In 2015, Laura launched her new business: a bespoke wedding invitation design studio. It was her first business and everything proved a steep learning curve. Early on, she bought a mobile point of sale device (also called a card reader) to allow her customer to pay by credit or debit card. She didn’t realise it at the time but that decision was about to cut a big slice off her profits!
Laura’s business performed exceptionally well in its first few months. She signed up a steady stream of customers and exhibited at several high-profile wedding exhibitions. Business was good and Laura was able to recruit a junior designer to support her.
But after a few months, Laura realised something was wrong with her books. Every month, she was taking between £2,000 and £4,500 via card payments but the full amount never landed in her bank account. In November 2015, after a couple of very busy exhibitions, Laura processed £6,000 via credit and debit cards. But when she looked at her bank account the next week, only £5,835 had arrived.
After a bit of digging, Laura identified the revenue leak: her card reader.
Laura didn’t realise it when she bought the reader but the manufacturer was taking 2.75% of every transaction in fees, eating into her precious profit margin. After talking to some other business owners, Laura learned merchants should aim to pay under 1% to their payment processor. She was essentially wasting 1.75% of her turnover, which could have been fatal for her fledgeling business.
As soon as she discovered her mistake, Laura started researching alternatives. She ditched her expensive mobile point of sale device and signed up with a traditional merchant service company. Although her new provider required a multiyear deal, Laura was able to get her payment processing costs well under 1%. She estimates the switch saved her in the region of £1,500 in her first year!
All business owners face payment processing challenges like Laura’s. Unfortunately, most bury their heads in the sand and ignore steadily rising payment processing costs until they become too large to bear. But you don’t have to! In this article, we’ll look at 10 ways you can reduce your payment processing costs!
#1 Shop Around
Although merchant services are largely commoditised, how you buy them has a huge impact on the price. The difference between the most expensive provider and the cheapest provider is typically in the region of 40%. Here’s a quick roundup of the main channels and how they compare.
- Banks: Almost every bank will sell merchant services to its business customers. If you have a relationship manager, you’ll probably have already heard the sales pitch. Banks know that their business customers are unlikely to go elsewhere so they charge sky-high fees. On top of that, they are given very little wiggle room by the payment processor.
- Payment Processor: The digital age has made it simpler for consumers to buy directly from manufacturers or suppliers and cut out the expensive middlemen. While it might seem like a good tactic to go direct to the provider, payment processors offer individual businesses fairly poor rates. After all, individual SMEs have virtually no leverage.
- Independent Sales Organisations (ISOs): ISOs negotiate with payment processors on behalf of hundreds or thousands of merchants. Since they have a load of businesses behind them, they can secure much better payment processing fees for their customers.
For a more in-depth look at each channel, check out our blog post What is the cheapest way to buy merchant services?
#2 Compare Quotes
No matter what channel you end up buying through, make sure your sales representative knows that you are going to compare their quote to other providers. When you can prove that there’s a better offer elsewhere, it’s amazing how quickly reps will cave and admit that they can reduce their fees.
#3 Understand the Market
When you’re trying to find the best price for something, it’s always helpful to understand how the market works. The same is true with payment processing. As I mentioned in an earlier tip, the cheapest merchant service seller is an ISO. But unless you know what an ISO is, you might be worried that you’re getting an inferior service. Well, you aren’t.
All ISOs act for large banks and it is these banks who will be responsible for processing your transactions and handling your cash settlement.
Wherever possible, look for ISOs and get a couple of quotes before you decide who to go with. Y will find that the ISO’s will be prepared to offer better rates and the back end transaction processing and settlement is still done by a bank.
#4 Calculate the ‘All In’ Cost
Think back to the last time you booked a flight with a low-cost airline? Do you remember the initial price they used to hook you in? And do you remember the final price you ended up paying? I bet the second price was way more than the first!
Payment processors will use similar tricks, hiding extra charges like premium card costs, authorisation charges, PCI compliance and non-secure fees. When comparing payment processing fees, always work out your ‘all in’ cost or the total you’ll pay per month.
#5 Switching Is Easy
Sales reps will tell you pretty much anything to keep your business, including exaggerating how difficult it is to switch suppliers. Don’t believe them when they trot out scare stories about gaps in service and lost business. Your new provider will provide easy, step-by-step instructions to guide you through the switching process. Almost all new card machines and payment gateways can be set up without a disruption to your business.
#6 Re-tender after the Minimum Term
As with all businesses, it’s far cheaper to retain existing customers than find new ones. When you get close to your minimum contract term, it’s usually a good idea to put your business out to tender. Suppliers are usually prepared to offer discounts to retain your business and competing suppliers may offer unbeatable introductory rates to tempt you over.
#7 Track Your Costs
In my experience, SMEs never track their payment processing costs, which makes it difficult to work out what’s a competitive offer and what’s not. This is especially true because suppliers will regularly increase their current customers’ rates, making their deals less and less competitive. Suppliers rely on merchants being apathetic and sticking with their current provider to save on hassle.
#8 Don’t Wait Out Your Contract
Don’t wait to the end of your existing contract term to consider switching if you can find a better deal. Often you will find the revised pricing on offer more than makes up for any early termination costs.
#9 Research Early Termination Costs
It’s important to understand what your early termination costs are before you sign up to any deal. Payment gateway and merchant account services normally require between one and three months notice from merchants. Card machine hire deals have longer contracts—usually between three and four years—and much heftier early termination costs—usually the payment of all remaining months on your contract. Some suppliers may even include re-stocking fees or additional penalties.
#10 Compare, Compare, Compare
If you want to very best deal, it’s not enough to pick an ISO at random. While ISOs are substantially cheaper than other sales channels, there will always be variation between their deals.
To find the best deal, you’ve got to search and compare what each ISO offers.
And that’s where we come in! We have partnerships with many leading ISOs and allow users to search, compare and select merchant service deals from across the market. And unlike referral sites, we don’t release your data to anyone unless you tell us to. We give you all the information upfront, allowing you to make an informed decision.
Our comparison process only takes about two minutes and can cut a huge chunk off your card processing bill. Click here to see for yourself.