Every business wants to increase sales and decrease costs while improving customer service and retention. But when seeking expenses to cut, manufacturing and distribution companies often overlook the costs of payment transactions. For most companies, the expense of payment processing is simply an accepted cost of doing business.
And while negotiating with their payment processor can result in a reduced rate, this approach addresses only 10 percent of the total payment processing cost. The real value can be found in managing the payment processing procedure, which can tack on up to 40 percent of their total expense. So, how can companies learn to manage this function correctly and decrease costs while improving profitability?
The landscape of payment processing is extremely complex and one that is nearly impossible for a company to navigate alone. Many businesses currently use standalone credit card terminals and very basic software applications to send transactions and process payments. But without the right data and management of transactions, they downgrade and end up costing their business up to 40 percent.
Automation of the process is critical to managing rising transaction costs and related fees. The process of transaction management focuses on managing 100 percent of the total cost associated with a payment transaction — including the management of interchange fees. Businesses spend significant time trying to negotiate reduced fees and often hit a roadblock with payment processors not willing to lower rates beyond a point. But by using an intelligent tool, companies can see tremendous improvements in profit margins.
Technology that automatically routes payment processing through the least cost method by identifying the type of payment being used and automatically recognizes the most cost effective way to process the transaction ensures that businesses get the lowest rate every time. This process is known as interchange optimization, and is one of the most effective ways to save businesses major cash.
Interchange fees represent the largest portion of a merchant's total fees for processing a single transaction. There are hundreds of fees that can be assessed based on each transaction and industry type. While merchants know these fees exist, many have no clue how or why they are assessed, or, more importantly, how to reduce them each time they process a payment.
Since interchange rates are non-negotiable, distributors and manufacturers can minimize costs by improving qualification rates using an intelligent, cloud-based solution. Automated technology takes the intricacy of interchange fees out of the equation and gives merchants an easy-to-use solution that communicates virtually with all parties — the merchant, the acquiring bank and the payment processor — to deliver noticeable cost savings.
A well-equipped payment solution also gives merchants the ability to process payments on commercial, business and corporate purchasing cards, known as Level III processing. Credit card transactions fit into one of three different categories: Level I, Level II or Level III. Level III processing requires merchants to enter very detailed data in order to process transactions on these cards. Since so much data is needed to qualify for Level III, the processing rates are much lower, allowing companies to save valuable resources.
For merchants in a B2B sales environment, Level III processing can be extremely beneficial by permitting customers to buy goods and services with purchasing cards at a lower rate of interchange. However, with the amount of data required to qualify for Level III, businesses cannot manage this process without proper technology for entering the required information.
In addition to fees assessed by bank and credit card companies, as of January 27, 2013, the government now gives merchants the right to directly charge customers fees for processing payments on credit cards. There are two types of fees — surcharges and convenience fees — and both are commonly misunderstood. In fact, many merchants believe surcharges and convenience fees are one in the same when in fact, they are very different.
Surcharges are fees assessed by merchants to cover charges assessed in connection with a credit card transaction. However, convenience fees are charged by merchants for allowing customers the ability to pay for a product or service with a payment method that is not considered standard. While fees may seem an effective way to make up for expenses, the rules behind surcharging and convenience fees are riddled with problems. For example, state laws greatly differ when it comes to charging these fees, making it highly likely for merchants doing business across state lines to violate any number of rules.
By using an intelligent payment processing system, businesses can ensure they are automatically receiving the lowest rate on all transactions. Tacking on additional fees does more harm than good. Often, customers are driven out the door and valuable relationships are damaged. With proper transaction management, there should be no need to assess surcharges or convenience fees.
Merchants must also address the complex issue of credit card compliance and learn to properly manage Payment Card Industry Data Security Standard (PCI-DSS). PCI-DSS is an intricate set of controls to ensure companies are compliant with strict rules for securing cardholder data and reducing risk of exposure. Businesses spend large sums of money to create internal processes and systems that meet the necessary requirements of PCI-DSS. The liability of a potential breach can be extremely costly for any company.
The Ponemon Institute estimates that a business spends more than $277.00 for every card that is compromised when fraudulent activity occurs. Take that cost times the number of records on file, and it is clear that a loss of this magnitude can be extremely damaging to a company’s bottom line. Distributors and manufacturers, in particular, are very aware of the dangers associated with transmitting sensitive data through a variety of payment channels.
By automating payment processing functions, businesses can reduce the burden of PCI-DSS compliance and significantly improve data security. This not only minimizes costs but also gives customers the peace of mind that their sensitive payment information is always protected. There are two critical features that businesses need to ensure are present when selecting an automated technology — end-to-end encryption and tokenization.
End-to-end encryption ensures that sensitive card data is protected throughout the entire lifecycle of an electronic payment transaction. From the first swipe of the card, while in transit, all the way to the payment processor — data is fully secured mitigating the risk of fraud. Tokenization is the process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security. This is an essential component for significantly reducing the risk of exposure. The process makes it extremely difficult for hackers to access any cardholder data and significantly mitigates costly fraudulent activity, both internally and externally. Tokenization also gives merchants the ability to securely store payment information in order to safely handle repeat and recurring sales.
There are numerous other benefits and functions that automated payment processing solutions can give merchants that help properly manage all aspects of a payment transaction. By streamlining the payment experience, businesses can see a huge improvement in profit margins. Merchants who take the time to research the payment processing solutions that fit their individual business requirements will be rewarded for their efforts with increased sales, lower costs and improved customer retention.
CenPOS is a merchant-centric, end-to-end payments engine that drives enterprise-class solutions for businesses, saving them time and money, while improving their customer engagement. CenPOS’ secure, cloud-based solution optimizes acceptance for all payment types across multiple channels without disrupting the merchant’s banking relationships. For additional information, please visit www.cenpos.com.