How To Read Your Credit Card Processing Statement
At FinTech Merchant Accounts we've gotten many concerns over the years from concerned Merchants concerning their merchant account statements. Our payment processing business owes a big part of its very existence to the complicated prices, complicated statements, and concealed markups that are trademarks of the credit card processing industry. This is the unfortunate state of affairs that keeps us looking into, writing, and helping small business owners.
Questions we often field from our readers about their processing expenses consist of:
Am I being overcharged for credit card processing? (That's the huge one everyone wishes to know!).
Why did my payment processing costs all of a sudden increase this month?
What is this unexpected /oddly-named/ junk looking fee? Is it legit?
Is there anything I can do to lower my expenses without changing companies ?
Should I change my merchant services provider?
Only a comprehensive understanding of your own statements will yield the answers to these important questions. The intrinsic problem of the job is that you can't totally rely on your merchant services provider's explanation, nor its sales or customer support associates, to discuss all the fees. If your merchant account provider is being deceptive about additional markups and unneeded fees, the responsibility falls straight on you to understand what's really going on.
There's no one-size-fits-all approach for examining a credit card processing statement, due to the fact that every organisation and situation is not the same. Still, there are certainly some foundational principles that need to help demystify the process. For example, here's one quick suggestion to kick things off: Examine more than one statement side-by-side to prevent missing out on anything. Often times you need 2 months of statements just to totally see one month's worth of charges. So, get at least 2 or 3 successive statements and let's get started!
Information Vs. Big Picture Evaluating a merchant statement is always a leveling exercise between the information and the ultimate goal. If you're worried about a questionable charge, or think you're paying too much general, you may require to inspect every fee on your statement to recognize its source and verify the amount is what it should be.
On the other hand, you in fact need not stress too much about all the specific costs and rates on your statement if you track the big picture numbers (your general costs) month-over-month. As long as the big picture amounts stay reasonable and constant, you're good. If they do change substantially, though, you're back to looking at the details of your statement to figure out why. Fortunately, if you fully understand the standard details of your statement, you'll easily identify what is most impacting your costs.
Simply put, understanding the interplay of your broad view numbers (what you're paying overall) and comprehensive expenses (why you're paying it) is the very best method to secure yourself from paying excessive.
With that understanding, let's look at the primary big picture part that all merchants can calculate.
Effective Rate Your effective rate is the "all-in" portion rate you're spending for the opportunity of accepting card payments. All merchants need to take a first crack at computing this rate before conducting any detailed analysis. It's a simple formula:.
( Total regular monthly charges divided by Total monthly sales) x 100 = Effective Rate.
By overall regular monthly fees, we are referring to processing charges, gateway costs, statement costs, regular monthly costs, equipment leases, unusual costs you can't determine-- whatever. Often you can get these numbers from a summary section, as listed below:
I still recommend calculating your effective rate once again as soon as you've evaluated your statement in complete. That way, you can guarantee your summary area didn't sneakily omit any charges.
For a large retail corporation, a 2.5% over all rate may be too high. For a high-risk ecommerce operation with many of small sales, 4.5% may be great pricing. Even with this variation, however, the reliable rate gives you a crucial bird's- eye view of where you stand.
Types Of Fees You're probably currently mindful that there are multiple layers to the card processing market. Not remarkably, each entity included takes a cut of your card sales in one form or another. We've covered a lot of this territory in our total guide to rates and fees, however I'll rapidly recap the primary players in the market, and whether they each charge wholesale expenses (repaired throughout the industry) or markups (flexible and variable depending upon your organisation circumstance and processing company).
Wholesale Card Networks We've all become aware of these folks-- Visa, Mastercard, and so on. These associations take their cut of processing costs in the kind of card association fees and assessments. If you don't think you 'd have the ability to acknowledge these charges on your statement, visit our main website for an explanation and full reference list.
Card-Issuing Banks The banks that have actually provided credit and debit cards to your consumers charge interchange costs-- the cost of running each private kind of card and deal. The card associations in fact set these fees for the releasing banks, and also release and frequently upgrade lists for merchant recommendation.
This is due to the fact that in some cases wholesale expenses are passed through straight to merchants, while in other cases they're combined in with markups. Interchange fees are typically pretty easy to spot-- they're usually in a giant itemized list if you can see them at all. Card brand fees can be more difficult to determine, so certainly consult a dependable reference list.
