What Every Operator Should Know About Payment Processing

For Gym Operators

What Every Operator Should Know About Payment Processing

Do you know how your business' processing fees stack up against the average?

If not, you may be losing more profits than you should with every financial transaction. Here are the basic things you need to know about payment processing and how to get a fair deal, while still providing convenient payment options for your customers.

The following is a summarization of an education session from the 2015 IHRSA Convention, produced with full permission from IHRSA. The full-length video is available for purchase at ihrsastore.com.

About the Speaker

Al Noshirvani is the Cofounder and CEO of Motionsoft, a provider of software and financial services for the health and fitness industry. Motionsoft club management software and member management solutions are award winning, and have helped many top fitness clubs such as Equinox Fitness, Extreme Fitness and CRUNCH.

Payment Processing

Understanding the Basics, Uncovering Hidden Fees, and Protecting Your Reputation

There are a variety of fees that processing and software companies charge: bank fees, late fees, decline fees and resubmission fees. In reality, the only rate or fee you should be paying for using a payment card is referred to as interchange, which is a fee that is paid between the banks for the acceptance of card transactions. You should not be paying any other rates, especially as related to Automated Clearing House (ACH) payments.

Transactions do not have a “base rate” associated with them and should not cost more than an interchange fee, which is approximately $0.25 per transaction. This is a floating number and can range from 0.7 percent to 3 percent for certain cards. An ACH transaction should also not cost more than this.

Point-of-Sale vs. Recurring Payments

The payment industry bases all actions on risk. Having a person physically in front of you completing a transaction reduces any risk associated with that transaction and is therefore preferred.

With the recurring payment process, the risk of a chargeback is much higher. This is why there is a higher rate associated with recurring card payments. Gyms usually attract higher rates than normal on recurring payments when compared with companies such as Netflix and Hulu. This high chargeback rate is attributed to the high attrition rates and members who constantly chargeback transactions. A common swipe transaction should not cost more than 3.25 percent of the sale and is based on card type.

Submitted vs. Collected Charges

It is common for processor companies to charge you fees based on the collective amount you submit to them. This allows them to charge you higher rates even if you haven’t actually collected that money yet. Your processing fees should only be charged on the money you collect and not on the total amount you submit to the processor. Ask for statements and analyze them to make sure you are being charged for the amount you’ve collected.

Self Service Is the New Full Service

There are now tools available like the Card Account Updater that help you maximize first-time submissions and decrease unnecessary outbound calls. It allows you to automatically update credit card information for certain types of declines, such as card expiration, so you can complete transactions in a timely manner and avoid any penalty fees. The cost of an account update is about $0.10.

Every Decline Has a Reason

The card associations and the Federal Reserve regulate rebills and retries of credit card and ACH payments. You can be overcharged due to multiple resubmissions even if you do not ultimately collect any money from those transactions. Try not to resubmit "hard declines" or declines related to lost or stolen cards.

Timing of Cash Flow

You should never wait two weeks for your deposit. Typically, the total amount of collected transactions goes into the processor’s hand immediately. Therefore, once the transactions are processed, the money should be sent to you immediately. ACH payments are a bit more delayed than ordinary card payments, but should be completed within two or three days.

Managing Your Reputation

Your public reputation can have serious ramifications for your business. Consumer Affairs, Yelp, and Facebook are all prevalent platforms for your customers to either praise or complain about your services. Try to make it easy for your members to do business with you by automating collections and communication processes in relation to declines. Provide your members with the opportunity to do business when it is convenient for them. It is important to maintain a good reputation by controlling the messages your clients take away from your business and by providing convenient and consistent service.

Each instance that you're overcharged for a processing fee is small on its own, but the sum adds up quickly. By knowing the basics about payment transactions, you can make sure that you're not losing valuable revenue for your club, maximize your profits, and never overpay again.