from incorrect decisions regarding legitimate cards. The compounding damage of a declined payment can be extensive.
For subscription-based customers, you’re not just missing out on one month’s payment, but every month for the rest of the subscription life. While utilizing a decline recovery tool does have costs associated with it, the ROI of utilizing this type of tool could be upwards of 90 percent.
How do you find a cost-neutral payment processor?
What it takes to make you payment processor cost neutral will look different for every business. Businesses with simple payment needs may only need to focus on the rates and fees. Business with high transaction volumes will need access to a lot more features to achieve cost neutrality.
It’s hard not to get distracted by upfront costs. But you have to keep the big picture and long-term initiatives in mind. Decisions you make today may limit your options tomorrow. Don’t make the mistake of overlooking payments as part of your larger business and commerce strategy.
Nexio’s mission is to help businesses (of all sizes) understand how payments are a crucial, strategic asset that help increase the longevity of your business. With over a decade of experience in the payments industry, we have the technology and experience to help you achieve your goals.
In a complex and ever-changing commerce world, our platform empowers you with the technology you need to simplify your payment processes, optimize your revenue, and scale your business to meet your needs. We take the complexity out of payments so you can do what makes the most sense for your business, not ours.
Contact us today for a free payments consultation.