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How Bambora can cut your payment costs

Hero Bambora Price Cut Hero Bambora Price Cut Placehoder
4 min read

No one wants to pay more than they have to, but in the world of card transaction fees that’s often exactly what happens. As an acquirer, we see it as our job to reduce merchants’ costs by making sure that they qualify for the lowest possible scheme and interchange fees. Here’s how we do it.

Cost optimisation is an important part of Bambora’s advanced acquiring offer. For merchants with a variable price model, also known as interchange++, we can optimise how transactions are handled and help enterprise merchants significantly reduce their transaction costs, which could potentially save them millions.

European scheme fees

The key to reducing card transaction costs is understanding which factors lead to higher scheme and interchange fees, and how they impact the final cost for the merchant. In the European Economic Area (EEA), for example, there are caps on interchange fees for consumer cards. This results in relatively low interchange fees and small variations between countries and hence, there is limited potential for cost optimisation. But by looking closer at the drivers behind scheme fees we can create big benefits for our European merchants.

One example of how this can be done is by looking at merchant location. Scheme fees are sometimes significantly higher when transactions are made to a merchant located in another country than where the card was issued. For online retailers that have branches in several countries this can offer both a problem and a possibility.

With a pan-European acquiring license, Bambora has the ability to reroute transactions for these online merchants so that they are handled as domestic. Instead of sending a transaction cross-border we simply send it to the merchant’s local "legal entity" so that the transaction is now classified as “domestic”, which usually means lower scheme fees. In one instance, Bambora helped an international travel company increase its domestic flows in just this way. By doing that we were able to lower their annual scheme fees by 44 percent, while also increasing acceptance rates by 3.5 percent.

In other cases the same effect can be reached without actually handling the transaction as domestic but by just routing it to another country where the scheme offers lower fees.

US interchange fees

In the US, the payments landscape looks different. Domestic interchange fees in the US, especially for consumer credit cards, are significantly higher than in the EEA, and depend on qualification to various interchange programs. As an acquirer, this means we need to help our merchants qualify their transactions for the cheapest possible interchange programs to keep their costs down. For an airline, for example, qualifying a transaction for the cheapest interchange program can be the difference between paying an interchange rate of about 1.75% for consumer credit cards or a “standard” rate of 2.95%. As you can imagine, that represents significant savings.

But qualifying for the best program can be tricky. The issue for many airlines is that they have a large number of partners, sales channels and different booking platforms, who process payments using different payment systems and with reporting in different formats. So, even if we know how to qualify for the cheapest interchange program, we can only do that if those transactions are being processed in just the right way in all the systems: with all the required data fields in the right format and complying with things like timeliness requirements.

Cutting costs in the air

This is exactly what we have been helping one of our airline customers do over the past year. An analysis of their US interchange fees showed that by qualifying for the best programs the airline could lower their average interchange rate on domestic US card transactions from 2.26 % to 1.73 %, saving them hundreds of thousands of dollars every year.

To make that a reality, we then had to look through their entire payment ecosystem to make sure all parts were delivering the correct data needed to qualify. The reasons for a transaction not qualifying for an interchange program can vary, from delays in settlement or a mismatch between authorized sale and settled amount to a lack of address verification or other data that is simply missing or mislabeled.

By going through the transaction flows from all the airline’s sales channels and payment systems we could see which parts did not fulfill the requirements. And by addressing those issues we saw that we could greatly increase the number of transactions that would qualify for the cheapest possible interchange program. Just days after the first completed updates we could already see that we had successfully given the airline 0.40%-1.20% lower interchange rate per transaction on certain card types.

For airlines, or indeed any merchant who has an interchange++ price model, these kinds of optimisation efforts offer an obvious advantage. Making sure that transactions are processed the right way leads to big cost reductions that benefit the merchant directly and can sometimes even help boost top-line revenues through higher acceptance rates. In essence, that means you pay less while getting paid more, what’s not to love?