Are Payment Costs for Merchants a Never-Ending Game of Whack-A-Mole?

28th November 2018
Alistair Matthewson
Alistair Matthewson

New and amended fees are a recurring theme in the industry, and are an ongoing struggle (and headache) for merchants across the U.S. But that isn’t the full story. While some fees are communicated to you via your processor or the networks, there could also be many overcharges and errors in your invoices you might be missing.

CMSPI estimates that a large portion of the Durbin amendment savings promised to merchants have been eroded away by new fees, and while global retail continues to struggle the payments industry is thriving. Some supply chain players (including networks and processors) are reporting above 50% profit margins, at the same time many merchants are operating on margins of less than 5%.

So, what can merchants do? It starts with regularly reviewing your arrangements. Invoice checks and Interchange matching by card type and acceptance method, while resource intensive and time consuming, could save you millions of dollars annually. Regular reviews, coupled with being on top of all fee increase announcements and monitoring pass-through costs is an important first step to ensuring your arrangements are optimized. Below, we’ve highlighted a list of common errors (or moles!) we regularly encounter during a holistic card processing review.

Human Error Mole

Although difficult to believe in this technological age, due to the complexity of card acceptance arrangements, human errors unfortunately can (and do) occur. With creative pricing structures, and ever more complex introduction of fees, we have seen multiple examples of mistyped charges/rates that cost merchants significant dollars every year. You must ensure that you are regularly reviewing negotiated contract rates with actual invoiced line items, flagging any errors or discrepancies as early as possible.

Change Over Time Mole

While it’s crucial to carefully check any new arrangements or changes at the time of the implementation, it’s not enough to assume your charges and rates will remain 100% correct over time. This is particularly common in debit acceptance – we frequently encounter merchants who have negotiated a relatively competitive rate, but over time their good work was undone by new/amended fee introductions. Keeping track of change and ensuring you see the correct changes reflected in your invoices is important for all merchants.

IT Changes Mole

It’s not uncommon to see IT developments and innovation of a merchant’s payments environment lead to billing changes. Whether that be with your card processor, gateway or other 3rd party provider, it is important to understand how updates will affect the bottom line costs of acceptance. We have seen multiple instances of new solution implementation leading to double charging on gateway fees and one client who, due to limitations of the supplier platform, was not being charged the appropriate network fees for certain transactions.

Legacy Arrangement Moles

Legacy arrangements (or arrangements that have been in place for a substantial amount of time) can often be costing you millions each year. Just because something was competitive and effective when you negotiated it 3 years ago, doesn’t mean it’s working for you today. CMSPI is out in the market with numerous card processing RFP’s at any one time and legacy arrangements are often the least competitive. Regularly engaging the market is important to ensure the arrangements you have in place are competitive, and that you are maximizing the services available from your partners.

Sub-Optimal Services Mole

Debit ‘smart routing’ services are often a very good investment for merchants with substantial savings available, however, you must regularly measure the true net benefits and how they change over time. Is your dynamic routing tool delivering true bottom line value or is it just an additional line item? We recently completed a project with a large client who was receiving zero net benefit from their smart routing tool – the cost of the solution was equal to the savings being delivered. Make sure you carefully consider the business case for all solutions or tools you have in place and clarify whether the costs outweigh the benefits.

Incentive Arrangements Mole

As part of your card processing arrangements you may have network incentive deals in place. Are you regularly reviewing to make sure the arrangements you agreed are being passed on correctly? Checks of contracted vs actual rates are important when reviewing complex arrangements like debit routing. If you don’t yet have incentive agreements in place, now is a good time to assess the business case and approach the market. You could be missing out on millions of dollars in savings by leveraging competitive tension.

In Summary

The importance of invoice auditing and regular holistic reviews of your entire card supply chain arrangements cannot be underestimated. While optimizing and improving your arrangements may feel like a never-ending game of whack-a-mole for merchants – often operating on thin margins and dealing with operational complexities – it is crucial to getting your arrangements right. The ‘moles’ we’ve mentioned above are just a few of the most common invoicing errors we see with our clients. There are many more. Prioritise regular invoice reviews and engage the help of a third-party consultant to ensure your invoices remain accurate and your arrangements are market-leading.

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