Blog June 2nd 2022

Inflated Costs & Losing Customers: Merchants Are Paying Millions for Complexity

For many businesses reviewing complex payments invoices, the same question comes to mind: “What is this actually telling me?”

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Christian Johnson

Senior Manager, Global Advocacy Manager

With payments costs typically representing the second or third highest cost for most merchants, it’s critical for businesses to have a grasp on their payments arrangements. But the inherent complexity of the system and the pass-through of fees means that most, if not all, businesses are unknowingly overpaying for card fees.

In this blog, CMSPI’s Senior Economist Christian Johnson outlines the fundamental factors inflating merchant costs, including the challenges of getting good data and the obstacles preventing merchants from using that data to reduce costs and drive sales.

Overpaying & Missed Sales – Hidden Value in Payments Data

The payments market can afford to be complex because merchants may not have the time or resources to challenge the myriad fees they’re shouldering. As a result, payments partners are earning while cost savings and incremental sales may be hiding within your invoices.

With surmounting business pressures such as increasing card fees, rising CNP volumes driving false declines, hundreds of new APMs in customer wallets, and record high inflation, it’s more important than ever for merchants to account for each dollar saved and incremental sale earned.

“Why can’t I just get one report?”

Reporting capabilities by network, acquirer, and alternative payment method (APM) may all differ, making a harmonized payments strategy challenging to even baseline. While your business may have access to the data required for optimization, there are time- and resource-intensive processes involved in even getting the data in a comparable, analyzable format. Without standardized datasets, merchants will have limited visibility into performance, and may be left to accept their lot.

With the giddying number of APMs and fees that merchants must juggle, establishing standardized cost tables increasingly requires the use of technology that can efficiently analyze and report key trends and opportunities. With some time and dedication, any merchant can achieve standardized reporting, but it typically requires a great deal of resource and a nuanced understanding of the complex and often hidden opportunities lying in your data. 

What’s the cost of bad data?

Higher Fees…

With the hundreds of fee schedules and report types creating more complexity than clarity for most merchants, payments partners may not be passing through fees correctly. The challenge of pass-through can be so bad that many U.S. merchants may not even be realizing the billions in savings achieved by the Durbin amendment’s interchange caps introduced nearly 11 years ago.

It’s estimated that processors can absorb an average 55% of savings generated by interchange caps [1], and that for smaller merchant clients, processors may have actually increased costs after the introduction of interchange caps.[2] In a recent study, U.S. small and medium-sized businesses were estimated to account for just 17% of spending but represented 55% of processor revenue.[3]

Figure 1. Processor revenues by merchant size, 2019[4]

The trend to overcharge is not limited to just the processor margin. Interchange fees, network fees, fraud mitigation costs, and the thousands of other fees that merchants incur can be prone to overcharges. In fact, in CMSPI’s experience, one out of every two invoices contain errors. With granular data and the right expertise, most merchants will find that they’re paying over-and-above their expected costs. 

…For Fewer Sales

Not only is bad data inflating cost lines, it’s also contributing to lost top-line, as millions of loyal customers in the U.S. are being falsely declined. If we were to follow a single transaction from the moment the customer clicks checkout to the moment it’s settled into the merchant’s account, we’d see dozens of threats to sales in the form of false declines. Lost sales can be caused by any payments stakeholders, ranging from checkout pages maintaining sub-optimal fraud rules, to miscommunications between issuers and acquirers, to fraud screeners performing overly aggressive post-authorization fraud checks.

For many merchants, these lost sales are unknown to them – all they see is a decline with limited explanation. Without a clear understanding as to why the transaction was declined, many merchants are left to trust that the decline was legitimate. But at CMSPI, we see false declines occurring in one out of every five declines, meaning most merchants are leaving millions on the table by not scrutinizing their data. By utilizing granular data that shows not just the reason but also the party responsible for the decline, businesses can get on track to maximize sales for fewer costs.

How can CMSPI help?

Bad data is costing your business higher fees for fewer sales, and without the right data, your business won’t even realize it. CMSPI helps merchants get savvy with data, preventing lost sales and driving the overall cost of payments down. With economic instability looming, payments optimization is business-critical, and CMSPI can help your business improve performance and lower costs without any uplift from your side.



  1. Ernst and Young. 2019.
  2. Ibid
  3. Deloitte 2019
  4. Deloitte 2019

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