How to read a credit card merchant statement: 5 ways to classify fees
Reading the merchant’s statement and finding the fees and charges charged can be like playing “Where’s Wally?” One reason is that there are almost as many different statement formats as there are commercial acquiring companies. Also, due to how competitive the industry has become, many monthly statements do not fully disclose the fees charged. And sometimes they are completely hidden.
I know of banks that don’t even send a statement. If a merchant wants details of what they paid, they must log into an online account to find it.
There is war out there!
One of the reasons for this is competitiveness. You must remember that credit and debit cards are part of a 2 trillion dollar industry. Money is like a magnet: it attracts Most merchants are continually contacted by competing processors trying to get them to switch processors, promising “lower fees” and so on.
Therefore, to prevent a sales agent from another processing company from taking a merchant, some processors make it as difficult as possible for a competitor’s sales representative to enter a business, analyze a statement from the merchant, and do an ‘apples by apples’ comparison.
With that said, there are still some basic clues to look for when reading your statement. This is what I look for when analyzing a merchant statement, in order:
- One: The pricing structure – How has the account been set up? What pricing model do you use? Are you using a third party (eg 3 levels, 4 levels, etc.) or are you using “Interchange Plus”? (NOTE: Most merchants are on a tiered pricing model, which in my opinion guarantees that they will be overcharged. Also, there are other pricing structures, but tiered pricing is by far the most common).
- Two: Monthly rates (sometimes called “Other”) – Next, I look to see what the monthly fees are. This may include: a statement fee; monthly service fee; account maintenance fee (normally, you will only see one of these, although I’ve seen two, or you can see the equivalent fee but with a different term); PCI fee; batch fee; and entrance or access fees. Any miscellaneous fee can also appear here, but not monthly, for example an annual or semi-annual fee.
- Three: Processing fees – this is where the discount rates will be listed. If you are on the tier price, the best statements will print a detailed list showing the “qualified”, “medium qualified” and “unqualified” rate (all 3 tiers). If you are on Interchange Plus, you will see a list showing all the different cards you took, followed by the actual exchange rate of the card, the “ppi” (discount per item), plus the processor markup expressed as a basis. . points and a transaction fee (or per item, depending on the term used to list it).
- Kiln: Authorization fees – this is where you will find the fees that go to VISA and MC. They will be listed as access, authorization and / or WATTS fees. You can also find AVS (address verification) fees here; evaluation fees; trademark usage fee; risk rate; settlement fees, IAS fee (access and settlement of issuers).
- Five: Third party fees – Third parties means networks other than VISA and MC that are included in your account statement. This would include American Express, Discover, and the debit networks if you are using a debit pin.
Part of the problem with reading a merchant statement is that different processors use different category names and different terms to identify charges. So I started by saying that it can be like playing “Where’s Wally?” While there are common terms that are used for certain rates, a wide variation is also used, depending on the acquirer (the company with which you entered into a business agreement).
Again, part of this is due to an attempt to hide what is being charged and make it difficult for a competitor to analyze a statement. While that is ‘somewhat’ understandable, in my opinion, it is a disservice to the trader. Integrity requirements transparency. Perhaps if processors were more merchant-oriented they would have less turnover and not have to worry as much about competition. At least that’s my opinion.
