Electronic Funds Transfer at Point of Sale (EFTPOS) has become an essential part of small business operations, offering customers a seamless and secure way to pay. However, the convenience of EFTPOS comes with costs that can add up quickly, affecting a business’s bottom line. Understanding these fees and implementing effective cost-management strategies can help small business owners maintain profitability while still providing customers with flexible payment options.
The Impact of EFTPOS Merchant Fees on Small Businesses
1. Increased Operating Costs
EFTPOS fees can represent a significant expense, especially for small businesses with tight profit margins. These costs include:
- Merchant Service Fees (MSF): Charged by the payment processor as a percentage of each transaction. This fee varies depending on the provider and transaction type, and can range from as low as 0.5% to over 2% for premium credit cards.
- Interchange Fees: Paid to the customer’s card-issuing bank. These fees are typically non-negotiable and vary based on card type and network.
- Terminal Rental Fees: Monthly costs for using EFTPOS machines. Some providers offer free terminals but may offset costs with higher transaction fees.
- Chargeback Fees: Costs incurred when disputes arise, and payments are reversed. Chargebacks can be a major issue for businesses prone to fraudulent transactions or customer disputes.
- Account Maintenance and Compliance Fees: Some providers charge additional fees for compliance measures, statement generation, and customer support.
These expenses can eat into profits, making it crucial for businesses to optimize their payment processing strategies and find cost-saving solutions.
2. Reduced Profit Margins
For businesses with high transaction volumes but low average order values, even small percentage-based fees can erode profit margins. For example, cafes and small retail stores often process numerous low-value transactions daily, and the accumulated EFTPOS fees can be a significant portion of their revenue.
Additionally, businesses in highly competitive industries may find it difficult to pass these costs onto customers, as price-sensitive shoppers may choose competitors that absorb these fees.
3. Competitive Disadvantage
Businesses that pass on EFTPOS fees to customers through surcharges may deter price-sensitive shoppers. While surcharging is legal in many countries, excessive surcharges can lead to customer dissatisfaction and lost sales. On the other hand, absorbing these fees without adjusting pricing can put businesses at a disadvantage compared to competitors who have negotiated lower processing costs.
Moreover, some businesses that primarily operate in cash-based environments may struggle with transitioning to EFTPOS due to the added costs. This can make it difficult to remain competitive in a digital-first economy where customers increasingly prefer cashless transactions.
4. Cash Flow Management Challenges
EFTPOS fees can disrupt cash flow, as businesses may not receive the full amount of each sale due to deductions. Additionally, some payment processors have delayed settlement times, meaning that funds may take 1-3 business days to appear in the business’s bank account. Delays in payment settlement can affect daily business operations, supplier payments, and payroll, making cash flow management more challenging.
How to Manage and Reduce EFTPOS Merchant Costs
1. Negotiate Better Rates with Your Payment Provider
Many business owners don’t realize that EFTPOS fees are often negotiable. Here’s how to leverage your position:
- Compare providers: Shop around to find competitive rates that match your business needs. Not all providers offer the same rates, so conducting a cost-benefit analysis can help identify the best option.
- Use transaction volume as leverage: If your business processes a high number of transactions, you may be eligible for lower rates. Payment providers often offer volume-based discounts for businesses with significant monthly processing amounts.
- Request bulk discounts: Some providers offer lower fees for businesses that commit to higher processing volumes. Even if you operate a small business, demonstrating consistent revenue growth can give you an advantage when negotiating rates.
- Ask for reduced terminal rental fees: If you have been with the same provider for a long time, inquire about discounts on terminal fees or request free upgrades to more advanced machines.
APS offers competitive EFTPOS solutions designed to reduce merchant fees while maintaining a seamless customer experience.
2. Choose the Right EFTPOS Solution
Selecting the best EFTPOS provider for your business can lead to significant cost savings. Consider:
- Flat-rate vs. percentage-based fees: Some providers offer predictable flat-rate pricing, which can be beneficial for businesses with high transaction values.
- Terminal fees: Opt for providers with lower rental costs or consider purchasing an EFTPOS machine outright. Some modern EFTPOS machines offer mobile payment capabilities without requiring expensive rental agreements.
- Hidden costs: Avoid providers that charge excessive fees for chargebacks, statements, or monthly account maintenance. Read the fine print and understand all applicable fees before committing.
Explore APS’s in-person payment solutions to find an option that aligns with your business needs.
3. Implement Least-Cost Routing (LCR)
Least-cost routing (LCR) allows businesses to automatically process debit card transactions through the lowest-cost network. Many EFTPOS transactions are routed through premium networks that charge higher interchange fees, even when a cheaper alternative is available.
To optimize costs:
- Check if your provider offers LCR. Some providers automatically route transactions through more expensive networks, increasing your overall fees.
- Manually configure LCR settings if your terminal supports customization. Some machines allow you to set routing preferences to prioritize the lowest-cost network.
- Monitor transaction fees to ensure cost savings are being realized. Review statements regularly to check that your transactions are being processed through the most cost-effective channels.
4. Encourage Low-Fee Payment Methods
Not all payment methods cost the same. To reduce fees:
- Promote debit card payments over credit cards, as they usually have lower interchange fees.
- Offer discounts for cash payments to minimize processing costs. Some businesses offer small incentives, such as rounding down to the nearest dollar, to encourage cash payments.
- Enable bank transfers or digital wallets as alternatives to card payments. Some digital payment methods, like direct bank transfers, may have lower processing costs than traditional card transactions.
5. Monitor and Analyze Transactions
Regularly reviewing your EFTPOS transaction data can provide insights into cost-saving opportunities:
- Identify trends in high-fee transactions and find alternatives.
- Spot unnecessary charges that can be disputed with your provider.
- Analyze peak transaction times to optimize payment processing costs. Understanding customer payment behavior can help businesses adjust pricing strategies or introduce alternative payment options.
Conclusion
EFTPOS merchant fees can significantly impact small businesses, but by implementing the right strategies, business owners can optimize costs while maintaining customer convenience. From negotiating better rates and choosing cost-effective providers to leveraging least-cost routing and promoting lower-fee payment methods, there are multiple ways to manage expenses effectively.
For businesses looking to streamline their payment solutions and reduce fees, APS provides tailored EFTPOS options that enhance profitability. Explore APS’s in-person payment solutions to find a payment system that fits your business needs and budget.
By proactively managing EFTPOS costs, small businesses can maximize profitability, improve cash flow, and stay competitive in an increasingly digital economy.