Are Processing Fees Cutting Into Your Profits?

In today's digital world, it can feel like no one uses cash anymore. In fact, at my practices, cash and checks have made up just 2.4% of our revenue this year, a fact that reflects data showing credit and debit cards have become the most frequently used payment methods. Thanks to the convenience and security to clients and businesses, accepting cards is now a client expectation—and that means having a merchant services account and paying the processing fees that go with it.

Credit card processing fees are surprisingly complicated. Fees may look low at first glance and not worth the time and effort to address. Still, you should address them, given that they accrue on such a large portion of your revenue, making them a significant business expense over time. If you can lower your fees by 1%, for example, that could add an extra $10,000 of profit on every million dollars of revenue.

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This brief guide should set you on the right path to keeping processing fees in check.

Breaking Down Processing Fees

Credit card fees comprise three components: assessments, interchange, and markup. The first two are set by network operators, such as Visa, and are non-negotiable. The third is where your merchant services provider makes their money and is generally open to negotiation. In fact, adjusting these rates is how many credit card processors try to distinguish themselves from others. Now, let's dig a little deeper:

  • Assessments: Fees paid directly to the network; they are small and fixed. At the time of publishing, Visa charged 0.14% for credit cards and 0.13% for debit cards while Mastercard charges 0.1375% for credit transactions of $1,000 or lower and 0.1475% for those more than $1,000.
  • Interchange: These are paid by your processor's bank to the card-issuing bank. Mastercard and Visa provide the full list of interchange costs on their websites; other networks don't, but they should be included in the fee statement from your merchant services provider.
  • Markup: This represents what is charged by your merchant services provider. There are various models, with the two most common being "cost-plus pricing" and "tiered pricing." In the first, there's a fixed markup on each transaction based on a risk-profile assessment performed as part of bidding for your business. For the second, the merchant service provider sets the price based on "qualifying" your transaction. The qualification criteria are similar to those used to calculate interchange fees; for example, a card-not-present transaction will be classified in a higher-risk tier and therefore cost more. Each provider sets its own structure, making it hard to compare them. Also, be aware that a change in classification structure may be allowed after you sign a contract increasing your fees.

Finding Flex Points in Interchange Fees

Adjusting your practice's processes is the way to get the lower interchange rates. This requires diving into the Visa list (linked above) for a detailed examination of the pricing. The table may look complicated but isn't so bad once you get into it. Pay particular attention to these elements:

  • Business type: Some types of businesses have higher rates of fraud. Your Merchant Category Code is probably 0742—Veterinary Services, and that doesn't qualify for any special pricing.
  • Volume: This is included in the threshold charts. It doesn't impact most practices as they don't meet the volume requirements.
  • Card type: Different types of cards have different fees. Debit cards are the least expensive, with rates as low as 0.8% + $0.15. Credit cards, premium, and reward cards cost more than standard credit cards because the extra charges help pay for the benefits the cardholder gets. For example, the base rate for a Visa Signature Preferred card is 2.1% + $0.10.
  • Acceptance method: This aims to give lower rates to transactions that are seen as the safest, attracting the lowest level of fraud. The cheapest transactions are "card present" transactions, where the client physically inserts their card into a credit card terminal supplied by your provider. Manually keyed transactions typed into the credit card terminal are much higher risk and cost. Depending on the card type used, interchange fees alone can increase by 1.35%, and merchant services tier structures can push the increase above 3%.

Reducing Costs

  • Avoid manual entry: This might seem obvious, but it is the best option not just for lower fees but to reduce fraud and the resultant chargebacks. Facilitate this for clients who don't enter the practice by asking for at least one wireless credit card terminal integrated with your account and then bring it to them in the parking area. Just be sure the signal is secure. Adding a second unsecured network gives clients internet access while they wait.
  • Use a virtual terminal: Many merchant services providers offer an online portal where you can enter credit card data. By adding information such as the client's ZIP code, you can reduce the rates of even card-not-present transactions and may even have access to services such as securely stored credit cards. This way, you no longer have to keep card numbers at your practice.
  • Negotiate markup: The easiest way to lower this is to obtain quotes from competing providers. Even if you don't want to change providers because of a great relationship or integration with your PIMS, you can likely still negotiate a reduction with some of the competing quotes in hand. In my own practice, I get a set of quotes every 12 to 18 months and share those with our current provider, who has always been willing to meet or beat them. As a result, I've netted an average fee reduction of 1.2%.

Making some small changes to your protocols and offering your merchant services provider the opportunity to bid on your business can have a lasting impact. Remember that even a small reduction in fees applies to every credit card transaction you make and will have an ongoing impact.


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Des Whittall
Practice Manager

Des Whittall is an owner and manager of two veterinary clinics and pet resorts in Texas. A software engineer by training, he worked with an investment bank for 13 years in roles ranging from technical support to business divestment, managing large international teams and complex vendor relationships. With his partner, he has grown the clinics and resorts and is focused on developing businesses that can provide high-quality medicine and development opportunities for their teams.

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