The Cost Behind the Cost: Why Retailers Need to Rethink Their Payment Strategy

Hidden Fees and Eroding Trust

Credit cards and e-commerce now dominate modern retail, making cash increasingly obsolete and payment processing critical to a retailer's financial health. Yet many small and medium-sized businesses (SMBs) still do not fully understand how processing fees impact their bottom line.

Debit and credit card fees are a hefty, often hidden monthly expense. In 2023, merchants paid $172 billion in processing fees — a 48 percent jump from 2019. For retailers with tight margins or high volumes of card transactions, these fees can make or break profitability.

Many traditional payment processors deliberately obscure the true cost of processing payments. Complex, opaque pricing structures hide how fees are calculated. This "smoke and mirrors" approach has been the norm for decades, keeping merchants in the dark about how to optimize payments and reduce costs.

With 21 percent of all retail purchases expected to happen online this year, more businesses are scrutinizing their payment partners and swipe fees. They're uncovering hidden costs and a deeper issue: a widespread lack of transparency in processing agreements.

Beyond transparency, merchants are frustrated by outdated or unreliable technology. A J.D. Power survey found that only 43 percent of in-store card transactions are completed without assistance; in e-commerce settings, that number rises slightly to 47 percent. Pain points like declined cards, tap-to-pay failures, frozen screens and receipt printing issues are common.

As payment processing fees rise, merchants should expect better technology — not checkout experiences that hinder rather than help.

Leveraging Payments as a Strategic Driver of Growth

For years, retailers have viewed payment processing as a necessary evil. Legacy providers have reinforced this mindset by keeping merchants unaware of how to lower costs and boost revenue. A recent study by EY and Finix found that 70 percent of non-financial brands still see payments as a utility rather than a growth tool.

That perception is changing. Retailers are now demanding more visibility and control. They want payment solutions that offer real-time insights, not just a bill at the end of the month.

This shift has led many retailers to switch providers. According to a McKinsey & Company study, about half of SMBs use an integrated software vendor (ISV) as their payment processor, while 38 percent rely on legacy merchant services providers. However, not all tech-enabled solutions are equal.

While ISVs often promise streamlined payment experiences, reliability and functionality issues still persist. The right partner must offer transparency and continuously improve technology to deliver a frictionless experience.

A transparent processing partner can help retailers reduce costs and errors, automate reconciliation and reporting, free teams to focus on higher-value work, and even unlock new revenue opportunities.

One major cost-saving strategy is Level 2 and Level 3 processing. By providing extra transaction details (e.g., purchase order numbers, tax IDs and itemized lists), businesses can qualify for lower interchange fees as card networks consider these transactions lower risk. For retailers handling large B2B orders or high-value transactions, these savings add up quickly.

Rethinking the Retailer-Processor Relationship

Choosing a payment processor is about more than securing the lowest rates; it's about forming a partnership that supports long-term success. Retailers should ask tough questions before signing an agreement:

• How transparent is the pricing model? Hidden fees and unpredictable structures make accurate budgeting difficult. More businesses are moving toward clear, upfront pricing. If a processor cannot explain how fees are calculated, that is a red flag.
• Does the platform provide fee data and insights? Payments data should be a valuable business intelligence tool, helping retailers identify cost-saving opportunities and better understand customer behavior.
• Is the solution flexible? No two businesses are the same. Retailers need solutions that integrate with existing software, support multiple payment methods, and scale with growth.
• What level of support is available? When payments fail — and they will — businesses need responsive, real support, not just an FAQ page.
• How has the platform improved in the past year? Payments technology evolves quickly. Retailers should expect continuous improvements in features, reliability and user experience, not stagnation.

Payment processing shouldn't be an afterthought, and it should never feel like a black box. Retailers that demand transparency, leverage payments strategically, and choose partners committed to innovation will be better positioned for the future of commerce.

Emanuel Pleitez is the head of finance at Finix, a leading payment processing software that enables businesses to own and manage their payment infrastructure.