Don’t print out a new menu, catalog or other marketing collateral that includes product pricing just yet.
The Wall Street Journal (WSJ) reports that credit-issuing banks, the major credit card issuers, as well as payment-processing companies plan on raising merchant fees in April. What does that mean for small business owners such as yourself?
Unfortunately, you may have to pass the buck on to your customers.
The good thing is, most likely, your customers won’t raise a fuss about higher costs. If, indeed, you defray the upcoming fee hikes by raising prices, the price hikes will most likely be imperceptible in the eyes of your customers.
Nonetheless, when it comes to the headaches of running a small business, receiving notice that your transaction fees will increase ranks just behind getting a letter from the IRS saying you owe back taxes.
Interchange, Per-Transaction & Processing Fees Set to Rise
It’s not just small businesses that feel at the mercy of financial institutions and credit networks. As reported in the WSJ piece, retailer giants such as Target, Home Depot and Amazon aren’t happy with the deal they’re getting. In fact, these three behemoths, says the WSJ article, are pursuing litigation against at Visa and Mastercard as well as large institutional banks.
Hopefully, that makes you feel just a smidge better about the forthcoming rate hikes….
So what’s going to be the damage? How much extra can you expect to shell out because of the proposed rate hikes?
Unfortunately, the WSJ article does not specify how much (or what percentage) the fees will rise.
There are three fees that are expected to go up. The first is the so-called interchange fees. These fees are charged by the card companies for use of their cards. Interchange fees typically run 1.95%-2.0% for Visa, Mastercard and Discover purchases. (American Express fees are notoriously the highest.)
The second fee likely to rise is the per-transaction fee Visa, et al., will charge. Consequently, payment-processing companies will increase the amount they charge you for relaying payment information from the customer’s bank and credit card company to your bank (as well as the fees for the payment processor/gateway).
So there you have it, three fee hikes almost certainly to be implemented within weeks.
Review Terms With Your Processor
While you may not be able to do anything about the interchange fees, you do have at least some control with how much you pay your credit card processing company.
If the contract with your payment processing company expires soon, take a moment to assess whether you’re getting the best deal out there. There are, of course, dozens of payment-processing companies and many of them would love to get your business and will do so by offering you a better rate than what you’re currently receiving (at least for the first year of the new contract).
Perhaps you’re paying thousands of dollars in fees per year that you otherwise wouldn’t have to pay if you selected a new processing company?
If, in doing research, you discover you could save money by switching to another processing company, see if your current processing company charges an early-termination fee. Even if they do (they most likely will), the cost to cut ties with your current company might be worth it.
There are many factors in selecting a payment-processing company. You may likely already know about monthly minimum fees; volume fees; application and/or set-up costs; gateway fees, and the soon-to-increase interchange fees.
But here’s an important thing some small business owners don’t take into consideration when selecting a new payment processing company: NFC.
This “NFC” has nothing to do with the National Football League. Rather, it stands for Near-Field Communication. NFC technology enables digital payments. Examples of digital payments include Apple Pay and Google Wallet. Instead of using physical credit cards, customers can use their smart phone to make a purchase. The number of people using digital payment apps are forecast to rise every year.
If your business uses a payment-processing company that uses NFC technology but your competition doesn’t, guess where millennials and Generation Z customers will shop? That’s right, your store.
Although the amount of sales your business will generate by accepting digital payments may seem miniscule, every transaction that can offset the rising costs of merchant fees will help.
The poet, John Greenleaf Whittier, is credited with saying, “As a small-business person, you have no greater leverage than the truth.”
If you think your customers will most certainly notice your price increases (as a consequence of the forthcoming rising credit card fees), you may want to consider sending an email to to your customer list. Explain the situation. Most customers will understand that being a small business owner is challenging and will accept the price increases. To alleviate sticker shock, figure out a way to strengthen your rewards system. Or host a raffle for some unique giveaways.
Does your point of sale system (POS) software have a rewards/loyalty and email marketing functionality? Contact us today for a demonstration.