If you’ve ever tried reading your monthly credit card processing statement, you know that it was written with so many unexplained acronyms, randomly placed numbers, and confusing computations that it’s obvious they don’t want you to understand it. The reason; if you can’t understand your bill, you won’t realize how much you’re overpaying, and can’t price shop. Thankfully, once we decode the bill for you, its not all that hard to understand…
The first section you’ll see is the contact information section of the statement. The interesting thing here is to check who is listed as Return Addressee.
The Return Addressee is your actual credit card processor. If the company listed (your actual Processor) isn’t the same company you signed up with (your ISO), you’re likely paying an unnecessary middle man. If you decide to shop around, you can probably get better pricing by skipping the ISO and going directly to the Processor.
Monthly Activity Summary
Every statement looks a little different, but generally speaking, this is a summary of all your businesses’ monthly credit card processing activity. It includes the number of transactions (here 70), your chargebacks, etc.
The most important number here is your total monthly sales (here $28,808.57). The next column to the right is a summary of all the fees you paid related to credit card processing for the month. While there are a number of interesting things to note here, for now, just focus on the total (here $869.94). Using the total sales, divided by the total processing charges you can get the Total Overall Percentage (here 3.02%). This means that for every 100 dollars you accept via credit card, you’re spending $3.02 in credit card related fees. This is a very important number if you want to be able to accurately price shop your current deal.
Volume Recap (aka Breakdown by Card Type)
This section breaks down your credit card transactions by the type of card used (e.g. Visa, Mastercard, AMEX, Discover). It tells you the number of transactions with each type of card (here e.g. there are 46 Visa), the total dollar amount of sales by card type (here e.g. $16,855.24 for Visa). With these two numbers you could calculate the average transaction size per card type (not shown here) if you were curious if certain types of card holders were on average processing larger transactions (which could be useful, for example, for targeting your advertising to these customers).
But the more interesting numbers here are the “Discount Paid” and the “Per Item Paid” amounts (here e.g. $458.07 and $9.20 respectively for Visa). Dividing the total sales for this card type (again here e.g. $16,855.24) allows you to compute the average discount rate and per transaction rate you are paying for that card type (here e.g. 2.72% + $0.20 per transaction). This is useful information, because you can quickly find out, for example, that the eye poppingly cheap rate that your Processor was advertising isn’t really what you’re paying. Then you can work backwards to figure out which of the techniques to mislead customers that they’re using. And once you understand it, you can negotiate against it, or better yet, find a company that doesn’t use this sneaky pricing technique.
Rate by Transaction Type
This is some of the most interesting information on a credit card processing statement, so its no surprise that merchant account services companies typically hide it at the bottom. With this section you can get a clear picture of the pricing structure that your processor is using (Tiered, Interchange Plus, or Interchange with Membership). You can also get a clear picture of what your specific pricing deal is, and how much a particular sub-category within that pricing affects you. If you want to negotiate for better pricing, this is where you’ll find the bulk of your information.
Shown here is an example of tiered pricing, the most common type. The obvious giveaway are terms like “Qual”, “Qualified”, “Non Qualified”, “Partially Qualified”. Different companies use slightly different terms for these, but anything along these lines indicates tiered pricing. By contrast, if you didn’t see any of these terms, but instead exclusively saw mentions of “Interchange” and a consistent percentage of markup for all types of transactions (e.g. 0.4%) then you’d be looking at an interchange plus, or interchange with membership structure.
If you have tiered pricing, you can also use this section to tell how many tiers you have, by looking at how many different prices are listed in the Discount Rate column. Even though 9 categories of transactions are listed, they all fit into 1 of 5 different prices. Thus, this pricing scheme lumps transactions into 5 Pricing Tiers.
Now that you’ve figured out the type and pricing you’re paying, you can look at how much of your overall volume is falling into each of these tiers. To do this, add up the total volume of sales at a particular tier (here e.g. $5,311.91 + $6,985.77 + $5,102.44 = $17,400.12). Taking this number and dividing it by the total sales volume for the month gives you the percent of transaction volume that is in this tier (here e.g. $17,400.12 / $29,361.30 = 60.40%). Thus, in this example, 60.4% of all transactions fell into the non-qualified tier, where the merchant was charged 3.2% + $0.20. The reason this is such valuable information, is that if the merchant wants to negotiate rates, he/she knows that its best to focus on getting the highly used tiers pricing down (in this case the non-qualified, 60.4% and mid-qualified 18.6%) instead of trying to get a lower price on lesser used tiers like AMEX. How an individual merchant’s transactions end up breaking out by tier can vary quite a bit. Thus, its important to know how your business breaks down before you start trying to negotiate, so that you don’t end up with a pricing concession that doesn’t actually end up saving you much money.
Monthly credit card processing statements are made intentionally confusing by the merchant account service company, so its no surprise you’ve had difficulty understanding yours. They do this, so that you don’t know exactly how much you’re paying, or for what. That way you’re less able to negotiate for better pricing with them, and when you do negotiate, they can give you a concession that is basically worthless and you won’t know any better.
That’s why, if you decide to negotiate on your own, its important that you know exactly what everything means on your statement, and which things have a significant impact on your bottom line. If you want to save yourself the hassle, however, we invite you to use the MatchTool at MerchantNegotiators.com to shop for credit card processing. In the end, we think its a far easier and less stressful way to get pricing and contract terms that are far superior to that which even very savvy business owners can get.
Full-Page Credit Card Processing Statement Samples
I have included the un-cropped sample merchant account statements used in this article below, so that if you’re confused, you can see how these various sections look when placed side-by-side.