What are the best cost accounting methods for identifying hidden payment processing fees?

1 Activity-based costing

Activity-based costing (ABC) is a cost accounting method that assigns costs to activities rather than products or services. By identifying the activities that consume resources and generate costs, you can better understand how your payment processing fees are distributed across different payment methods, channels, and regions. For example, you can use ABC to calculate the cost per transaction for each payment method, such as credit cards, debit cards, e-wallets, or bank transfers. You can also use ABC to compare the cost of using different payment gateways or processors, such as Stripe, PayPal, or Square. By using ABC, you can identify the hidden fees that are embedded in the payment processing activities, such as interchange fees, assessment fees, currency conversion fees, cross-border fees, or chargeback fees.

2 Standard costing

Standard costing is a cost accounting method that compares the actual costs of payment processing with a predetermined standard or budget. By setting a standard cost for each payment method, gateway, or processor, you can measure the variance between the actual cost and the standard cost and analyze the reasons for the difference. For example, you can set a standard cost per transaction for credit cards based on the average fee rate of your payment processor. Then, you can compare the actual cost per transaction for credit cards with the standard cost and identify any hidden fees that cause the variance, such as additional fees for premium cards, fraud prevention, or compliance. By using standard costing, you can monitor your payment processing costs and performance and adjust your budget and strategy accordingly.

3 Marginal costing

Marginal costing is a cost accounting method that separates the fixed and variable costs of payment processing and focuses on the incremental cost of each additional transaction. By identifying the variable costs of payment processing, you can determine the contribution margin of each payment method, gateway, or processor, which is the difference between the revenue and the variable cost. For example, you can use marginal costing to calculate the contribution margin per transaction for each payment method, such as credit cards, debit cards, e-wallets, or bank transfers. You can also use marginal costing to compare the contribution margin of using different payment gateways or processors, such as Stripe, PayPal, or Square. By using marginal costing, you can identify the hidden fees that affect your profitability and optimize your payment processing mix and pricing.

5 Target costing

Target costing is a cost accounting method that sets a target cost for payment processing based on the desired profit margin and the market price. By working backwards from the target cost, you can identify the hidden fees that are exceeding your cost limit and reduce them through value analysis and engineering. For example, you can use target costing to set a target cost per transaction for each payment method, such as credit cards, debit cards, e-wallets, or bank transfers. You can also use target costing to set a target cost of using different payment gateways or processors, such as Stripe, PayPal, or Square. By using target costing, you can identify the hidden fees that are eroding your competitive advantage and enhance your payment processing value and differentiation.

6 Here’s what else to consider

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