How to Read a Merchant Statement – Everything you Need to Know

June 3, 2020 / Posted in Payment Processing

If you are wondering what is the best way to keep track of your business’s growth, consider establishing the habit of reviewing your merchant statement in detail. For many, to read and understand a monthly report may seem a bit complicated. However, there are ways to break the barriers. With a few simple steps, you can learn how to properly read the monthly report and be sure that the chosen processor is the best solution for your business.

The Importance  of Understanding Your Monthly Summary

Before we start explaining how to understand this document fully and why understanding credit card transaction fees listed in your monthly report is crucial, take a minute to answer this question – do you consider this report an important document? If your answer is no, we ask you to reconsider your approach towards it.

People avoid detailed analysis of statements because it looks intimidating, with section after section of incomprehensible words and numbers. One of the segments that seem most challenging to understand is the one with different types of charges. To review the account means to know how every fee impacts the money deposited into your account. So, here are the barriers to understanding them as well as the rest of the report:

  • Lack of Knowledge – It is hard to understand what you are looking at when you don’t know why you are looking at it and what exactly you are looking for. That’s why, when you learn about some of your monthly report basics, it will be much easier for you to understand how they affect your business.
  • Lack of Consistency – Structures of these reports vary among providers of merchant services. That’s why it is not only hard to understand the charges on individual statements, but also it is much harder to learn how to read them as they vary so much.
  • Lack of Transparency – A major systemic issue is the lack of transparency. For example, tiered pricing is the most suitable for processors and account providers to conceal base charges. That’s why, among other things, you should learn about the different types of pricing.

What Exactly Is a Merchant Statement

A merchant statement is a document that merchants receive every month. It provides all the details regarding customer transactions and the fee charged for the payment. The report usually contains a deposit summary, which is the breakdown of every fee paid to all the parties involved. The review might include details about any fee which is being charged by the processor.

The report gives you crucial information about the flow of your money. By reviewing it, you will know for sure if the proportion between the money that’s being deposited and each fee that is being charged is accurate and reasonable.

It might seem like it would take a lot of time to read the report, with all the numbers and statistics. Still, the good news is that there are a few steps, including the identification of pricing models, and discount methods, that can help you read it correctly, understand it fully, and make sure you got the best merchant service rates.

Identify the Components of the Credit Card Processing Cost

The payment processing cost has two main components – wholesale and markup. When reading the report, it is essential to separate these two.

For example, if gross charges for a particular month are $1000, you should look at your report and see which portion of the amount is going toward the base cost and which one is going toward the markup.

  • Wholesale / Base CostInterchange fees are what goes to banks that issue credit cards, and assessments go to the credit card companies, and when combined, they create the base cost. This number is fixed and cannot be negotiated.
  • Markup is any charge above the base cost, and it is the only negotiable area of the processing cost. This part goes to your chosen provider.

Remember, a fool-proof way to see if you have a competitive solution is by separating the base costs and markups. If your report does not give you the data to separate them, it will be hard to conclude how much you are paying concerning non-negotiable costs vs. markups. In that case, contact your service provider and request this information.

Pinpoint Which Pricing Model Is Being Used for Assessing Fees

Payment processing can be charged in a way that is not suitable for you. Therefore, when you identify the pricing model, you will know if it is the best solution for your business. Also, with knowing the pricing model, you will be one step closer to understanding the whole report.

The Most Common Form of Pricing Is Tiered Pricing

  • Tiered, also called bundled pricing, presents the most common form of processing pricing. With tiered pricing, the issuer fee added to the interchange rate is not fixed, so the amount you are paying depends on the type of credit cards your customers use.

Tiered pricing is filled with unpredictable add-on charges and incomprehensible billing statements. Because of that, it is challenging to understand how much you are being charged.

The easiest way to notice tiered pricing in your report is by looking for terms qualified, mid-qualified, or non-qualified. Pay attention when you are looking for them because sometimes the terms can be written in the form – qual, mqual and nqual.

Besides tiered pricing, there are interchange plus (also known as pass-through pricing) and flat-rate pricing. By knowing how to identify these two models as well, you will be able to read the statement accurately.

  • Interchange Plus / Pass-Through Pricing, put simply, means that you pay a fixed amount above the interchange rate. It is also good to know that, if your sales reach a particular volume, the interchange-plus plan can save you some money.

However, these rates can vary based on sales volume or business type, so interchange statements can look even more complicated than tiered ones. On the other hand, it will provide you with more useful information about all the charges.

You will identify interchange statements by itemized interchange charges or by a consistent low discount rate. The processor’s discount rate will be shown at the interchange-plus pricing report as a single low percentage for all brands of cards.

It is important to note that interchange statements almost always itemize interchange details. The appearance of itemized interchange details is a reliable indicator of interchange-plus pricing.

Keep in mind that tiered reports may also itemize interchange detail. That’s why you should look for elements that are characteristic of each pricing model. For example, if you notice that terms “non-qualified” or “-mid” are featured somewhere in the report, it is most probably based on tiered pricing.

  • Flat Rate Pricing Model – Regardless of the type of card being processed, with flat-rate credit card processing, you pay a simple, flat-rate fee. The bright side of flat-rate pricing is that it is transparent and straightforward, and you always know how much you are paying. Another advantage of flat-rate pricing is that it can be cost-effective for businesses with low average transactions and small businesses.

Additional note: The effective rate is the total average percentage you pay to process a single card. To calculate it, you should divide your total processing charges (in dollars) by your full deposit for the same period. You will get a decimal amount that you should multiply by 100, and the result will be your effective rate in percentages.

Establish The Discount Method

To process your credit card transactions, a processor will use a daily or monthly discount to deduct fees from your business account. It is up to you to establish and decide which one is the most convenient because the discount method affects your account’s total fees.

Keep in mind that some processors only offer daily discounting, while others let you choose. If you are in a position to choose, the monthly discounting has been proven to be a better method for most businesses.

  • Daily discounts can be identified by the appearance of the term less discount paid on the account. On a daily discount, a processor charges its qualified rate before settlement and then charges transaction fees and other charges at the end of the month. Fees paid throughout the month must be added to those charged at the end of the month to calculate total expenses on a daily discount report.
  • The monthly discount method is used by processors to charge each fee in one lump sum at the end of the month. Experience has shown that statements based on daily discounts are harder to track than statements based on the monthly discount.

Find the Best Solution and Services for Your Business

When you learn how to read a merchant statement, you will be able to identify its crucial parts, including the pricing model and method of discounting. Knowing these two segments of your credit card processing will help you understand the flow of your money and, if it is possible, how to cut unnecessary costs.

Reviewing the report, you’ll see how your business is growing and what steps you could take to make it more profitable. Also, you will see if the processor you have chosen offers you the best solutions. If that’s not the case, consider finding another.

Remember that every provider operates differently, so it is crucial to research before choosing the processor that provides the best services. It all boils down to finding the solution that offers the best values and rates for your business.


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