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6 Hidden Costs in Payment Processing

Over a billion online payments are made daily. Consider why: today’s customers expect a highly convenient experience and instant gratification, expectations that are difficult to meet with traditional paper and in-person methods. Equally important, online payments powered by reliable technology make it easy to build in security protections for your business and customers.

If you're not careful, you may be subject to hidden costs in payment processing. Being aware of these costs can help you find the right solution and save you hundreds – sometimes thousands – every year. That way, you can focus on what matters most: ensuring customers have a great experience with what they’ve paid for.

#1: The cost of separate gateway & processing fees.

First thing’s first: what’s the difference between a payment processor and gateway?

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.

Bottom Line

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.

Case in point: a large casino paid an extra $56k in a year – nearly 0.5% per transaction.

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.

Bottom Line

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, 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.

Case in Point: Home Depot had to pay nearly $180M between banks, credit card companies, and customers after 56M cards were stolen.

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.

Bottom Line

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?

#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.

Bottom Line

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.