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Improving profit margins via better payment processing capabilities: CFO to CFO advice from PayRetailers to online merchants


     Ricardo Salcedo, CFO, PayRetailers

Every business aims to increase sales and decrease costs while optimising customer service and retention. However, the importance of using a good payment solution provider is often disregarded by the same merchants. For most online merchants, the cost of sales of payment processing is a necessary pain point of conducting business; particularly in LATAM – a less regulated economy with unorthodox pricing matrices.

Whilst negotiating with their payment processor can result in a lower transaction cost, this tactic solves only 10% of the aggregate processing cost. The added value can be found in having a payment partner that offers transparency in the management of the payment processing journey, thus accounting for up to 40% of their total expense. Therefore, by what means can online merchants manage this function correctly and cut costs while improving profitability and customer retention?

The landscape of payment processing is particularly complex and one that is nearly impossible for an online merchant to navigate alone with a single payment partner, especially when operating in multiple geographies. Many businesses currently use basic online applications for transactions and payment processing. In the absence of a multi-currency payment solution, businesses might fall prey to high risk and downgraded data management of transactions, costing their businesses up to 40% in transaction processing, FX and rejected transactions (Merchant Maverick report 2019).

In Latin America, around 50% of the region’s population is excluded from the formal banking sector: 46% of the adult population does not have a bank account and only 12% of the population have savings in a formal financial institution (InterAmerican Development Bank: Growth and Consolidation report). PayRetailers widens online merchants reach in Latin American by tapping into alternative payment method transactions, hence increasing top line revenue and reach.

AI and Machine Learning are critical in payment process automation for managing rising transaction costs and related fees. The process of transaction management focuses on tackling 100% of the total cost associated with a payment transaction — including the management of interchange fees. Online merchants spend months trying to negotiate reduced fees and often hit a roadblock with payment processors unable to offer lower rates beyond a point (due to payment network, fixed overheads, and expensive banking relations). But with the implementation of an intelligent tool, like the PayRetailers’ online payment system, merchants can see significant improvements in their profit margins.

Online merchants, whilst processing thousands of transactions per day, must deploy technology that automatically routes payment processing through the least expensive payment method and partner (including alternative payment methods). The technology can identify the type of payment being used and automatically recognize the most cost effective way to process the transaction, ensuring that businesses get the lowest rate every time. This process is known as interchange optimization and is considered as one of the most efficient tools to reduce transaction costs.

Interchange fees represent the largest portion of an online merchant’s total fees for processing a single transaction. There are hundreds of fees that can be assessed based on each transaction, country and industry type (low & high risk). While online merchants know these fees exist, many do not possess a finance team capable of evaluating the available options, or, more importantly, assess ways to cut transaction costs each time they process a payment.

Since interchange rates are non-negotiable, online merchants can reduce costs by improving their payment partners and method selection criteria (remember one merchant can be connected to several PSPs and gateways) using an intelligent, cloud-based solution. A good payment solution provider with an automated system takes the intricacy of interchange fees out of the equation and gives merchants an easy-to-use solution that communicates effectively with all parties involved to deliver significant cost savings.

A well-equipped payment solution like PayRetailers also gives merchants the ability to process payments on credit cards. Credit card transactions usually fit into one of three different types: Level I, Level II or Level III. Level III processing requires merchants to provide detailed end user data to process the transaction, in exchange Level III processing provides much lower transaction rates, allowing online merchants to save valuable resources. However, with the amount of data required to qualify for Level III, online merchants cannot manage this process without a proper payment partner.

To reduce costs, online merchants are now charging fees for processing payments on credit cards from end customers. In general, there are two types of fees — surcharges and convenience fees — and both are commonly misunderstood.

“Surcharges” are fees applied by online merchants to cover charges in connection with credit card transactions. However, “convenience” fees are applied by merchants for allowing end users (customers) to pay for a goods or services with a payment method that is not considered “standard”.

While fees may appear to be an effective way to make up for expenses, the rules behind surcharging and convenience fees are much more complex than they seem, exposing the intricacies of each market (legal, tax, compliance and banking fees) to complications.
By using an intelligent payment processing system like PayRetailers, merchants can ensure they are automatically receiving the lowest rate on all transactions. With proper transaction management and transparent settlement processes, there should be no need to assess surcharges or convenience fees.

Online merchants must also learn to navigate the complex issue of credit card compliance and effectively meet Payment Card Industry Data Security Standard (PCI-DSS).

PCI-DSS is a complex set of controls to ensure merchants are compliant with good data management policies for securing clients data and reducing risk. PayRetailers is currently in the process of obtaining a PCI-DSS certification. Many merchants spend significant time and resources to create internal controls and systems for complying with PCI-DSS requirements.

The cost of a potential data breach can be catastrophic for a merchant. Hence its important to work with a PCI-DSS compliant payment service provider.

Merchants are tasked with ensuring the presence of two critical elements namely, end-to-end encryption and tokenisation, while selecting an automated payment technology from a risk mitigation and cost saving perspective.

End-to-end encryption guarantees that confidential card data is protected throughout the entire lifecycle of an online transaction – data is fully protected mitigating the risk of fraud. Tokenisation is the process of transforming sensitive data with unique identification symbols that preserve all the vital information about the data without compromising its protection.

By streamlining the payment experience, businesses can see a huge improvement in profit margins. CFOs, Head of Payments or CEOs who take the time to evaluate the payment processing solutions that fit their business needs will be compensated for their efforts with increased sales, cost reduction and improved customer retention.

About PayRetailers

PayRetailers is a merchant-centric, end-to-end payments engine & solution that drives enterprise-class payment processing solutions for online merchants, saving them time and resources, while improving their end-user (client) engagement. PayRetailers’ secure, cloud-based solution optimizes acceptance for most Alternative Payment Methods across multiple payment networks / channels through tier one banking relationships in Latin America. For more information, please contact – 

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