Businesses know the importance of managing all types of expenses. They know that each expense counts, including the cost of credit card processing. For the businesses of today, credit card processing has become a necessity. However, it does come for a price, and it is complex or rather complicated to understand.
Besides, when it comes to online businesses and companies which have recurring customers, the threats of loss and fraud are quite high. In order to reduce risk and the profit margin of the company, it is vital to protect sales and mitigate expenses as these could help save thousands of dollars every year.
This post discusses credit card processing and how businesses can potentially boost the benefits of payment processing product.
Chargeback could put an end to a business, not only would the company lose sales, revenue or product, but it would lose the potential of card processing services. There are specific tolerances which the card brands have that are based on the ratio of sales to the chargeback as well as disputed transactions. The ability to accept credit cards as a form of payment would be jeopardized if chargeback to sales is anywhere over a 1% ratio.
When looking for payment processing services, each of the KPIs of the current processing would be looked at to determine the risk profile. As a rule of thumb, the more chargeback that a company has, the more risk of loss for a processor, as such the processing rates would be affected adversely.
A team of Certified Payment Professional (CPP) is employed by credit card processing companies that have the experience and expertise in helping a business better manage the payment ecosystem. They could help the business not only win over a chargeback dispute, but also reduce the chargeback from occurring.
One of the primary cost elements of the processing fees and rate is the card brand interchange, which could be about 85% of the total card processing cost. The amount of money collected for the interchange would directly go to the bank that issued the card to the customer.
There are about 900 interchange fees and rates between American Express, Discover, Master Card and Visa. Based on numerous factors such as card present vs. card not preset, card type (credit, debit, business, rewards, etc.), when one settles the payment batch, the data that is included in the payment record, and a combination of various elements, the rates are set by the card brand.
There are certain things which can be done in order to take back control of the process so as to optimize the interchange fees. First of all, it is important to be aware of all the variables that affect the processing costs to able to adopt better processing habits which lower the overall processing rate. A keen understanding of just how the ecosystem works is required to be able to optimize how each of the transaction qualifies.
For instance, one could go to a CPA to make sure that they are getting the most out of their taxes. The CPA could potentially help extract the most value out of the ecosystem, to improve more than just how the transactions qualify, but also to ensure that one is not being over charged or making use of poor processing procedures. As the complexity of the fees is not easy to understand for someone new, it is common practice to inflate the pass-thru costs. Therefore, hiring a CPA or any other expert for that matter would help boost the benefits of the payment processing product.
Reduce Fraud Risks
Although, inflated costs are something to worry about, fraud still occurs at the fastest rate. Since 2008, third-party and even first-party fraud has grown considerably by as much as triple digits. Everyone from financial institutions, merchants and customers has been affected by this explosion.
As the fraud rate continues to rise, so would the processing costs for higher risk transactions. These are most commonly those in which the customer is not face-to-face at the time of the purchase. One thing is for sure and that is the fact that the fraud losses have trickled down to the overall processing costs.
Certain tools and best practices can be used in order to mitigate payment fraud which would protect revenue and ensure that the payment processing costs are down.
Address Verification Services (AVS)
The Address Verification Services that are offered by the card brands should be utilized as they as inexpensive and can be used as a fraud mitigation tool effectively. Just about every business gets card billing information but it does not rely on the AVS response for the delivery of goods.
Keep in mind that card brands do offer protection from fraud, in case the product had been shipped to the billing address of the credit card. Even though, AVS is certainly a good tool, it does not protect you against expert fraudsters which know how to get around the system. It is due to this reason that it is vital to use multiple fraud tools in order to prevent fraud before it leads to significant damages for the business.
Validation (CAV) & Fraud and Reputation Database
These services can be combined to obtain insight to any known fraud that is associated to any card information that has been provided by the customer. In addition to this, the tools can be used to reduce the risk by allowing one to validate the card prior to accepting it as payment. This helps provide you with insight, while protecting the relation that one has with their payment processor.
As the trend of online businesses increases, chargeback and fraud would only continue to rise. Only with the implementation of the latest technologies and expert knowledge would a business be able to minimize the costs that are associated with these and it would optimize interchange. Certified Payment Professional can offer multiple options to achieve your payment goals.