Markup Everything besides those two types of wholesale charges we've just talked about counts as a markup. Here are the primary organizations that add costs above wholesale:
Processor/Acquirer You may know some of the big ones-- First Data, TSYS, Worldpay, Chase, etc. These entities are also normally involved with a getting bank (e.g., Wells Fargo or B of A) if they aren't currently one themselves. The processor behind your merchant account can add its own additional fees and markups.
You likewise access your month-to-month statements through your MSP, even though the statement might have the huge processor's name across the top. Regardless of the setup, your merchant services company adds its own markups.
Other Merchant Services Providers Charges from other 3rd parties (such as gateway or equipment companies) might likewise appear on your merchant account statement.
A word of care about "pass-through" charges: Just due to the fact that your MSP claims to be merely "passed through" a cost to you "at cost," doesn't necessarily mean it's a wholesale charge (from the card associations or card-issuing banks). As you can see above, the huge processor/acquirer behind the scenes may likewise charge its own charges and markups, and frequently other third-party equipment and software providers do. These "pass-through" costs should be counted as variable markups, although your MSP may not see any cash from the charges.
Reliable Markup If you can see all interchange fees and card brand name charges (wholesale costs) itemized on your statement, you can calculate your markup. Let's have a look at what this is, and why it's a helpful number to crunch if you can swing it.
Not just can the general amount vary commonly, however the method markups are charged is likewise variable in between suppliers. One MSPs might charge a low markup percentage on your specific deals, but a number of various monthly fees. Another MSP may charge a high markup portion on deals, but hardly any regular monthly fees.
You're effective markup not just lets you know how much you're really paying in manageable expenses monthly, but it's also a handy figure to have if you 'd like to compare your statement with other merchant account deals.
Here's the basic formula (always multiply by 100 to convert to a percentage):.
Markup Fees/ Total Sales = Effective Markup.
Depending on how your statement is set out, here's another way to think about the computation that might be more valuable:.
[Overall Fees-- (Interchange Fees + Card Brand Fees)]/ Total Sales = Effective Markup.
Because it's a clear procedure of elimination, I like this second method. You automatically understand whatever else you're charged is a markup as soon as you've got all the wholesale fees accounted for and subtracted away from your total charges.
You might have a summary section on your statement that divides up your fees in such a method to make this calculation simple. It's more likely, nevertheless, that you'll have to pick through your declaration to make sure you comprehend your pricing structure and the real category of each cost before you can add up the numbers and perform the efficient markup estimation with confidence.
What if you can't calculate your efficient markup at all, due to the fact that your statement does not make it possible to see all wholesale fees individually? That's fine-- simply concentrate on tracking your reliable rate for now. It's not as informing a number as your effective markup, but it's an excellent beginning point for staying on top of your costs.
Rates Model Understanding your rates design is absolutely important to understanding your statement, so if you do not already know it, now is the time to figure it out! We have a post that strolls you through the procedure of determining your prices design by looking for specific, indications on your statement, along with extensive short articles on each of the 4 primary models most MSPs provide.
We've currently alluded to the reality that your rates design figures out whether you can identify wholesale expenses from markups. You'll never know precisely where you could be saving money (or where you're getting ripped off) if you can't make this distinction.
This is a complicated subject, so it may take you a while to wrap your mind around which model you have and how it affects your statement. That's alright-- take your time. We do likewise occasionally come across some interesting hybrid designs, so if you still need assistance finding out your model, feel free to reach out to us.
How do the prices designs work? Well, the models were developed based particularly on interchange charges and whether they are mixed in with MSP rate markups. (Card brand name costs are not tied as securely to your rates design, so I 'd just recommend examining your own statement to see if any are gone through.) Below are links to articles on each of the models, in addition to a super-brief overview of each.
Interchange separate from markup:
Interchange-Plus (Cost-Plus) Pricing: Interchange rates are itemized and gone through independently from the MSP markups. Rate markups usually consist of a portion markup and a per-transaction fee markup.
Subscription (Membership) Pricing: A version of interchange-plus pricing in which a regular monthly membership cost is charged as a markup in lieu of a portion markup over rates.
Interchange blended with markup:
Tiered Pricing Interchange rates are bended in with markups to create numerous rate tiers.
Flat-Rate Pricing Interchange rates are blended in with markups to produce a flat processing rate (usually utilized by merchant aggregators like Square, Stripe, and PayPal-- not standard MPSs).
