Read all about it. A quick guide (sorta) to understanding this important part of running your business.
We admit it—reading your merchant processing statement can feel overwhelming. These statements contain a lot of numbers, dollars, transaction data, and mysterious terms.
But it's essential that you understand what you are looking at. Knowing what you are reading is a powerful step towards better handling your business finances. It's also vital to ensure you are paying the best rates possible.
A financial snapshot of all things payment-related.
Each month, your payment processor sends you a merchant statement, which might also be called a credit card processing statement. It gives you a detailed description of your transactions, sales activity, and any payment processing fees you may incur during the month.
But this statement is more than just a record. It's packed with valuable insights that can help you fine-tune your business operations.
The Three Elements of Credit Card Processing Costs
One: Interchange Fees
This is the big one. It is the foundation of the payment processing cost system and by far the largest expense category. Card networks like Visa and MasterCard set these fees, which are paid to card-issuing banks. The interchange rate typically consists of the transaction amount plus a fixed fee per transaction.
Factors affecting the exact interchange fee include the type of card used, whether the transaction is card-present or card-not-present, the merchant category code, the size of the transaction, and the type of business or industry of the merchant.
Here's some good news: the card networks want you to achieve the most economical rate whenever you accept a card purchase. Yes, they do. This most economical rate is called the target interchange rate.
To qualify for the target interchange rate, your business needs to be appropriately configured with the proper merchant classification code (MCC) as defined by the card brands. If not, your business will receive downgraded interchange fees. In addition, if the transaction type you are processing does not contain the expected payment details, which may include the billing zip code, and level II and level III data, you will also be downgraded regardless of your MCC. To clarify, a downgrade occurs when a transaction fails to meet the criteria for its target interchange category, resulting in transactions being processed at a higher rate.
Two: Dues and Assessments
The card networks charge dues and assessment fees to cover the costs of maintaining their payment networks and brands. While often grouped with interchange fees, these are separate charges that go directly to the card networks. These fees are non-negotiable. Fortunately, they make up a very small percentage of the total processing cost.
Three: Acquirer Costs
These are charges imposed by the payment acquirer like yours truly, Qualpay, for facilitating your electronic payments. These fees are used to cover expenses like transaction authorization, fund settlements, fraud prevention, and risk management.
Acquirer costs vary by transaction volume, your business's industry, and the method of payment your customer uses.
That sound of exasperation you hear is the typical business owner’s reaction to all the other fees associated with card processing.
Yes, it's frustrating. There are many other fees associated with processing credit cards. But these are the operational costs that are an inevitable result of the many different actors required to make it possible to safely accept cards—from banks to the card brands to the processor.
This frustration may be compounded by the terminology used to identify each of these different fees. Look for a definition key (usually at the bottom of the statement that will explain the meaning of the abbreviation), and if you still do not understand what you are billed for, ask!
When you take the time to learn what each fee is and exactly what you are paying for, you'll gain greater control over your processing costs and learn to identify opportunities for potential savings.
The types of fees charged can differ quite dramatically from one processor to another. Some charge all of these fees, while others charge only a few.
Setup Fees—This is a one-time fee for establishing your merchant account and payment processing system.
Monthly or Annual Fees—These are recurring charges for maintaining your merchant account and payment processing.
Transaction Fees—These are charged for each payment processed through your merchant account. They may include per-transaction charges for handling each payment as well as a percentage fee or discount rate.
Interchange Fee—These fees are specific rates charged for processing different types of card transactions.
Monthly Minimum Fee—Some providers require a minimum processing volume. If the volume minimum is not met, a fee or associated charge is applied to your account.
Statement Fee—This is a charge for providing you with a monthly transaction and fee statement.
And yes, there's more.
PCI Compliance Fee—This is for the cost of maintaining your Payment Card Industry Security Standard compliance.
Chargeback Fees—These are nasty. They are the charges incurred when customers dispute transactions. They can get very expensive. Avoid as much as possible.
Gateway Fee—Another added cost for processing online transactions.
Early Termination Fee—The charge for ending a processing contract before its agreed conclusion.
Additional Service Fees—Depending on your merchant account provider and required services, you may incur additional fees for products and services like virtual terminals, recurring billing, and fraud prevention tools.
Four steps to reviewing your merchant processing statement.
Now that you have a better idea of what's in your merchant processing statement, it's time to analyze it with your educated eye.
- Review the account information and statement period
- Check the translocation summary
- Examine daily and card-type summaries
- Analyze the detailed fees section
Are you receiving the interchange rate that promises the most savings?
Take the Qualpay Savings Challenge and see if you are getting what you should have coming to you in terms of lower rates.
Simply upload your latest merchant statement to us, and we'll create a custom audit of your interchange charges to discover if you are, in fact, paying more than necessary.
Qualpay's advanced technology ensures you are utilizing the correct criteria to meet the specific target interchange rate that translates into the lowest rates and most savings for you.
As they say, no purchase is required. You must be curious about what you have been paying and what you might be saving instead.
