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The Cost Of Acceptance: How To Turn The Cost Of Credit Card Processing Into Net Revenue Growth

Apr 24, 2008
Have you ever slowed down to ask what comprises the cost of accepting a credit card, better known as the Discount Rate? Why does this cost vary from one transaction to the next? To understand best, I encourage you to step into the shoes of your valued customer, the consumer. The average American carries 4-5 bank issued cards in his or her wallet and utilizes them to finance transactions, expedite the transaction at the point of sale, and in many cases, to take advantage of the benefits these plastic cards give back.

The consumer's choice as to which card to draw from his or her wallet is generally based upon the answer to one key question..."What's in it for me?" The list of incentives made available to the consumer by the card issuing banks is extensive. Ranging from signup bonuses and teaser introductory rates to cash back incentives and airline miles, consumers receive tremendous benefit from the issuing banks for their day to day purchases. Financing these incentives sounds like the issuing banks' problem, right? Not exactly.

The largest component to a merchant account is the cost of Interchange, which the processor collects from you via the discount rate and pays to the issuing banks, in large part to fund the consumer incentives mentioned above. At the end of the day, there is very little that you can do as a small business owner to reduce your cost of credit card acceptance while continuing to satisfy your customers' need for choice. However, you can leverage this cost and customer-mandated payment type to improve collection processes and payment convenience to your customers.

Just as you provide a breadth of products and services for your customers to choose from, I would encourage you to provide equal choice to them for their form of payment. Choosing a payment processing solution that accepts all of the major credit card types and allows for alternative payment methods, such as ACH direct-debit and eChecks, helps you to minimize your overall cost of acceptance.

By allowing your customers to make payment with the credit card or other remittance type of their choosing, you're increasing their convenience. In addition, credit cards have other electronic payment benefits that enable your business to set up more flexible payment options for your customers--such as online bill-pay, email invoicing, and recurring billing. You will attract new customers to your business, build customer loyalty, and potentially increase your customers' average purchase amount. The impact on your net revenue growth will likely offset the variance in Interchange expense and yield maximum growth to your enterprise.

Interested in expanding the payment processing options for your business? PaySimple can help. PaySimple is the premier provider of electronic payment solutions for small businesses and creates platforms that simplify and empower the lives of small business owners. PaySimple provides an on-demand Software as a Service (SaaS) platform that enables small businesses to bill, collect, and manage their customer payments under one user-friendly system. The PaySimple Solution includes: recurring billing, email invoicing, ACH direct-debit, credit card processing, e-check processing, EFT, online payments, and more.
About the Author
David Sharp is the VP of Business Development for PaySimple, the premier provider of ach and credit card merchant account services for small businesses. David has spent the majority of his career in the electronic payments industry, including serving as VP of the Western Region for Global Payments, Inc.
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