Regulatory requirements are putting more and more pressure on the adult industry. To stay compliant, merchants need tools that help with content moderation, age verification and fraud solutions. Unfortunately, the fees for those tools are hitting merchants’ bottom lines — including fees charged by payment services providers.
Feeling like your payment fees are on the rise? Wondering whether you are getting a competitive rate or paying too much? At a time when adult merchants need help offsetting additional costs, the following tips can help make sure you’re getting a fair price for your payment processing services.
Has your volume grown since you started working with your payment services provider? If so, reach out to see if the new growth might win you a rate reduction.
1. Know Your Pricing Model
You need to start by understanding what your fees actually are. If you’re working directly with a bank, there’s a good chance you’re on “interchange plus” (IC+) pricing. Under IC+, the bank is pricing you at card brand costs plus its own markup. Your statement is broken down into nonnegotiable card brand and interchange fees, which represent the bank’s direct costs; plus processor fees, which represent the margin the bank is making.
Banks can also charge other fees, like address verification service, authorization and decline fees, chargeback fees, monthly statement fees, minimum fees and numerous other fees that can fill up the pages of your merchant’s statement.
2. Know Your Effective Rate
Your effective rate is the sum of all the fees accrued in processing your total volume of sales. This type of pricing is very transparent, as you can clearly see the bank’s costs and markup. However, some merchants assume that if the bank quotes an interchange-plus-2% rate, the 2% represents their cost. Then they are surprised, after their first few months of billing, to find that their effective rate is closer to 7%. That 5% is the card brands’ interchange cost plus the margin of the bank. Over time, additional fees can be added on by both the card brands and acquirers.
If you’re currently processing under an IC+ model, make sure your team pays close attention each month to the effective rate. If you start to see this effective rate increase over time, reach out to your bank and ask for a review so you can get a better understanding of what is causing the effective rate to increase.
3. Review Monthly Statements Carefully
Pay close attention to your monthly statement from the bank. We worked with one merchant who was upset because his rates were going up and he had never been notified — or so he believed. When I escalated the issue with the bank, it turned out that they had announced, on a prior month’s statement, that they would be passing along a rate increase from the card brands. These kinds of fees tend to creep in over time, so it pays to be vigilant.
4. Analyze Your Card Mix
If you’re on an IC+ deal with your bank, look at the mix of your card types. Different cards have different interchange rates. For example, debit cards have lower processing costs than credit cards. Corporate cards and reward cards have a higher cost. Higher-cost cards can increase the effective rate.
5. Evaluate Cross-Border Costs
Look at your cross-border traffic. For instance, if you are processing through the U.S. and have a significant amount of EU traffic, you’re most likely paying cross-border fees — which can add up. In this situation, setting up processing in Europe would not only help you lower your fees on that traffic, but would also boost your approval rate. Processing locally often accomplishes both.
6. Consider Fixed vs. IC+
Most banks have a fixed-rate option. This makes it easier for you to track your rates and quickly spot any rate increase. IC+ pricing can work well for businesses processing a wide variety of card types and transaction volumes because the underlying fees fluctuate based on the transaction. However, a fixed rate is easier for merchants to understand and reconcile.
Payment facilitators all work off fixed rates. Further, your payment provider might offer pricing tiers that reward merchants with a lower rate when they do a higher volume of business. These are also fixed rates and very easy to track.
7. Understand Rate Pass-Throughs
At times, rate increases get passed along to all payment service providers. When Visa rolled out pricing changes as part of its Visa Integrity Risk Program, our cost in the U.S. went up 10% plus 10 cents per transaction. Because this increase was so significant, we had to pass it on to our merchants. Clear notification of that rate increase was rolled out with an explanation as to why. In fact, in Europe and the U.K., we are required by law to give 60 days’ notice and offer merchants the ability to cancel their agreement if they do not want to accept the rate increase.
8. Shop the Competition
In the adult space, it’s wise to have at least two payment providers in place, which enables merchants to rotate transactions through both providers. This not only ensures that you have a backup, but also enables you to compare approval rates and level of support.
Shopping around to make sure your providers are competitive gives you some leverage, since you can let a current provider know that the grass is looking greener somewhere else and give them the option to adjust rates to keep your business.
9. Leverage Your Growth
Like shopping around, your existing business success may also provide leverage when it comes to rates. Has your volume grown since you started working with your payment services provider? If so, reach out to see if your volume might win you a rate reduction, or if your provider would consider offering reduced rate tiers tiers to reward additional growth.
10. Capitalize on Compliance Performance
Is your business well run, with low chargebacks and low fraud? If so, providing this information to payment providers and acquirers can make it easier to obtain a break on rates. Under the Visa Acquirer Monitoring Program (VAMP), banks must maintain a VAMP rate of 0.5% or less. This is challenging for banks that cater to the adult market. The lower their VAMP ratio, the more high-risk business they can bring on. If you have a well-managed business, that is a plus for the banks, and something you can leverage for better rates.
Processing fees shouldn’t be a mystery. Understanding how the prices you pay are arrived at, and regularly monitoring those prices, will help you determine whether you’re being priced fairly — or if it is time to ask for a better deal.
Cathy Beardsley is president and CEO of Segpay, a merchant services provider offering a wide range of custom financial solutions, including payment facilitation, direct merchant accounts and secure gateway services. Under her direction, Segpay has become one of four companies approved by Visa to operate as a high-risk internet payment services provider. For questions or help, contact sales@segpay.com or compliance@segpay.com.