How To Reduce Payment Service Provider Costs

A regular review of the pricing structures and fees being charged by your current provider, compared to other providers, is advantageous to reduce the costs of taking online payments. While overall you can expect most of the major Payment Service Providers (PSPs) to charge similar fees for their services, it can be difficult to compare like-for-like as services vary between providers

That’s why is important to understand exactly what you’re currently paying for, and to who, before you can perform an accurate comparison. Generally, online payment processing fees are as follows:

  • Transaction processing – this will be based on the volume and value of transactions your business processes
  • Refunds
  • Fraud prevention tools
  • Subscription plan
  • Monthly minimum fees
  • Recurring payments (tokenisation)
  • Commission
  • Currency Conversion (DCC)
  • PCI DSS fees
  • Chargeback fees plus handling costs

Other costs including set up fees should also be considered if your company is thinking about switching providers. You may also find that some fees are collected by the merchant acquirer, whereas others by the payment gateway provider; the full picture is needed for any accurate comparison.

5 Ways To Reduce Online Payment Processing Costs

While switching providers can be an effective way to drive down costs and take advantage of more favourable rates, there are other ways to reduce payment service provider costs. Consider the following options if your business wants to save money:

  1. Prevent chargebacks

Chargebacks not only cost your business in fees and handling costs, but also in the cost of non-returned goods and shipping costs. Put in place best practices such as following up transactions with an email reminding customers of their purchase, ensuring the merchant descriptor that appears on their card statement is recognisably your business, and tracking goods to provide evidence of delivery. These practices can reduce the opportunity for friendly-fraud and also mistaken chargebacks as a result of customers forgetting their transaction or not recognising it on their card statements.

  1. Increase fraud protection

In some cases it may be possible to reduce transaction costs by increasing cyber security measures. Those merchants who do not subscribe to a PSPs’ fraud protection services may be deemed a higher risk than those that do; the cost of increasing security may be offset by lower transaction costs. For example, by using counter-fraud tools such as 3D Secure to validate the cardholder, it will both reduce merchant payment processing fees and will also shift liability for fraudulent transactions to the card issuer.

  1. Offer Alternative Payment Methods (APMs)

Generally Alternative Payment Methods attract lower transaction costs than the major credit card schemes and may also avoid currency conversion fees. Consider incentivising customers to choose popular APMs over credit cards and reduce the fees associated with conventional card payments. In the travel industry, ABTA is currently seeking clarification on whether its members can offer incentives such as access to the airport lounge if a travel booking is made using a preferred APM.

  1. Check what interchange fees you’re paying

Merchants should also be aware that MasterCard and Visa have capped interchange fees at 0.3% for credit cards and 0.2% for debit cards. However, the cost savings may not have been passed on by the merchant’s acquiring bank. Some are only passing on these lower interchange rates when requested by the merchant. This only applies to EU interchange fees and consumer card payments.

  1. Use Dynamic Currency Conversion

If your business operates in global markets with international customers it may be possible to actually earn extra revenue, or at least reduce overall payment processing costs. With Dynamic Currency Conversion (DCC) when an international customer pays for goods on a merchant’s site in Sterling (UK merchants) or Euros (other EU states), they are given the option to pay in their own currency (for example dollars) or the merchant’s. If they opt for the merchant’s currency, the currency conversion happens later when recorded on the credit card account, and a conversion fee applied. If they choose to pay in their own currency, the conversion is calculated instantly and a margin added. The amount they see at checkout will be the same that appears on their credit card statement. The margin added to the transaction is split between the bank, DCC provider and the merchant. For merchants who have high volumes of cross-border trade, this additional revenue could substantially reduce online payment processing costs.

Those merchants in the higher education sector may be interested in reading this whitepaper that explores how to use Dynamic Currency Conversion when attracting international students to your institute.

If you would like to discuss further how to reduce payment service provider costs, contact our team: Call +44 (0)808 159 7217 or email [email protected]