What Does it Mean to be “Zero-Fee”?
Nowadays, every product or service we get usually includes an extra charge. Either for payment processing, using a particular bank card, or other operations. No matter the transaction, no additional fee should increase the original agreed price.
However, many institutions have noticed that this practice, while beneficial to them, alienates their customers - both established and potential, creating a rift that can lead to a breakdown in business relationships.
How do Fees Affect B2B Payments?
B2C transactions are higher in volume, so merchants and financial institutions can ignore this situation. Their cash flow is massive and constant, and compensations such as interchangeable points or cashback help keep customers’ loyalty.
But for B2B businesses, the circumstances are very different. Because B2B transactions are high dollar and low volume compared to their B2C counterpart, the loss of one transaction can represent a severe loss for businesses.
Excessive payment processing fees are one of the worst problems for B2B merchants because they are often paid directly out of the company's revenue. Depending on the structure and type of business, the volume of transactions per month, and the value of each transaction, fees can cost more than the total earnings.
When payments are made via credit cards, the processor may charge between 3% and 5% fee on each transaction. A profit margin of around 10% is desirable for most companies to consider profitable growth. The fees generated for processing customers' payments can consume an excessive amount of revenue (almost 50%).
High credit card processing fees could further reduce your net profit margin if your company is in a competitive market with even lower margins.
Is Passing Fees a Plausible Solution?
To cover the high transaction fees cost, some companies protect their net income by increasing the price of their products or services. This translates into increased surcharges on purchases or a price increase for the company.
By passing on fees, companies become much more profitable as this practice allows them to protect their bottom line, preserving the most critical asset of any business: its income.
Merchants can control when to pass on fees, choose a fixed amount or percentage of fees, or different amounts for different customers. This makes it easy for merchants to adjust their tactics based on customer acceptance rates of their costs.
What does Zero-Fee Processing Mean?
Zero-fee is a payment processing method that excludes operational fees. This is possible through a bank-to-bank network that uses a commission-free payment lane in a secure, timely, and recurring manner.
This bank-to-bank network eliminates the need for credit cards by allowing customers to be charged directly. Since customers authorize the process and intent to pay, funds are verified before payment, eliminating the need for chargebacks and administrative costs.
This reduces refund and chargeback requests associated with credit card payments. As a result, the network has zero fees.
Zero-Fee Processing Benefits
There are numerous benefits that a company can benefit from by adopting zero-rate processing. One of them is to avoid the high monthly fees generated by using merchant account services.
This gives much more freedom to make price adjustments to the products or services offered to suit the company's needs better, allowing it to invest more profit in its business.
Using a bank-to-bank network not only allows you to eliminate transaction fees but makes your payments more convenient and secure. All sensitive information remains with the provider rather than stored elsewhere, such as on internal servers or mobile devices.
Why Zero-Fee is the Best Solution
Passing fees when processing payments may be an excellent option to maintain revenue stability, but it can create customer instability and affect the business relationship. A zero-fee model in which these commissions are eliminated for both parties is desirable and is what we should be aiming for.
To truly reduce costs, free up capital and achieve a true financial balance, we must work with a payment gateway that offers the following:
- Flat-rate, transparent pricing
- Convenience fees over interchange fees
- Zero-Fee ACH and bank-to-bank transfers options
- ERP integrations
- High-end security
Zero Transaction Fees with Paystand
At Paystand, we believe in eliminating zero transaction fees and the gatekeepers and middlemen who charge them. We’ve achieved it through the Paystand Bank Network, a zero-fee, digital payment network that allows real-time bank-to-bank transfers.
We work from a subscription-based software model, not a transaction-based model, called Payments-as-a-Service. This means that by using Paystand's Digital Network, you no longer need to pay transaction fees, as you pay a flat monthly fee to use our software.