Figuring out the true cost of credit card processing is complicated. Typically, business owners calculate their effective rate by dividing the total fee by the number of transactions. But over time, payment service providers have introduced different fee structures, pricing models, and payment methods, making the breakdown confusing for both merchants and competing providers trying to win your business.
AI-powered tools can analyze merchant statements more efficiently than humans and provide competitive offers in minutes instead of days. Practical Ecommerce spoke with payments professionals about the opportunities and challenges of using artificial intelligence to evaluate transaction history, pricing and data.
AI-powered tools like Fee Navigator can help merchants understand the total cost of credit card processing.
Disorganized speech
Caroline Holmes, Managing Partner RPY Innovationa payments consulting firm, helps clients resolve merchant fee discrepancies. Structure and nomenclature.
“Our industry is notorious for using opaque and inconsistent language when describing fee structures, and I believe this is done intentionally,” she said. “This is because the whole system is so complex that it’s nearly impossible to accurately explain every element of each transaction. It’s also partly due to the idea that the less understood, the better.”
While AI can quickly calculate an overall effective rate, it can only estimate all interchange, handling fees, assessment, processing fees, product fees and acquirer fees, Hometh said, because these fees are specific to each individual provider.
AI Platform
AI tools have emerged to help retailers and payment service providers simplify and speed up statement analysis. Examples include: StatementFounded in 2018 by the consulting firm Swipesum, Price Navigatorwas launched the following year. Both are processor-independent platforms that the companies claim can analyze statements in seconds.
Swipesum CEO Michael Seaman has seen merchants misinterpret processing fees and assessments. “Many merchants overlook the fact that processing fees can be as much as 80% higher than they should be,” he says. “Additional fees like PCI compliance fees, gateway fees and authorization fees are also often overlooked. Interchange fees are supposed to be charged at cost, but are often inflated, driving up costs.”
As a processor-agnostic platform, Staitment can analyze payment processing statements within seconds.
Adrian Talapan, co-founder and CEO of Fee Navigator, suggested that payment providers could do more to help merchants understand transaction prices and take advantage of the best possible rates.
“One of the biggest mistakes merchants make is not understanding that the effective rate includes delivery costs such as card brand interchange fees and charges, processor statement fees and PCI compliance,” he says. “You may be offered the lowest possible qualified rate, but the actual effective rate includes all costs.”
Expanding your options
New Fintech, liftbrings a marketplace model to payment processing with its open, AI-powered platform, enabling merchant service providers to The race to acquire customers.
Rift co-founder and CEO Steven Martin said that by using Rift’s marketplace, e-commerce merchants can get transparency into all the cost factors involved.
“Not only does our platform expose hidden fees and provide a detailed breakdown of processing costs, it also enables merchants to receive competitive bids from top processors,” he said. “This enables informed decisions, optimizes expenses and saves money.”
Martin added that e-commerce merchants have unique pricing models, and their statements include CVV and AVS checks that are used to authenticate customers and mitigate fraud. These additional data points tend to make reporting more complicated.
Rift is a marketplace for AI-powered payment processing providers.
Swipesum’s Seaman agrees, saying, “Card-not-present transactions typically incur higher costs on top of additional gateway fees and technology surcharges. While there are opportunities for discounts and cost savings, e-commerce merchants often face high unchecked fees.”
Seeman explained that some e-commerce platforms make money through these fees, using Shopify as an example. It increased by about 20% to $1.4 billion. In the first quarter of 2024, revenue is expected to reach $2 billion, primarily driven by growth in Shopify Payments.
Fee Navigator’s Tharapan said small and medium-sized e-commerce businesses Usually pay Large companies negotiate flat-rate and per-transaction fees, while larger companies negotiate interchange-plus fees. In either case, retailers tend to focus as much on features as they do on pricing. For example, retailers may be willing to pay higher fees for global payment acceptance, recurring or custom pricing schemes, or ease of integration.
Agility and precision
SwipeSum’s Seeman noted that AI software can evaluate merchant statements on the spot, whereas manual audits can take a week or more. Intelligent software can spot cost-saving opportunities and replace labor-intensive processes with instant, comprehensive analysis, he said.
“A manual audit by an expert would typically take about a week,” he says. “A (software-based) solution provides instant results, identifies cost-saving opportunities and provides comprehensive, immediate analysis.”
Tarappan said on-the-fly analysis was a game changer for service providers and retailers. “Some salespeople were losing money on incorrect pricing,” he said. “Others were waiting days for analysis by their banks or processors.”
Tarappan noted that before instant statement analysis, retailers’ salespeople didn’t have an easy way to deliver customized offers to customers at scale. Now, he said, salespeople can leave the number crunching to AI assistants and focus on selling.
RPY Innovations’ Hometh points out that accuracy is just as important as speed when analyzing merchant statements: “It’s not about how quickly you can see the merchant statement and offer a lower rate, it’s about providing a nicely nuanced comparative view.”
Look around
Seeman suggested that auditing merchant statements can reveal key performance indicators such as average ticket size, cards accepted, transaction types, ancillary fees, interchange discounts, etc. He advised e-commerce merchants to look for payment processors with extensive experience in the card-not-present market and to constantly monitor fees and pricing, adding that they should regularly compare statements to their original processing agreements to uncover any pricing changes.
Rift’s Martin encourages business owners to do their comparison shopping. “Many e-commerce merchants aren’t aware of the options available to them for credit card processing,” he says. “They often think they have to use the processing services provided by their e-commerce software company. However, there are many payment processors to choose from, and exploring these options will greatly improve your ability to secure competitive rates.”
Homes said AI tools are new and evolving, and questioned their ability to interpret the nuances of merchant statements. “AI is very good at pattern analysis, but it’s not yet ready to point out the patterns that matter,” he said. “Can it recognize the original agreement, the original agreement, and reflect what the merchant should be paying?”
She noted that there remain open questions about the AI’s ability to recognize variations in terminology and fees, and advised retailers to balance AI tools with human oversight.
