Credit card payments make a massive portion of all payments collected by small businesses. Customers love paying by credit cards as it allows them to pay later, build a credit score, make big purchases on EMI, and the ability to raise a disputed transaction.
To get started with collecting credit card payments, one of the best payment gateways in India is Zaakpay. Businesses have to accept credit cards to cater to this bulk of customers who prefer paying by it. Accepting credit cards, however, comes with a cost. For small businesses, this cost can sometimes be a deal-breaker. Since merchants are charged processing fees on each transaction, the total cost can become a burden with increasing people paying via credit cards. High processing fees on certain cards also push many small business owners to drop credit cards from their suite of payment options. However, the downside is that this move can do more harm than good.
The good news, though, is that there are a few ways with which small businesses can reduce credit card processing fees.
What are the charges associated with credit cards?
- Interchange fees: This contributes to the maximum amount of the additional fees collected by the credit card issuer as a percentage of the total transaction amount. Sometimes, there is also a fixed amount added to the variable amount. It is based on the type of card, credit card network, and a few other factors.
- Service fees: This is charged by the credit card network like Visa, Amex, or MasterCard. It is also commonly known as an assessment fee.
- Payment processing fees: This is a markup fee charged by the payment processor. This is synonymous with the payment gateway charges.
- Additional fees: Several additional fees can be charged based on the situation. This includes a chargeback fee that is levied on the merchant upon a successful chargeback claim by a customer, batch fees for cashing out all transactions at one go, and several other additional fees.
How to reduce the credit card processing fees?
Choosing a suitable payment processor
There are several payment gateways in India, and each of them levies a different charge for processing credit card payments. These processing fees depend on many factors, including security, features, and popularity, among others. Businesses need to do a cost-benefit analysis to choose the payment processor that costs the least for the desired characteristics. Proper research must be conducted to find out if there are any hidden costs as well.
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Negotiating processing fees with the payment processor
A growing business can leverage the volume of transactions to get a lower processing fee. More sales equate to more volume of transactions and translate into more value for the payment processor. This gives the merchant room to negotiate for more affordable payment gateway charges and processing fees. Small businesses should conduct an annual audit to check their transaction volume and the cost associated with it. Sometimes, the processors also increase the cost towards the end of the year. Regular review of the statements can help identify any such changes, and businesses can then negotiate accordingly.
Becoming PCI DSS Compliant
PCI DSS (Payment Card Industry Data Security Standard) is a set of rules and regulations created to protect sensitive payment information. Becoming PCI DSS compliant adds a layer of security, giving assurance to all stakeholders in the credit card payment process. Usually, credit card processors give some time to the merchants to become PCI compliant. This usually varies from 60 to 90 days. If the merchant fails to acquire the certification within the fixed time, the processors begin charging a monthly non-compliance fee. Merchants should try at the earliest to get the compliance and also opt for a compliant payment gateway. Most payment gateways in India like Zaakpay are already PCI DSS compliant and encrypt the customer’s sensitive data.
Chargeback is money that is reverted to the customer’s bank account after they raise a disputed transaction. Apart from the chargeback, an additional charge is also levied on the merchant in a fine/penalty. This brings down the business’s credibility and results in high processing charges if there are frequent chargebacks. A crisp and transparent refund policy must be framed and displayed on the website to avoid such a situation. All refunds must also be processed within the pre-dictated time slab. Maintaining a trust factor with the customers also goes a long way in avoiding chargebacks.
Applying additional cost
One of the easiest methods to reduce processing fees is to charge them from the customers. Earlier, it was possible to apply a surcharge on credit card payments, but recently, it has been banned in India. Businesses can get blacklisted by their banks for applying surcharges. This has altogether prohibited, involving additional charges for using credit cards. However, businesses can increase the list price of the product to get the processing fees and the intended profit. This way, the fees get covered in the listing price of the product.
AVS is the acronym for Address Verification Service. It is a type of anti-fraud system that asks the customer for a billing address. The system then matches the address with the card issuer. The issuing bank verifies the details and sends an AVS code to the merchant, which can accept or reject the transaction. A payment that is red-flagged is best avoided. By avoiding seemingly fraudulent transactions, the business can also prevent chargebacks and save paying unnecessary processing fees. However, there are additional payment gateway charges for using this service.
If the credit card processor perceives the transaction pertaining to the business as high risk, they will charge more processing fees. To combat this, the merchant needs to make the business website as secure as possible.
The eCommerce market is growing rapidly. Volumes of digital transactions are increasing exponentially. Credit card payments have a huge role to play in this. Businesses, however, need to ensure that the credit card processing fees don’t become more than what they can bear. Following the ways in this blog can help businesses keep their processing and payment gateway charges in check.
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