How we cut credit card fees by 30% in an Ontario Medical Clinic

Understanding the Cost Burden

Credit card processing fees are a hidden expense that eats into profitability. For one of our clinic clients, this was particularly true—they were paying over 2% on every transaction. By analyzing their payment structure and switching them from a flat-rate model with Stripe to a discounted Cost+ pricing model, we successfully reduced their fees by over 30%, leading to monthly savings exceeding $15,000.

The Challenge: Flat-Rate Fees That Didn’t Fit the Model

Our client, a bustling group of medical clinics, earns approximately 80% of its revenue from OHIP. They charge their physicians a fixed overhead and they use Stripe, a popular and easy-to-implement option that their tech team thought was the easy and obvious choice for their tech integration. The medical clinics primarily processed transactions through Mastercard and Visa. Most patients were middle-income earners, and the interchange fees for these cards used most often were relatively low. Despite this, the clinic was locked into a flat-rate pricing model with Stripe, which did not consider the low interchange fees applicable to their transactions.

The flat-rate model, while simple, charged the clinic a fixed percentage (over 2%) on every transaction, which meant they were losing out on potential savings due to the mismatch between their payment profile and the processor's fee structure.

The Solution: Transitioning to a Discounted Cost+ Model

We approached the issue with a data-driven and transparent plan:

Understanding the Clinic’s Needs:

Understanding the CEO is a forward-reaching and higher-level thinker, it took him effort to retrieve the data needed to do a clear comparison. While always interested in saving money, the existing system was clearly designed to make getting the rates and data a burden. When we did finally get to review their data, we carefully reviewed their transaction history to identify volume and card type breakdown.

We noted that most transactions involved Mastercard and Visa, with minimal use of higher-cost cards like American Express.

Switching to a Cost+ Model:

In a Cost+ model, clinics pay the actual interchange fee (set by card networks like Visa and Mastercard) plus a small markup (the "+") that goes to the company facilitating the connection between the consumer and the carrier.

Negotiated to minimize the "+" component, ensuring that the clinic paid the lowest possible margin to the processor.

Implementing and Monitoring:

Transitioned the clinic to a payment processor with a Cost+ structure tailored to their transaction profile.

Monitored the results over the first few months to validate the savings.

The Results: Significant Savings with No Operational Disruption

Within the first month, the savings were undeniable:

Fees Reduced by Over 30%: From over 2% flat to an effective rate that saw the customer paying less than 0.5% over interchange on their 2 highest volume network transaction types.

$15,000 in Monthly Savings: By passing on the reduced interchange fees directly to the clinic.

Sustainable Profitability: The savings contributed directly to the clinic's bottom line without requiring additional revenue or cost-cutting elsewhere, and a portion of the savings is now being invested in technology that will be used to on-board and train new team members, and in an updated phone system.

The Takeaway: Your Payment Model Matters

This case highlights the importance of understanding your transaction profile and choosing a payment processing model that aligns with it. For medical clinics, where every dollar saved can be reinvested into better care or staff support, reducing fees through transparent and data-driven strategies is a powerful lever for profitability. Understanding your patient demographics and payment dynamics can pay dividends in the long run - but only if you hold your nose and go through the effort of setting it up properly.

FAQ’s

Q: What is a flat-rate credit card processing model?

A: A flat-rate model charges a fixed percentage on all transactions, regardless of card type or interchange fees.

Q: What is a Cost+ model in credit card processing?

A: The Cost+ model passes the actual interchange fee (determined by card networks) to the merchant, plus a small negotiated markup.

Q: How do I know if Cost+ is right for my clinic?

A: If your transactions involve mainly low-cost interchange cards like Visa and Mastercard, Cost+ can significantly reduce your fees.

Q: Why are flat-rate models more expensive for some clinics?

A: Flat-rate models simplify billing but often overcharge clinics by setting a high fixed percentage. If your patients primarily use cards with low interchange fees (like Visa or Mastercard), you're likely paying more than necessary.

Q: How can I calculate my clinic's potential savings by switching to a Cost+ model?

A: Review your current statements to identify your average transaction volume and effective rate. Compare that to a Cost+ structure with typical interchange fees. A payment processor can help simulate your potential savings.

Q: Will switching payment processors disrupt my clinic’s operations?

A: No, transitioning to a new processor can be seamless. Most processors handle the setup and provide training to ensure your staff can use the new system without any interruptions to daily operations.

Q: What are interchange fees, and how are they determined?

A: Interchange fees are charges set by card networks (like Visa or Mastercard) that the merchant pays for processing a transaction. They vary by card type, transaction amount, and other factors like the industry of the merchant.

Q: Can a Cost+ model work for clinics with diverse card usage?

A: Yes, but the effectiveness depends on your card mix. If you see significant usage of premium cards like AMEX, the savings may be lower. However, for most clinics with primarily Visa and Mastercard users, Cost+ can still offer substantial benefits.

Q: Are there any hidden fees with a Cost+ model?

A: A properly negotiated Cost+ agreement is transparent. Ensure your processor provides a clear breakdown of interchange fees and the "+" (markup) to avoid surprises. Look out for additional fees like statement fees or PCI compliance fees, which should be clarified upfront.