How Statement Scrutiny and Consumer Choices Could Yield Payment Savings

Merchants, whether they sell online or in stores, consistently have one bugaboo about their payment-processing service: They want it to be cheaper.

Online retailers, in particular, which pay higher card-not-present interchange rates, can use some simple practices to make a dent in these costs, as outlined this week in a presentation at the CardNotPresent.com annual conference and expo in Orlando, Fla.

“The first thing I would do is take a good look at the downgrades,” said Anne Fields, director of financial compliance at Crutchfield Corp., a Charlottesville, Va.-based online consumer electronics retailer, referring to transactions that change from one interchange rate to another, more expensive, one. “See where they are in your process.”

In Crutchfield’s situation, Fields found that it requested payment authorization too soon. “We authorized and by the time [the product] shipped it was either time had passed or the customer had changed their mind, and we had to add on an authorization,” Fields said. Crutchfield pushed the authorization to the end of the process, she said.

In another situation, when a particular item was in low supply, the company would put a $1 authorization on the order, then when Crutchfield determined the item was available, it would send through another authorization request. “We made a concerted effort to have a better inventory count so when you check out you know we have it, we only get authorization once, we have all the indicators which gives us a lower interchange rate, and we manage to shave off a little bit there,” Fields said.  “Everything you do in house that you know about, that you can dissect through downgrades, helps your process and helps improve your [fees].”

Paying attention to trends also can help reduce costs, said Carla Erlick, vice president of sales and business development at Optimal Payments Plc, an Isle of Man-based payment processor. “There’s a lot of pressure around the world to lower the overall costs of payment acceptance,” Erlick said.

Merchants should pay attention to changes in interchange rates, she said. If merchants aren’t aware of them, they can’t take advantage of them, she said. “Ensure you are aware of changes in interchange, and get the savings passed along,” Erlick said.

But it’s not just changes in the payments business that could affect payment-processing costs. Changing consumer habits can, too.  “Younger consumers are using debit cards more than credit cards,” Fields said. “It has really changed in the last year. The number of debit cards coming through our site has probably tripled, maybe quadrupled.” Under the Durbin Amendment to the 2010 Dodd-Frank Act, interchange on debit cards issued by large banks is capped at about 23 cents per transaction, well under the interchange cost on credit cards.

That increased debit activity shows up on debit networks, too, said Dan Kramer, senior vice president of marketing and merchant services at Shazam Network, a Johnston, Iowa-based debit network. “Our heaviest user is 18-34 years old,” Kramer said. They use their debit cards 30 times a month. “They’re not using credit cards.”