How to Cut Fees by Restricting High-Cost Payment Methods in Magento 2?

Due to the ever-increasing competition in the eCommerce field, Magento 2 store owners need to find ways to maximise their profitability without compromising on service quality or the user experience. One of the best ways to achieve it is by reducing the payment gateway fees.

Of course, payment providers are not going to reduce their fees just because you asked them to. Instead, what you need to do is strategically manage the payment gateways. As the title indicates, in this article we are going to discuss how to restrict payment gateways using a Magento 2 payments restriction extension.

Importance of Managing Payment Gateways in Magento 2

Before we move forward, it is pertinent to understand why there’s a need to manage the payment gateways carefully.

1. Impact on Profitability
   Contrary to popular belief, eCommerce store owners are not making 100% or even more profit on every item sold. Instead, the profit rate is considerably less. So, whenever a customer purchases an item, the payment processor charges an amount. In most cases, this amount is in the form of a fixed charge plus a percentage of the total checkout amount. These costs can erode a store’s profitability.
2. User Experience
   To stay afloat, merchants need to determine whether to bear the gateway fees themselves or pass them onto the customer. If they are passed onto the customer, they will be reluctant to shop at your store again due to the high cost of buying. Over time, your store will lose its market share to competitors. If the merchant decides to bear the fees themselves, their profitability is undermined.
3. Customer Preferences
   You may notice that every user has distinct preferred payment methods. While prefer to use credit cards for shopping, other may prefer debit cards or mobile wallets. If a merchant decides to restrict one payment method using a Magento 2 payment restriction extension, it can have a negative impact on the users. Therefore, merchants need to carefully balance operating costs with customer preferences.
4. International Transactions
   eCommerce is not concerned with physical boundaries. Your store could be based in the US, while you cater to customers in Japan. The problem is that international transactions incur additional fees. By managing which payment methods are made available based on the location, merchants can optimise costs and improve profitability.

How to Identify High-Cost Payment Methods in Magento 2?

1. List Current Payment Providers
   The first thing you need to do is draw up a list of all the payment providers your store uses.
2. Review the Terms and Conditions
   The next step is to review the terms and conditions for each payment provider. Essentially, what you are looking for is the fixed cost plus the percentage of total cart amount. Apart from this, look for international transaction fees, monthly/yearly fixed fees, and any hidden costs.
3. Analyze the Transactions
   This step requires utmost dedication since it can be time consuming. What you need to do is analyse at least 20 transactions for every payment provider. Determine the average cost per transaction for each gateway. This will help identify which payment provider is charging the highest amount in terms of percentage or absolute dollar amount.
4. Review Alternative Payment Providers
   By now you’ll have a clear picture of which payment provider is charging the highest amount and in what scenario. It may be that payment provider A is the costliest for international transactions but the cheapest for local transactions. Thus, the next step involves looking for alternatives to each payment provider in different cases. The idea is to identify providers that charge lower fees. 

Restricting Payment Providers Using a Magento 2 Payment Restrictions Extension

After identifying payment providers that charge higher fees compared to others, merchants need to work on restricting those. While Magento does have native support for restricting payment methods, the features are not quite advanced. Thus, it is better to use a third-party extension such as Magento 2 Payment Restrictions Extension by FME.

This extension allows you to set up restrictions based upon:

1. Location
   Location-based restrictions are the most widely used payment restrictions in Magento 2. International transactions incur currency conversion and other charges. To avoid such high costs, merchants can easily disable certain payment providers and opt for ones that charge a fixed fee regardless of the location. 
2. Individual
   There’s a possibility that you may want to restrict a payment method for an individual customer. Suppose a customer has a history of chargebacks or delayed payments. In that case, the viable option is to restrict the customer to cash on delivery or direct bank transfer methods.
3. Customer Groups
   In most cases, credit cards have the highest transaction fees. Therefore, it is better to restrict this method to VIP or frequent buyer customer groups. If you allow every customer to buy using a credit card, your overall transaction fees will increase. It will erode your store’s profitability.
4. Cart Total
   Another commonly used payment restriction is the total cart value. Most payment processors have a fixed fee plus a certain percentage of the total cart value. Thus, higher the cart total, the greater the transaction charge. Therefore, as a Magento 2 store owner, you need to be careful when deciding which payment methods to allow at different levels of cart value.
5.  Product Type
   Lastly, merchants have the option of imposing payment method restrictions in Magento 2 based on the product type or category. Items that have low monetary value e.g. less than $50 can be restricted to direct bank transfers or cash on delivery. For items valued more than $50, merchants can opt to offer credit cards, PayPal, and other channels.

Final Thoughts on Magento 2 Payment Restrictions

This concludes our article on how to reduce payment gateway fees in Magento 2 by restricting high-cost payment methods. Nevertheless, we recommend exercising caution when restricting a payment method as it can have repercussions. For instance, disabling credit cards for most users can affect low-budget buyers. They are interested in your product but may not have the money to pay upfront. Hence, they rely on credit cards.