Every day, more than a billion payments are processed online. Think about the reasons behind this: traditional paper and in-person techniques struggle to fulfill the expectations of today’s clients, who need an extremely convenient experience and fast gratification. It’s also crucial to note that dependable technology supporting online payments makes it simple to incorporate security measures for both your clients and your company.

If you’re not vigilant, you may be vulnerable to hidden fees in payment processing. Knowing these fees can assist you in selecting the best course of action and result in annual savings of hundreds or even thousands of dollars. That way, you can focus on what matters most: ensuring clients have a wonderful experience with what they’ve paid for.

Hidden Costs in Payment Processing

1. The cost of separate gateway & processing fees.

A payment gateway is the interface customers use to securely enter their credit card information. It also verifies the legitimacy of the entered card. A payment processor transmits the credit card information from your point-of-sale (POS) system to the networks and banks involved in the transaction. Merchants like you need both.

To make matters more complex, there are two types of payment gateways. Third-party gateways take a customer off your website to submit payment information and then they’re redirected back to your site to complete the transaction, adding an unnecessary layer to completing a transaction. Integrated gateways combine the gateway layer and payment processing into one solution.

In the case of a third-party gateway, you’ll be charged separate processor and gateway fees, often resulting in a higher overall cost. In addition, multiple parties are required to troubleshoot and solve issues, resulting in payment delays.

This one’s easy: select a payment processor who offers an integrated processor and gateway, billed at a lower bundled cost. You’ll also benefit from a simplified management and user experience, plus greater security.

2. The cost of downgrade fees

A merchant is charged an interchange fee for every credit or debit card transaction. A downgrade occurs when a transaction is routed to an interchange category that is priced higher than the intended category. When this occurs, the rate applicable to the cost of a transaction is increased and the transaction is considered “downgraded.”

If you’re not careful, downgrade fees can be surcharged on top of your other processing fees – and any transaction can be a risk. According to Elavon, downgrades can cost a merchant .5% or higher in fees a year.

An important clue in determining whether you’re overpaying is by checking your interchange statements. If you’re seeing the term “standard,” don’t be fooled: that’s standard for “downgrade.” “EIRF,” or Electronic Interchange Reimbursement Fee, is another term to look out for.

There are a few common reasons why you might be paying more in fees than necessary, all of which can be addressed by the right solution. The right vendor can also help you identify opportunities to better meet best practices and see cost-savings.

3. The cost of noncompliance

Credit card fraud is at an all-time high. According to MoneyTransfers.com, over 230,000 credit card fraud reports were made in the first two quarters of 2022 alone.

Introduced in 2004, Payment Card Industry (PCI) compliance is a set of requirements that ensures businesses securely process, store, and transmit credit card information. Because it’s not legally mandated, it’s easy to be unaware of it or think it’s optional, but noncompliance can come with steep penalties, including lost revenue and reputational harm.

This scenario may seem like a steep outlier, but consider the norm. The average merchant fee for a lost card is $214. Even a small-scale breach of one thousand cards could cost you $214,000.

If you’re using compliant software to capture payments, the credit card data being stored and transferred in the system is secure. You can also trust you’re partnering with a payment processor that takes security seriously. Compliant providers must complete an intensive PCI certification process, which examines and validates hundreds of aspects of the business.

Here are some questions to ask that’ll indicate a processor’s compliancy. Once you’re up and running with a compliant solution, you can apply and obtain a certificate of compliance; it’s as easy as filling out an online questionnaire.

• Do you use and maintain firewalls?
• Do you enforce password protections?
• How do you encrypt cardholder data?
• How do you use and maintain antivirus software?
• How do you manage and keep customers informed on software updates?
• How do you ensure only the appropriate people get access to cardholder data?
• How do you restrict access to physically available information?
• Do you create and maintain access logs?
• Do you scan and test for vulnerabilities?
• Do you enforce any document policies?

4. The cost of chargebacks

Chargebacks can happen when a customer disputes a transaction. It differs from a refund in that the customer disputes the transaction directly with their bank, who then reverses it and issues a complete refund. The bank can do so without your permission, and you lose the payment even though the customer keeps the good or service.

Reducing the risk of chargebacks takes a combination of technology, purchasing policies, and staff training.

1. Technology: The best way to mitigate fraudulent activity is to detect risk early. Invest in software that provides fraud protection tools and meets regulations that exist to combat fraud, like 3-D Secure.
2. Policies: If possible, require advance deposits to guarantee some payment in case a chargeback occurs. Hotels can also discourage or ban same-day reservations.
3. Staff Training: Educate your team on how to identify suspicious behavior and activity and how to respond to it quickly and confidently.

5. The cost of limited payment methods for customers

Payment flexibility is a must-have for today’s consumers – and greater convenience for them means faster, easier payments for you. In some cases, not accepting a range of global-friendly, locally preferred payment methods could cost you revenue. For example, Chinese credit cards don’t work outside of the country, and neither you or your business traveler would want to arrive without a way to pay you for their stay.

