Deciphering Your Merchant Statement: A Guide On How To Read Your Credit Card Processing Statement
Credit card processing statements can be confusing. For starters, there are no standards or guidelines that regulate them, so merchant statements can vary from one processor to the next. This lack of regulation enables processing companies to make your statement difficult to read on purpose to hide the (very real) possibility that you’re overpaying them.
For this reason, it’s important to understand how to read your credit card processing statement. Don’t just glance at it and call it day. Really take the time to decipher the details so you can determine how much you’re paying in fees. Doing so can save you hundreds, if not thousands of dollars per month—literally.
To help you accomplish that, let’s take a look at the following merchant statement that was sent to us by one of our members. We’ll be walking through the steps we took to understand the numbers, and we recommend you follow along using one of your credit card processing statements.
What Is A Merchant Statement?
A merchant statement is a document that itemizes the sales activities and transactions in your business for a given month. The merchant statement contains the total amount of transactions as well as the fees charged to your account. It lists the types of payment cards used in each transaction (i.e., credit cards vs debit cards), along with the number and amount of each transaction. It also lists the interchange costs incurred for each transaction.
How Do You Get A Merchant Statement?
Your merchant statement is typically sent to you by your merchant account provider or payment processing company. Depending on your vendor, your statement may be sent via email or snail mail. In some cases, you may be able to access it through an online portal.
Different payment systems have names for merchants, for example: merchant account statement, credit card processing statement, or merchant account processing statement.
What Does A Merchant Processing Statement Look Like?
The short answer: it depends on your payment processing vendor and the pricing method they’re implementing.
If you’ve signed up with a merchant services provider that uses a flat-rate pricing model, then your statement will be fairly easy to read, as it will contain a list of the transactions processed, along with the fees for each transaction, which are calculated using a flat percentage rate.
On the other hand, if you’re using tiered pricing, then you will likely see terms like “qualified” or “non-qualified” in your statement.
Meanwhile, processors that are implementing interchange-plus pricing will have more detailed statements, because they’ll list the different interchange fees for each transaction.
Merchant Statement Example And What It Means
Now that we’ve covered the basics, let’s dive into what a merchant processing statement actually looks like and how to read it. Below is a screenshot of an actual merchant statement. We’ll walk you through the steps you need to take to effectively read it.
Step 1: Calculate Your Effective Rate
When you first signed up with your credit card processor, they may have a given you low rate, or a range of rates for processing credit cards. And while those figures can give you a ballpark of how much you’re paying, the most accurate way to determine your fees is to run the real numbers in your business.
We call this step finding your effective rate.
To do that, divide the total dollar amount that you processed by the total fees charged by your processor. Or, follow the formula:
Effective Rate = Total Fees Charged / Total Amount Processed x 100
Let’s look at how this applies to a real merchant, using their statement below.
Using the formula above, we’ve calculated that this merchant’s effective rate is about 2.92%.
$1,506.68 / $51,634.88 = 0.0291795 x 100 = 2.917%
Action step: Run the same calculation on your own credit card processing statement. Find your total fees then divide it by the total amount that you processed, so you can figure out your effective rate.
Once you have that, you can then you’ll be able to see how much of your card processing fees are going to the card issuers (Visa, Mastercard, Discover) and how much you’re paying your processor.
Step 2: Determine Your Interchange Costs
As we previously discussed, your interchange costs are the fees charged by card issuers. Payment processors do not control these rates, and every merchant is required to pay the interchange.
Go through your own merchant statement and find the section that details your interchange costs. In the case of our client, there are columns in their statement that show the interchange rate and cost per transaction.
You can see below that the rate charged on every card is different and the statement actually DOES show how much is going to Visa/MC/Amex/Disc.
On this page, interchange costs were as low as 1.9% and as high as 2.86%. (The statement was over 20 pages long, and on other pages, some cards were charged under 1%.)
Once you find your interchange rates, add up your total interchange costs.
In the case of this merchant, their total interchange fees amounted to $982.33.
Step 3: Deduct Your Total Interchange Fees From The Total Fees Charged
At this stage, you’ve already determined the fees that you’re paying card issuers. The next step is to find the fees that are going to your processor.
This part is pretty simple.
Remember the total fees that you’ve identified in step 1? Take that number, and then subtract your interchange fees from that total.
Processor’s Fees = Total Fees Charged – Total Interchange Chargers
Going back to the merchant above, their total fees were $1,506.68, so we deducted the interchange costs of 982.33, leaving us with $524.35.
1,506.68 – 982.33 = $524.35.
Once you’ve found your number, then you’ve essentially figured out the markup of your credit card processor.
Compare Your Costs With Other Processors
Now that you know how much you’re paying in fees, it may be time to shop around and see if you can lower your rates.
At Payment Depot, for example, we give you access to wholesale interchange rates straight from card issuers. Unlike traditional payment processors, we don’t markup that amount. Instead, we only charge a membership fee (starting at $49 per month) plus $0.10 per transaction.
If we were to apply this pricing model to our merchant example, their statement details would look something like this:
Interchange (actual cost to process) – $982.80
Transaction Cost (1488 x $0.10) – $148.80
Card Brand Assessments – $51,634.88 x .0011 = $56.79 (these are card processing fees passed on to you from Visa, Mastercard, Discover, and Amex)
Total = $1,188.42 (instead of 1,506.68.)
In other words, if the merchant was using Payment Depot, they would’ve saved $318.26 just for that month.
Having Trouble Deciphering Your Merchant Statement?
As we mentioned earlier, credit card processing statements can vary, depending on your provider. If you’re having trouble identifying the information we’ve outlined above, feel free to send us your merchant statement and our payment consultants will analyze it for you.
Quick FAQs about Merchant Statement
Q: What is a Merchant Statement and why is it important?
A merchant statement is a document that provides a detailed summary of a business’s sales activities and transactions for a specific month. It helps businesses understand their payment processing fees, transaction volumes, and types of payment cards used, allowing them to track expenses and make informed decisions.
Q: How do businesses receive their Merchant Statement?
Businesses usually receive their merchant statement from their merchant account provider or payment processing company. The statement can be delivered via email, snail mail, or accessed through an online portal, depending on the vendor.
Q: What are the different pricing models used by payment processing companies?
Payment processing companies typically use one of three pricing models: flat-rate, tiered, or interchange-plus pricing. Flat-rate pricing charges a fixed percentage rate for each transaction, while tiered pricing categorizes transactions as “qualified” or “non-qualified” based on factors such as card type. Interchange-plus pricing lists the detailed interchange fees for each transaction, reflecting different rates for various card types.
Q: How can businesses calculate their effective rate?
To calculate the effective rate, businesses can use the following formula Effective Rate = (Total Fees Charged / Total Amount Processed) x 100. This calculation helps businesses determine the actual percentage they’re paying in processing fees, providing a clearer understanding of their expenses.
Q: What are interchange costs and how do they impact businesses?
Interchange costs are the fees charged by card issuers (Visa, Mastercard, Discover, American Express) for processing transactions. All merchants are required to pay these fees and they constitute a significant portion of the overall processing expenses. By reviewing interchange costs in their merchant statement, businesses can identify the card issuers’ fees and the amount they’re paying to their processor, which can help them evaluate their expenses and consider more cost-effective payment processors.