From this article you will learn:
- how you can successfully offset the negative impact of potential economic downturn through transaction processing cost reduction;
- why the chances of economic recession are now higher than before;
- which direct and indirect cost items you can reduce;
- what particular transaction processing cost reduction items you should focus on.
During the past 10 years economy was growing and developing. Last major economic recession was witnessed in 2008. Presently, some experts, economists, and market players expect the world economy to experience a downturn in 2020 or 2021.
There are some indirect signs, indicating that the probability of recession is now higher than before. These signs include ongoing trade war with China, behavior of stock market, lowering interest rates, certain decrease in production tempos, problems with getting student loans, etc. Recession, usually, results from collapse of some major collective belief or premise that turns out not to apply. So, in a year or two we might as well find out some unexpected truth. For example, that economical system does not work as we expect it to. Or that world trade connections are not as strong as they look.
Anyway, how can a company prepare for potential recession? Well, obviously, it has to try and increase its revenues. And reduce its costs. In times of economical growth the natural thing to do is to increase sales. However, in times of recession it is the cost reduction and not the sales growth that has better chances of yielding tangible results. Cost reduction might help many businesses cut their expenses and, to some extent, increase their revenues.
3 steps towards transaction processing cost reduction
Here are some specific cost reduction tips for merchant services industry players.
Reduce transaction processing costs
If companies manage to process transactions of their existing customers at lower cost, they might benefit substantially. Such cost reduction will allow them to increase the profitability of future transactions (which will also cost less).
For example, if transaction processing cost is 0.5% lower, then the revenue is 0.5% higher. What’s more, all future operations are 0.5% more profitable.
One of the ways to get better processing deals is unification of all processing operations under one processing/gateway platform. It will, in its turn, result in consolidation of transaction processing volumes. Based on consolidated processing volume, a company has better chances of negotiating lower rates from the acquirer/processor.
Speaking of processing cost reduction, we should also remember that they include not only the part of transaction amount that you pay to your processor. Indirect and opportunity costs, also related to payment processing, are not always clearly visible and easily detectable. However, they often amount to significant volumes as well. So, in addition to finding an optimal processing deal, company management should carefully check, whether it can reduce or avoid any of indirect and opportunity costs.
Automate the process
Let us assume, you have managed to automate merchant on-boarding process. Thus, you can save on the wages of people who initially performed the respective manual work. The involved personnel can now be re-directed to other tasks.
Other operations worth automating include reconciliation, settlement, reporting, accounting, and, potentially, management of chargebacks and refunds. Are any of these operations still performed manually in your company? Well, now may be the right time to automate them.
Become more transparent
If your system is more resilient, stable, transparent, and user-friendly in the eyes of merchants, you can reduce the number of tech support calls. As a result, the total cost of servicing of customers through call centre (and of tech personnel work) will decrease.
All these steps might call for implementation of some new processing or gateway solution. This solution will be more universal, robust, feature-rich, and transparent than the current one. However, the process of switching to a new solution takes time. Adaptation to a new gateway technology, migration to a new platform, integrations, and certifications cannot be performed all at once. So, you should play the the transition in advance.
According to the experts, the next recession might strike in 2020 or 2021. So, those who are looking for ways to reduce their costs through implementation of a new gateway/processing platform have approximately a year to gradually switch to the new solution. This will make the transition smoother and offset the negative impact of potential economic downturn.
You are welcome to find more information on the subject in our transaction processing cost reduction guidelines.