Debit and credit cards have become the most popular modes of consumer payment. In 2017, 62.3% of US consumer payments were made through cards. Many merchants thought the emergence of other payment options like PayPal would dilute card dominance. However, the use of debit and credit cards has continued to soar, particularly during the pandemic period. Even with the popularization of contactless payment methods, the card remains the preferred contactless payment system. The dominance of the card payment options has enabled credit card companies such as MasterCard and Visa Card to increase merchant processing costs by up to 1.5% without much opposition.

Business owners find themselves in a fix and have to grapple with the increased costs, especially when it comes to interchange fees. However, some businesses may not realize the impact of merchant processing fees until they get their bank or merchant statements. Such businesses may not control bank and card expenses, despite them running into thousands of dollars. 

But are there ways of managing these merchant processing costs? Should businesses pass the increasing costs to consumers, or are there other options available? Continue reading to learn how audit companies like Util Auditors can help you manage your merchant fees by reducing billing errors and cushioning your business against the rising costs.

Trends in Credit Card and Merchant Processing Costs

Contactless Payment Options

In the last decade, paper money or contact-based modes of payment have been slowly losing traction as cards and digital methods continue to grow. However, the pandemic appears to have accelerated the phasing out of notes and other paper currencies as a means of payment. 

During the pandemic, tap-to-pay transactions grew over 30% year-over-year, and about half of the consumers said they would not shop in stores that do not offer contactless payment options. The trend is expected to continue even as the world recovers from the economic effects of the pandemic.

Although the pandemic accelerated the adoption of digital and contactless payment methods, cards remain the preferred method for most Americans. In 2021, about 70% of consumers used cards to pay for goods and services. 40% of consumers used credit cards, while 30% opted for debit cards.

Credit Card Powerhouses

Card payment methods have continued to rise, regardless of the emergence of payment options like PayPal and digital/mobile wallets. Four companies dominate the card payment market space:

1. Visa
2. Mastercard
3. American Express
4. Discover

The four companies offer credit card services to hundreds of millions of consumers in the US.

With over 70% of the market share, credit card companies have the power to control card processing fees. In fact, Visa announced plans to change their interchange fees to 1.5% for online credit card payments for purchases made by UK-based customers. MasterCard had already made a similar proposal in January 2021. Although the increase was put on hold until 2022, business owners should expect the increase at any time. Other card companies are expected to follow suit, meaning you are likely to experience a continued increase in interchange fees in the coming decade.

The increase in the interchange fees (also known as card swipe or processing fees) will definitely have an impact on businesses that are trying to keep their bank and merchant fees down. However, some businesses don’t know about the fees because most of them appear only on the merchant or bank statements. But it is difficult for most businesses to control merchant and bank fees if they do not understand them in the first place.

Increased Credit Fraud

Another trend to watch for in the digital or merchant payment services space is the increasing rate of fraud. Currently, a data breach ranks among the top ten business threats of the coming decade. The increase in online transactions and contactless payment methods has seen cybercrime soar to unimagined levels. In April 2020 alone, the dollar volume of credit card fraud rose by over 35%. Many experts expect the trend to continue unless businesses and consumers shield themselves from cyberattacks. 

Credit card fraud works to increase the cost of credit cards for business owners. If a scam is successful and the consumer loses their money, credit card companies pass the burden to the merchants. Therefore, business owners must install mechanisms that reduce online exposure of client credentials to reduce card fraud.

Hidden or Unclear Costs

Many businesses only examine card fees at the end of the month or year when they correct the merchant or bank statement. Some businesses that had considered card fees and bank expenses negligible are then shocked to see the fees run into thousands of dollars. Unfortunately, some organizations may never realize the impact of the increasing credit card costs and, therefore, cannot control the costs. Here are some of the reasons that make it difficult to control card processing fees:

• The cost of credit cards differs depending on the financial institution that issues the credit card.
• The credit card network affects the overall fees.
• The payment processor also makes the fees varied and difficult to manage.

Solutions for Rising Merchant Processing Costs

Merchant Processing Audits

Since you cannot control what you do not know, the first step in managing your merchant fees is carrying out a merchant processing audit. The merchant processing audit will help your business realize the impact of credit card costs on the overall expenses. Through a merchant processing audit, you will identify the most expensive cards and how to avoid some fees to keep your expenses low.

Resolving Billing Errors

A merchant audit also helps you identify billing errors and avoid losses from unclaimed revenue. Billing errors may also help you identify areas of weakness in your billing system so you can institute corrective measures.

Controlling the Rising Costs

Although the rising cost of cards may appear out of your control, auditing your merchant statement reveals the origin of the costs with the aim of controlling them. Through an audit, you may realize that the costs increase due to a specific application of the card payment system. Changing the system could help you keep merchant processing costs down.

Contact the Experts to Start Managing Rising Merchant Processing Costs

Merchant costs may continue rising as more and more customers move to digital payment options. However, you can still cut your merchant costs down through merchant processing audits. Contact Util Auditors today to gain insight into your merchant processing costs and start reducing them.