In the hospitality sector; hotels allocate a significant portion of their expenses to enhancing guest experiences through staffing; Wi-Fi; and laundry. While these direct costs receive thorough scrutiny; indirect expenses like merchant card fees often go unnoticed. While being one of the most convenient ways to transact; credit card processing fees have become increasingly more costly and complicated over the last decade.
On an ongoing basis; the more successful property owners ask themselves basic questions; such as; "What are the all-in costs for merchant card processing?" This question can easily be answered by taking a monthly processing statement and dividing the TOTAL processing fees by the monthly sales amount; often referred to as the Effective Processing Rate. As a rule; the Effective Rate of a well-managed merchant card when the customer physically uses their card (tapping or inserting it in the terminal) should be less than 2.40%. Transactions with card details taken online or over the phone should be under 2.70%.
Merchant card processors make money primarily from the discount paid based on transaction volumes and other administrative fees that may or may not add value. Unfortunately; this is often the primary focus when property managers or owners negotiate a processing agreement because of misinformation regarding pricing structures that were phased out well over a decade ago. While it is still important to negotiate those costs; they typically represent less than 20% of the total processing costs. The fees charged by the card brands through their interchange and card brand fees are 80%+ of the overall processing costs.
Many believe that interchange fees are fixed; but there are many ways that transactions can qualify for a lower interchange cost; especially for online and manually entered transactions. These can have an outsized impact on total processing costs compared with the cost attributed to the processor.
For example; merchant card transactions made during regular business hours are typically submitted in a batch process each evening. This process is often automated; but some still prefer to do it manually. If that process is delayed for any reason for more than two days; it will cause the average interchange for all those stored transactions to increase by 60-75%. While the cost for each of the 400+ interchanges is fixed; the property manager has more control over which interchange rate is applied than most think. Another example is that submitting the sales tax amount for business card transactions can lower its interchange cost by 25-30%. For the property owner; the difference is avoiding a significant cost penalty or gaining a significant windfall in processing costs.
Now what?
There are many more aspects to optimising merchant card fees; and a focused study on historical usage and fee trends would provide valuable insights. While many hotel or motel owners have a good handle managing the merchant card fees portion of the property's operating expenses; reviewing the various areas mentioned in this article regularly is key; even if the Effective Rate has typically been below the tripwire of 2.40% for retail transactions or 2.70% for those payments entered online or manually. Changes in staffing are very common in the hospitality industry; and assuming that the new hire will process cards correctly can be an expensive mistake.
However; if the effective rate is higher than mentioned; you should confirm that you have all the correct policies and procedures for processing card transactions to avoid interchange and card brand fee penalty rates. If you're unsure about any aspect of this cost category; you can connect with an ERA consultant to evaluate your merchant card costs. You will recieve; at the very least; an objective assessment of your merchant card expenses and an independent report showing that you are doing everything right in this area. Merchant card fees can add up quickly; and having peace of mind that you have optimised this cost or have a resource that can get you there can provide that peace of mind; whether it's yourself or the board.
