Behind every credit card tap, swipe or online payment is a complex network of banks, card brands and processors – all taking a small share before the funds reach your account. While those fees may seem insignificant on an individual transaction, they can quickly add up over the course of a year.
That’s exactly why understanding the basics can help practices make a more informed decision and potentially save thousands of dollars.
Why is payment processing a necessary business expense?
According to Jono Brooks, director of commercial software development at Patterson, payment processing is similar to any other business utility. Like internet service or software subscriptions, it’s a cost of operating a modern veterinary practice.The difference is that payment processing costs are transactional. Instead of paying a fixed monthly fee, practices typically pay based on the volume and type of transactions they process. As transaction volume increases, processing expenses increase right alongside it.
For many veterinary practices, payment processing is one of the larger recurring operational expenses, yet it’s also one of the least understood. Practice owners may know what they’re paying each month, but not how those fees are calculated, who receives them or whether there are opportunities to reduce costs.
Many veterinary practices process well over $1 million annually through credit cards, debit cards and other electronic payment methods. Even small differences in processing fees can have a meaningful impact on the practice’s bottom line over the course of a year. But before evaluating rates, providers and how payment processing works, it’s important to understand where the money actually goes.
Follow the money
Understanding who participates in a payment transaction can help explain why processing costs aren’t always as straightforward as they appear. When a client pays with a credit card, there are two sides involved: the payer and the merchant.We don’t need to dive into all the nitty-gritties and technicalities; all you need to know is who’s involved and where the fees go.So, here’s a simplified view of the payment ecosystem:
The issuing side (where the payment originates)
- The payer/cardholder (client)
- The bank that issued the credit card
- The card network, such as Visa, Mastercard or American Express
The acquiring side (where the payment ends up)
- The merchant (veterinary practice)
- The acquiring bank
- The payment processor facilitating the transaction
Together, these parties work behind the scenes to authorize, route and settle every transaction.
While the process happens in seconds, money is exchanged between several parties before the funds reach your practice. Each participant plays a role in keeping payments secure and moving funds where they need to go. They also collect fees for the services they provide.
The question many practice owners have is: Who gets paid and how much? To answer that, it helps to look at where processing fees actually come from.
Where do processing fees come from?
Now that we’ve followed the money, let’s talk about where processing fees actually come from.One of the biggest misconceptions about payment processing is that all fees go to the company providing the service, but that’s rarely the case.
In reality, the largest portion of processing fees comes from interchange and assessment fees. These fees are charged by the card-issuing bank and card network every time a transaction is processed. The bank that provided the credit card receives a portion of the fee, while the card network facilitates the transaction and establishes the rules that govern the payment ecosystem.
These fees are completely outside of a processor’s control. They’re established by the card brands and issuing banks and can vary depending on the type of card being used. Some cards carry higher fees than others, which means two transactions of the same amount can cost a practice different amounts to process.
This is because many clients use rewards cards that offer airline miles, cashback incentives or other perks. While these benefits can be attractive, they’re not funded out of thin air. It’s you, the veterinary practice accepting the payment that funds the rewards associated with that client’s card. As a result, premium rewards cards often carry higher interchange fees than standard credit cards.
Debit cards typically have lower fees than credit cards, while premium rewards cards and certain specialty cards tend to cost more to process. Since practices have little control over which cards clients use, understanding how these costs work is an important part of evaluating overall payment processing expenses.
Look beyond the advertised rate
When comparing payment processors, it’s tempting to focus on a single number. A provider advertising a flat rate may appear appealing, but payment processing isn’t always that simple. Flat rate pricing is often based on assumptions about the types of cards a business will accept. That’s because processors need to protect their own margins; those rates may include built-in buffers designed to account for varying transaction costs.For veterinary practices, the most important question isn’t “What is the rate?” Instead, they should ask:
- How are fees structured?
- What services are included?
- How transparent is the provider?
- Are there opportunities to reduce costs without disrupting client experience?
Taking a closer look at the full picture can help practices better understand what they are actually paying for. For practices looking to reduce payment processing expenses, there isn’t a one-size-fits-all solution.
Some practices choose to absorb processing fees as a cost of doing business. Others explore options such as surcharging, which allows all or most of the credit card processing costs to be passed along to the client.
While surcharging has become more common in recent years, it should be approached thoughtfully. State regulations, card-brand requirements and client expectations can all influence whether it’s the right fit for a particular practice.
The most important thing is understanding the rules and working with a trusted payment partner that can help ensure compliance and guide the decision-making process.
Importance of finding the right partner
Payment processing may seem like a commodity, but in reality, the provider relationship can make a significant difference. Beyond competitive pricing, the right partner should help practices consider how payments fit into their day-to-day workflows, remain compliant with changing regulations and identify opportunities to improve efficiency.That’s why Patterson Pay was designed to be specifically for veterinary practices. Patterson Pay helps practices better understand their payment processing costs while providing integrated solutions that work within your practice software’s existing workflows. Rather than treating payment processing as a standalone service, Patterson Pay helps practices evaluate the full picture, from transaction costs to operational efficiency.
In conclusion, veterinarians already have enough on their plates without becoming payment processing experts. They just need enough information to ask the right questions to make an informed decision.
Learn more at pattersonvet.com/patterson-pay or call 866-4PAT-PAY
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