23 Jul 2018

Three Ways to Pay Less for Payment Processing

By: John Baker

Three Ways to Pay Less for Payment Processing

So, you work in home or auto insurance. And you want to make your books more profitable. It’s time for a look at payment processing: let's talk about your options for achieving a better expense ratio.

Option one: Pay less for processing

Card processing fees can really add up. Have you ever run the numbers on it? If not, you might be surprised at what you find. For example, let's say you have a $100 million book. Let's say 25 percent of your premium is paid by credit card, a typical scenario. Now, let's say you're paying a 2 percent transaction fee on that amount.

Long story short, you're losing $500,000 to payment processing – big price tag for a little piece of plastic.

Bottom line, it pays to find a billing partner who charges less. If they can process your money faster at the same time, you reduce your cash delay while you’re at it: win / win.

Option two: Pass the fee on

If you prefer not to absorb credit processing fees, can you pass them on to your customers? The answer is yes, maybe. One can do it in two ways: by adding a percentage-based surcharge (passing on the same fee the credit card company is charging you) or by charging a flat fee.

A surcharge approach isn’t viable for every insurer. If you operate in Texas, for example, your state's Finance Code "prohibits 'surcharging' customers for credit card use," according to the Independent Insurance Agents of Texas (IIAT). Texas isn't the only state with this rule: 11 others, in addition to Puerto Rico, prohibit credit card surcharges, the National Conference of State Legislatures said.

It’s fair to say, however, that 11 out of 50 is not a majority. If you operate in any of the other 39 states, you might consider adding a surcharge for credit card processing.

Whether or not your state law allows you to consider adding a surcharge, you still have the flat fee option. Since 2013, credit card companies have allowed merchants in the United States to charge customers "a convenience fee" for transactions.

There are stipulations, however: a convenience fee is only permissible in online purchases, and only if you offer alternative ways to pay.

There's also a bit of deeper problem with the flat fee approach: since you can't charge different customers different convenience fees (based on the size of their purchase), you'd have to set an average fee, which is difficult to do with insurance given the range of premiums out there. "Since even personal lines premiums can vary from $500 to $10,000, an average fee is unlikely to cover all the costs," IIAT said.

Option three: Speed up funding

Getting faster access to your money is a good thing: It’s good for building bank account interest and good for your AR team’s efficiency. It’s much easier to match premium payments that arrive the next day than it is to match them when they arrive a week later.

Get a side-by-side cost comparison

We're excited to announce that Silvervine offers fast, affordable payment-processing services – available as a stand-alone solution or as a solution that is fully-integrated with your Silvervine policy administration system. This is great news, because it removes an extra layer of effort and cost for you. If you happen to want a one-stop shop, you can have that. And if your goal is simply to lower the cost of payment processing? We think you’ll like what you see.

Want to learn more? Request a no-obligation side-by-side comparison of credit card processing fees.

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