Inquire about your processor’s accepted payment methods, such as:

• Automated Clearing House (ACH): Electronic payments that transfers money between bank accounts, rather than going through card networks or using wire transfers, paper checks, or cash.
• Single Euro Payments Area (SEPA): Cashless euro payments – via credit transfer and direct debit – to anywhere in the European Union and a number of non-EU countries.
• Bulk Electronic Clearing System (BECS): Direct debit payments from customers with an Australian bank account.
• Locally preferred methods like Alipay and WeChat, Chinese digital wallets, and SOFORT, a popular online banking payment method in Europe.

6. The cost of add-on fees

Processors are in complete control how and why they charge you, which can easily lead to many extraneous costs. Here are some questions to consider to see how long a processor’s fee sheet may be.

• Are you paying $25 or more in so-called monthly minimums?
• Are those minimums in addition to your processing fees even if you meet the minimum?
• Do you have an early termination fee?
• Are you paying a PCI or security fee every month?
• Are you paying a monthly statement fee to look at your own data?
• Are you paying a daily batch fee?

How to Avoid the Hidden Costs of Payment Processing

1. Understand the different types of fees

Multiple fees are often involved in every transaction that is processed. Per-transaction fees for credit cards are typically 1.5-3.5% of the transaction, though some cards may charge higher fees. Fees for eCheck/ACH transactions are typically lower, and may be up to 1.5%. Monthly fees will vary between providers, so ensure you factor this cost in when making your decision. 

Read Also: The Importance of Mobile Payment Solutions for Businesses

When working with a payment processing provider, these rates are typically charged by the card issuer to the payment provider. The cost is then passed on to the merchant.

Because interchange fees only become fully visible after the transaction—typically when the merchant receives their long, multi-line statement from their payment processor—interchange fees are difficult to predict, and thus can be considered “hidden” fees. 

2. Avoid using a processor which charges extra fees

Some processors will charge an additional fee on top of per-transaction and monthly fees. 

Note that advertised rates may not tell the full story, either. Some processors may say their rate is 1.95% plus 20 cents, but that may not apply to all cards, just common cards such as your standard Visa card. 

Specialty cards – which is most cards these days, including Visa or Mastercard credit cards connected to a rewards program – often come with higher “interchange plus” pricing rates. This can mean an unexpected surprise—in the form of a higher cost— when you receive your bill.

To avoid the cost of a payment processor holding you back, you should compare pricing plans between providers to ensure you’re getting the best return on your investment and avoid being locked into expensive plans. Since multiple fees are often involved, look for legal payment processing tools that offer full transparency into fees, as well as comprehensive reporting, so you can make the best decision for your firm. 

As a baseline, expect any credit card transaction fees to be up to 3.75% of the transaction, though some cards will have higher rates. eCheck/ACH fees are typically lower (up to 1.5%). 

3. Look for simple, transparent pricing plans

With all the possible variations in fees, it can be helpful to look for legal payment processing providers offering simple, transparent pricing. Clio’s plans are straightforward: the ability to accept payments included in your Clio Manage subscription and you pay one flat, simple rate regardless of the card your clients choose to pay with. If a pricing plan seems convoluted, it is probably best to avoid that provider to ensure you’re not hit with unexpected or hidden fees.

When it comes to payment processing specifically, the most effective way to mitigate risk and ensure you know what rates you’re paying on every transaction.

Clio does not pass through any interchange fees, and you won’t find any unexpected charges on your monthly bill. And, with Clio Payments, you can use the split billing feature to offer further flexibility to your clients, allowing multiple payers on one bill.

4. Ask questions

The choice of a legal payment processing provider is a major decision, and one that will impact your business well into the future. As you go through the process of selecting a tool, ask lots of questions to make sure you understand exactly what you are—and aren’t—getting. 

First and foremost, make sure your provider gives you straight answers on payment processing fees. Ask what their rates are, and ask if they charge different rates for different types of cards, or different types of transactions. Ask about additional fees or charges beyond the ability to accept payments online, ask if PCI compliance and chargeback assistance is included. 

Payment processing fees are just part of the equation. Even if you’re satisfied with your provider’s answer on payment processing fees, make sure the solution is right for you. Does the payment processor in question integrate with your legal practice management software? Does it allow for payment plans and offer trust accounting compliance? Do you feel assured this solution is safe and secure for your clients? These are all important questions for legal professionals to ask when choosing a provider.

Final Thoughts

Finding the best business payment management system is a big undertaking and one that shouldn’t be taken lightly. Your payment processor will be your partner in all things payments, making sure you’re getting money in the bank. Here are some key characteristics to look for in a payment processor and get the best value for money.

Competitive rates

Look for a payment processor that offers competitive rates and transparent fee structures. Avoid processors with hidden fees or long-term contracts that lock you into unfavorable terms.

Security and compliance

Ensure that the payment processor adheres to industry-standard security measures, such as PCI DSS compliance, to protect your customers’ sensitive information.

Reliability

Whenever you’re dealing with payments, you need someone reliable by your side. Your payment processor should have a track record of reliability and uptime to prevent disruptions in your business operations.

Support

Problems happen. Choose a processor that provides responsive and knowledgeable customer support. You want to be able to get assistance quickly if issues arise.

Ease of integration

If you use specific eCommerce platforms or POS systems, check if the payment processor integrates seamlessly with your existing technology stack.

Scalability

Select a processor that can grow with your business. You don’t want to switch providers every time your transaction volume increases.