Monetize Payments: Custom Fee Profiles and Pass-through Fees
Did you know that you can grow revenue outside of marking up payment processing fees? In this blog, you’ll learn some creative strategies that’ll help you increase your bottom line and create happier customers in the process.
The standard way of monetizing payments
Most companies still only look at payment acceptance as a cost center, albeit a necessary one. But some businesses, such as software platforms and marketplaces, can turn payments into a profit center.
Still, not all businesses that have discovered the benefits of payments are fully maximizing their revenue potential. Maybe it’s from a lack of knowledge, but more often, it’s due to a payments provider’s limitations. Or more specifically, the limitations a payments provider puts on its customers.
Standard payment monetization typically revolves around tacking fees onto transactions or charges that can be bundled into other offerings. Of course, these are excellent starting points for any business just getting into payments. But as you’ll soon learn, they’re by no means the only way to increase your payments revenue.
Merchant-level custom fee structures: The secret payments revenue ingredient
Just like award-winning recipes have special ingredients that set a dish apart from the rest, payments has a few special ingredients of its own when it comes to revenue strategies, one of which is custom fee profiles for merchants.
What are custom fee profiles?
Fee profiles in payments refer to how a merchant’s fees are set up and how much they are. Each fee profile lists all fee types and the amount the merchant will pay when the fees are triggered. Customizing these fee profiles opens up new revenue opportunities and lets you provide better and more tailored customer experiences.
The sad thing is, many providers only let you have one blanket fee profile for all merchants. This may make managing payments simpler, but from a revenue perspective, it only helps your provider, not your business or your merchants.
At Finix, we want you to be able to maximize all aspects of your payments business to the fullest. That’s why we let any size company create custom fee profiles for their merchants.
How does creating custom fee profiles help you earn more revenue and make happier customers?
The biggest benefit to custom fee profiles is that they let you customize fee structures at the merchant level. But what does this mean for your business?
Opportunities to increase revenue Creating custom fee profiles at the merchant level helps to increase revenue as it gives you the potential to earn more per transaction. For example, you can charge a flat fee to process payments and retain the difference. As you can create fee profiles based on merchant type, you can also charge different fees and rates to merchants based on risk, size, and other factors.
Attract and retain customers Merchant-level fee profiles afford you the opportunity to offer lower rates to qualifying customers. This can make attracting new customers easier and lets you reward your current customers if they’re processing at a certain volume, because they fall into a lower-risk profile, or if they qualify for Level 2 and Level 3 processing.
Fee profiles by credit card network and domestic vs international transactions At Finix, you also have the ability to create different fee profiles for different credit card brands, as well as for domestic or international transactions. An example of how this would look is: Visa: 2.9% + $0.30 Amex: 3.2% + $0.30 Domestic: Visa 2.9% International: Visa 3.9% This approach makes it easier for your business to increase overall profitability by pricing more favorably against less profitable cards and/or international purchases.
ACH fee caps Another way to maximize profits through fees is to set a fee cap or limit per transaction on ACH transactions if you are assessing a percentage. This is a great way to balance profitability while remaining competitive on pricing versus your peers. To do this, you'll need to understand the cost structure your payments provider uses to assess your platform's ACH fees. This way, you can ensure your go-to-market pricing aligns and you're not taking a loss on ACH.
Custom fees based on credit or debit transactions Another option is to create custom fee profiles based on credit or debit transactions. This would require you to calculate and manually create your own fees rather than using Finix’s fee profile.
Earning more revenue and creating better merchant experiences with common fee types
The next “secret ingredient” you can use to maximize revenue or to improve merchant experiences is passthrough fees based on legitimate costs incurred by your business.
Here’s a list of some common examples:
Bottle deposits and bag fee
Your company has two options when it comes to these types of fees. The most common is to enable your merchants to charge them directly to their customers. This allows them to save money and generate more revenue. You may also customize fees that you charge your merchants in this manner.
Visit our Common Fees documentation for details on each fee type.
Use cases for common fees
Below are a few popular use cases we see that will help you better understand how fees can be applied:
Use case: Food delivery, field services, and event ticketing
Platforms that let restaurants take online orders for pick-up and delivery services, provide field service management for contractors, or that offer event ticket and management services.
In either of these instances, your platform can enable buyer charges for your merchants as either an additional percentage or a flat fee.
Alternatively, you can get creative with your pricing and charge fees like a SaaS fee, or you can customize the per transaction fees based on the product level that your customer chooses.
At Finix, you have the flexibility to choose which method works best for you and your merchants.
Benefits of pass-through fees
The benefit of allowing your merchants to charge these fees is that it helps you save them money. In turn, it makes your product or service more valuable to them and increases brand loyalty.
Regulated Fees That Can Only Be Collected by Your Merchants
It’s important to note that there are certain fees that your platform can’t charge merchants. These are fees regulated by the card networks and can only be collected by your merchants. Below is a breakdown of these fees:
A convenience fee is a way for your merchants to pass the cost of payment processing to their customers. The catch is, merchants can only charge this fee on qualifying transactions if they also provide other payment methods that they aren’t charging additional fees for, such as cash, check, or ACH. Another thing to note is that these fees can’t be applied to recurring or installment charges.
For example, if a business traditionally accepts cash or check in person, it can offer card payments online or over the phone as a convenience for its customers. This allows them to accept card payments for customers that want to pay that way but without having to absorb the cost.
Enabling these merchants to charge a convenience fee to offset the processing fee improves yours and their customers’ experiences.
Service fees are similar to convenience fees but are only applicable to merchants that fall under approved merchant category codes (MCCs) in education and government. Merchants must also be a part of Visa’s Government and Education Payment Program and/or Mastercard’s Convenience Fee Program.
This fee type is restricted to qualifying landlords who are registered for the Visa Rent Payment Program. Under this program, landlord merchants are able to charge fees to renters who pay via credit or debit card.
Convenience and service fees and rent surcharges must be clearly disclosed to customers before they submit their payment. Customers must also have an alternative means of paying to avoid the extra cost. The benefit of allowing your merchants to charge these types of fees is the same as with common fees. It lets them recoup some of the costs of payment processing and can improve their overall experience.
Strategic use of fees and custom fee profiles can earn your platform more money and make happier customers
The ability to create custom fee profiles per merchant and pass certain fees to your merchants opens up new revenue opportunities that aren’t available with providers that only offer blended pricing. Not only can you maximize revenue for your company, but you’re also able to provide higher value and create better experiences for your customers.
Enabling your merchants to pass payment processing costs to their customers (when applicable) also increases their loyalty to your brand and helps them maximize their revenue as well—a win-win for everyone.
Want to be the hero of your organization? Our latest e-book gives you all the info you need to unleash your payments superpowers! Download it today - Payment Operations: The Unsung Heroes of Revenue Growth.
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