Being in payments for more than 27 years, I have seen the credit card industry through multiple lenses, but the one constant that always remains is that merchants are “usually” at a disadvantage. The good news is the more you know and monitor, the more money you will keep in your operating account.
Card brands stand to generate almost $1 billion in new annual revenue from their increases in April 2022 alone (they also had increases in October 2022 and April 2023).
These increases gave processors the green light to raise their portion of the fees, thus hitting merchants with a one-two punch of increases and subsequently impacting profitability overnight.
Did you know—for any company’s fees to increase, the card brands and/or processors must notify you in writing of the change. New fees also become part of your contract/processing agreement if you process with them for 30 days after the fees go into effect.
Review all of your monthly statements to find and review any messaging. This is where the majority of processors will notify their clients in writing. Unfortunately, most businesses open their statement, ledger the amount taken out and file the statement away, thus missing critical messaging that could impact profitability.
Review your Interchange (IC) categories every month to see any downgrades specific to Address Verification Mismatches (AVS). These downgrades apply to card-not-present transactions when the street number and/or zip code don’t match the billing address. The card brands perceive these transactions as risky and charge more. These will appear as non-qualified or standard/STD descriptors on your statement (assuming you are on an interchange + pricing model (the only pricing model that benefits the merchant)) and cost companies up to 40% more than if you capture the correct billing address.
High probability these are transactions specific to open account payments, so they impact the bottom line more than a contractor buying three widgets at the counter.
Did you know—if you don’t have access to your IC descriptors, you are on the wrong pricing model and subsequently are paying more than you should.
Now that you have reviewed the items you can control, it’s time to analyze how technology can assist your efforts in lowering your expense to process a credit card.
For the most part, there are two main processing environments for an IMARK member:
- Stand-alone device(s)
- Integrated into ERP
Before we discuss those processing environments, it’s important to talk about something we refer to as interchange optimization. In short, it’s the ability to maximize your margins on certain Mastercard and Visa commercial cards by passing additional information to secure the most favorable rates. We refer to this as passing Level 2 and/or Level 3 data.
Whether a commercial card transaction is eligible to clear at a Level 2 or 3 IC plan is determined by the following:
- The commercial card type presented—only applies to Mastercard and Visa
- The information is captured by the merchant and transmitted via a point-of-sale device for processing
The following chart provides a nice visual of the fields needed to qualify for these reduced IC rates (up to 40%):
As you might imagine, no one will manually enter those fields, and this is where leveraging technology can improve your profitability on the first transaction. If you are using the right platform/gateway, it will identify the applicable transactions and self-populate the required fields, so you achieve ICO.
Here’s how it works—each card has a nine-digit Bank Identifier Number, which tells the processor what type of card is being used. If it is a card that would benefit from passing Level 2/3 data, the system will self-populate the required fields with default data, and the result is up to 40% savings on Level 3 transactions.
Unfortunately, I only know of a handful of gateways/platforms that can self-populate this additional data, and more than 85% of the statements we analyze are not achieving ICO on all applicable transactions.
A significant percentage of members still use standalone devices, and it’s almost a foregone conclusion that those businesses are not achieving ICO because their devices don’t have enough ram to pass the additional fields needed.
Most of our IMARK clients use our proprietary platform, CardPointe, which achieves ICO regardless of how the transaction is processed. To learn more, visit https://cardconnect.com/cardpointe.
Although we cannot control what types of cards your customers use, we can predict every IMARK member would/does benefit from passing Level 2/3 data. If your goal is to maximize your margins when accepting credit cards, then you have to be passing this additional data.
The last items I want to touch on are the pros and cons of integrating payments into an ERP. Before 90% of distributors used standalone devices, but now it’s about a 50/50 proposition.
No one can dispute that integrating payments into an ERP will improve accuracy and efficiencies but at what cost? This leads us to the biggest con, the expense!
Most integrated solutions have one or maybe two gateway options and unfortunately the ones most IMARK members use cannot achieve ICO. In addition, we have seen more rate increases and the addition of new fees in integrated scenarios in the last three years than in the previous decade. To say some are egregious is an understatement.
Has anyone quantified what an integrated environment costs your company? I cannot stress the importance of knowing this number. It doesn’t mean you’re going to separate from integrated payments, but at least you can determine how much value you put into your current setup.
A hybrid processing environment is something else to consider. What many of our distributor clients do is maintain the integration at their counters, but they allow their accounting staff to process open account payments on our virtual terminal. Companies are okay with this scenario because they usually have one to three people who would facilitate a payment. They are not worried about them subsequently recording that a payment was received in their ERP.
It’s not unusual to quantify that an integrated solution costs about $80,000 annually. By moving to a hybrid scenario, you can capture $40,000 in Level 2/3 savings, thus reducing the expense to have integration by 50%.
Our last must-do is maybe our most important one. We strongly encourage businesses to have someone other than their existing processor analyze their current setup at least once a year for an unbiased review of their account. None of us can control the card brands and credit card processors, but we can do our part to audit our existing setups often and hold our processors to a higher standard.
If you’d like to learn more about CardConnect AIP and the specific program/pricing available to the IMARK community, visit https://cardconnect.com/signup.