In theory, you must have the ability to determine your effective markup if you have among the first two designs, because wholesale charges are kept different. This is one factor we favor MSPs that provide transparent interchange-plus or membership designs to all merchants. For the other 2 blended plans, you'll require to adhere to monitoring your effective rate only.
We do also occasionally come throughout some interesting hybrid designs, so if you still need help figuring out your model, reach out to us.
How do the rates models work? Well, the designs were developed based specifically on interchange costs and whether or not they are blended in with MSP rate markups. In theory, you should be able to determine your effective markup if you have one of the very first 2 designs, due to the fact that wholesale charges are kept separate.
Billing Cycle Beyond comprehending your pricing model, you must be aware of precisely when you're charged the numerous fees and rates due on your account. A closer look at your billing cycle could possibly expose that you're not calculating your effective rate appropriately, or that you're paying greater processing rates than you initially thought. Here are a couple of difficult billing approaches to watch out for:
Daily Discount (Vs. Monthly Discount) Most merchants are on a regular monthly discount plan, indicating their discount rate costs are all charged in one swelling amount at the exact same time as the rest of their scheduled month-to-month fees. In other words, you receive gross deposits from your batch settlements throughout the month, and then pay all your discount fees along with all other scheduled fees all at once.
On a daily discount rate cycle, your discount rate charges (or a portion of them) are subtracted from each batch settlement as the month advances. This leaves you with net deposits from your batches, and all your other scheduled costs are charged in a different chunk. You can frequently inform if you are on an everyday discount rate cycle if your statement consists of terms like "less discount rate paid," or reveals gross versus net amounts in sales columns. With day-to-day discount, you should beware to add the discount rate costs you've already paid throughout the month to the other month-to-month costs you still need to pay. Do not be misinformed by the "total charges" figure, which may not include the discount rate costs you're currently paid.
Billback This is a rolling billing method that is technically different from (however typically integrated with) both an everyday discount setup and a tiered pricing model. On a normal tiered strategy, you're charged the various rate tiers (certified, mid-qualified, non-qualified) for your transactions all in the exact same month. With billback, however, you are charged the qualified (lowest possible) rate for all your transactions first, however then charged a fee the next month to recoup all the extra cost for any higher-tiered deals you ran.
With this rolling system, you actually require two months of declarations to even compute your efficient rate for a given month, because your charges for one month are split over 2 months-- possibly more. Even worse, the Enhanced Billback method (a.k.a. Enhanced Recovery Reduced) adds an extra markup to the next month's recovering cost. You may see BB, EBB or ERR abbreviations (along with a past month's abbreviation) listed on your statements if you're in a billback circumstance, however you might just require to identify the extra fees by yourself.
Nuts and bolts Numbers As we went over at the start of the guide, you needn't recognize every fee every month into eternity, however I 'd strongly advise going for it on a few statements. Perhaps you're simply curious and would like to become a more cost-savvy merchant, or maybe you presume a concealed fee, or possibly your processing expense has spiked lately and you want to know why.
Of course, I can't inform you every fee you'll ever see on a declaration and whether it's legitimate. What I can do is provide you a couple of basic ideas I've discovered handy as I've evaluated declarations:
Recognize Percentages vs. Dollar Amounts: Costs might come through as percentages of sales volume, per-transaction fees, or flat costs. At times, half the battle is simply validating which charges are portions and which are dollar amounts, due to the fact that they might all be displayed in decimal kind (and all blended into the very same columns!). The good news is that a quick estimation of your own can usually confirm which are which.
Use Fee Guides Absolutely use any declaration guide from your supplier, however likewise have a look at an outdoors resource or more. Our fee guide notes the typical fees you'll encounter on a statement, and our cost infographic reveals the normal cost variety of numerous basic charges. I know I've stated this a lot of times already, however you'll also require an excellent card brand fee reference list to validate these fixed-yet-esoteric charges.
Ask Yourself Fee ID Questions: As you work through each charge, see if you can address the following queries:
Who charges this fee/rate? (see "Types Of Fees" area above for possible culprits).
Is this charge a markup, wholesale expense, or a blend of the two?
Is this wholesale charge right according to interchange tables or the card brand name fee list?
Is this markup (or mixed expense) appropriate according to my merchant charge schedule from my MSP?
Do Not Trust The Layout We've dissected some horrifically disorganized declarations over the years, which has actually only verified in my mind that you just can not rely on the sub-headings on a processing declaration to properly categorize your charges. Wholesale fees are really frequently sprinkled with markups and vice versa, so be on your guard. I'm especially watchful about "authorization" areas-- the best hiding spot for extra per-transaction fees.
