Why are card payments so expensive?


Libby James – the founder of merchantadviceservice.co.uk – specialises in high-risk merchant accounts. Having regularly dealt with KBB clients, she offers her insights into the costings surrounding card processing overheads and how you can deal with them.

When it comes to accepting credit card payments, kitchen and bathroom companies in the UK often encounter higher card processing costs compared with businesses in other industries. This can be attributed to several factors, including the volume of high-ticket sales and charge-back risks. As a result, kitchen and bathroom merchants are deemed higher risks, which therefore increases card payment fees. In this article, we will explore these factors in detail, while providing tips on securing favourable terms for your merchant account, and the potential benefits of switching accounts.

High Ticket Sales

Kitchen and bathroom companies typically deal with higher-priced products and services compared with many other businesses. Renovations, installations, and custom designs often come with significant price tags. As a result, the average transaction value for these companies tends to be higher, leading to increased processing costs. Card processors typically charge a percentage fee on each transaction, meaning that higher-priced transactions result in higher fees.

TIP - NEGOTIATE VOLUME DISCOUNTS: When negotiating with payment processors, highlight the volume of transactions your business processes. This can provide leverage to negotiate lower percentage fees for high-ticket purchases.
Libby James

Charge-back risk

Charge-backs occur when customers dispute a credit card transaction, leading to a refund and potentially incurring additional fees for the business. Kitchen and bathroom companies may be more susceptible to charge-backs because of the nature of their industry. Dissatisfied customers or misunderstandings regarding product quality, installation, or delays can result in charge-backs. Consequently, payment processors view this industry as having a higher charge-back risk, which may lead to increased processing costs.

TIP - CLEAR COMMUNICATION: Maintaining open and transparent communication with your customers can help reduce the likelihood of any charge-backs. Clearly outline your products, services, delivery timelines, and any associated policies to manage customer expectations effectively.

TIP - RESOLVE DISPUTES PROACTIVELY: In the event of a customer complaint or issue, address it promptly and professionally. Taking proactive measures to resolve disputes can often prevent charge-backs from occurring.

Lengthy time between transaction and delivery

TIP - SETTLEMENT TIMES VARY BETWEEN PROVIDERS: However, these can be negotiated, which in turn helps with cash flow. High-risk merchants with a good transaction history can often achieve next-day settlement terms for a small additional fee. If you’re unhappy with your existing terms, speak with your current provider or consider reviewing your merchant services contract elsewhere.

In the kitchen and bathroom industry, there is often a considerable time gap between the initial transaction and the delivery of products or completion of services. This delay can lead to higher card processing costs for several reasons. First, payment processors typically hold funds for a certain period to mitigate the risk of charge-backs during this time (known as a rolling reserve). Second, the longer the gap between the transaction and the delivery, the higher the chance of customer disputes or changes in circumstances, which can result in charge-backs.

Understanding the factors that influence higher card processing costs is essential for managing your finances effectively. You can negotiate favourable terms with your payment processor by acknowledging the impact of risk. Considering regularly switching merchant accounts can help you optimise costs, increase transparency, and potentially enhance the overall payment processing experience.

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