Why Processing Costs Aren't the Same for Every Business

One of the most common questions business owners ask when reviewing their payment processing costs is:

"Why am I paying so much?"

The answer is often more complicated than simply comparing rates.

In fact, two businesses processing the exact same amount of revenue each month can have dramatically different processing costs even if they are using the same processor.

So what causes the difference?

The Types of Cards Your Customers Use

Not all cards cost the same to accept.

A standard debit card typically costs less to process than a premium rewards credit card. Business, corporate, and purchasing cards carry higher interchange rates than debit or typical consumer credit cards.

If one business primarily accepts debit cards while another accepts premium rewards and business credit cards, their processing costs will be dramatically different even if the sales volume is similar, or even if their processing rates are similar.

“Card Present” vs. “Card Not Present”

This is industry jargon at its finest. The bottom line is how a payment is accepted also plays a major role in costs. 

Transactions completed in person using a chip reader (card present) generally carry less risk than transactions entered online or over the phone (card not present). Because “card not present” transactions present a higher fraud risk, they often come with higher interchange costs.

Keep in mind, the difference in this cost should not have anything to do with your actual processing rates, as long as you are on the right program. 

Industry and Customer Mix

The type of business you operate matters.

A local retail store, a B2B merchant, and an online subscription company may all process the same amount of revenue, but their customer payment habits can be completely different.

For example, many B2B merchants accept commercial and purchasing cards. While these cards can create opportunities for lower rates when additional transaction data is supplied, they can also become more expensive when transactions are not optimized correctly. 

During conversations with business owners, this topic is becoming increasingly common. You may hear it referred to as Level II (2) and Level III (3) interchange.

Earlier this year, Visa sunset Level II interchange. As a result, transactions that previously qualified for Level II pricing must now either qualify for Level III rates or fall back to Level I rates, which can significantly increase processing costs.

For B2B businesses that accept commercial, corporate, or purchasing cards, understanding Level III processing is more important than ever. Ensuring your transactions qualify for the best possible interchange rates can have a substantial impact on your overall processing expenses.

The Bigger Picture

The reality is that there is no single "good" processing rate that applies to every business.

The more important question is whether your costs make sense for your specific business model, customer base, and payment mix.

Understanding what is driving your processing costs is the first step toward making informed decisions and identifying opportunities for improvement.

At ProfitStack Group, we help businesses understand the factors affecting their payment costs and identify opportunities to optimize their payment systems. Sometimes the solution is negotiating rates. Other times it involves improving how transactions are processed or understanding changes occurring within the payments industry.