Do Not Trust Fee Names This last idea sounds weird at first, but hear me out. Names and abbreviations for fees have little standardization throughout the industry-- even wholesale costs that are expected to be the same for everyone! This makes it all the more tough to determine cushioned or additional charges on a statement. If you're attempting to determine a specific charge, it's typically best to consider the quantity initially while taking the cost's name with a grain of salt. Here's one good rule of thumb: Just because a charge has a card brand abbreviation in front of it doesn't ensure it's all from the card brand name!
With billback, nevertheless, you are charged the certified (most affordable possible) rate for all your transactions first, but then charged a cost the next month to recover all the additional expense for any higher-tiered deals you ran.
Recognize Percentages vs. Dollar Amounts Costs may come through as portions of sales volume, per-transaction charges, or flat costs. Our cost guide lists the common charges you'll come across on a statement, and our charge infographic shows the typical cost variety of lots of basic charges. I understand I've said this a bunch of times already, however you'll also require an excellent card brand fee recommendation list to confirm these fixed-yet-esoteric charges.
Names and abbreviations for costs have little standardization across the industry-- even wholesale costs that are expected to be the very same for everybody!
Fine-Tuning Fees We're about take this detailed numbers analysis thing to the next level. Ready?
So, remember how we stated that wholesale fees are fixed, non-negotiable and completely out of your control, and that markups from your MSP are the variable, negotiable costs of processing? Well, in reality, this is a small oversimplification of the system. There are some subtleties and gray areas that when recognized on your declaration can help you catch problems, and possibly even change your processing practices to save money.
Avoidable Penalty Fees: Most card brand costs are easy, blanket assessments on your deals, but others are in location particularly to punish you for not following the appropriate procedures for authorization and settlement. (While we're on the topic, do not forget that MSPs can likewise charge avoidable charge charges-- a PCI-non compliance fee is one common example.).
Optimizing Interchange Rates While interchange rates themselves are fixed and pre-established across the processing market, you might have more control over which categories of interchange your transactions fall into than you think. The process of ensuring you get the best interchange rates possible is called interchange optimization. B2B deals using business cards can be processed with extra Level 2 and Level 3 data to get the ideal interchange rate, for instance. Deals can likewise end up "downgraded" to higher-cost interchange categories if you do not authorize and settle them appropriately (in this way, downgrades are generally another type of penalty fee). Since there is more margin for data-entry error and omission than when cards are read straight by processing devices, Interchange downgrades occur more typically to card-not-present companies. Common statement codes for reduced interchange rates include EIRF (electronic interchange repayment cost) and STD (standard). It's normal for a few deals to be downgraded, however if you're seeing interchange downgrades on the majority of your transactions, this is a guaranteed warning.
Pulling It All Together After you've worked through the information of your 2-3 consecutive statements, it's worth duplicating your effective rate estimation on each one, simply to guarantee you didn't miss any charges. You may have also found a padded or extra charge here and there that you're ready to confidently take up with your MSP. You ought to also have the ability to find any anomalies that occurred during a provided month (e.g., extreme penalty costs, chargebacks, one-time incidental costs, etc.) that might have affected your efficient rate.
If your Statement itemize interchange rates and card brand name costs individually from markups (interchange-plus or subscription designs only), you're lastly ready to do that magical reliable markup calculation accurately. Remember to just count interchange fees and card brand name fees as real wholesale. Whatever else is technically a markup!
Last Thoughts If you're ready to become the skilled master of your processing statements from here on out, the first step will be to get on a cost-plus prices model (interchange-plus or subscription/membership). This is the only method you'll see what you're paying each month above wholesale processing expenses that are mostly out of your control. All however really little merchants will benefit from one of these rates designs from a reliable MSP.
Keep on tracking that reliable rate (and reliable markup if your statement enables) month-over-month for the lifetime of your merchant account. It will be totally worth the 12 seconds the computation will take you each month once you've got a manage on your statement. I'm an incredibly detailed-oriented person as a matter of concept, and even I provide you my blessing to practically ignore all the foolish little fees and markups your processor or MSP may charge, as long as you're pleased your broad view numbers are remaining consistent and sensible. If those efficient numbers go up, just understand I'll send you right back into the information!
If you still need help reading your statement send it to us Here and we will provide you with a line by line Rate Analysis and if we can not give you a better rate or lower your cost we will give a $500 Visa Gift Card.