How to read your processing statement
This piece is a draft. The figures and sources will be checked again before it is called finished.
Every month a statement arrives from your card processor. It is the one bill you pay where the amount is taken before you see it, and most owners never read past the first page. This piece reads one, line by line, so that next month you can.
The statement below is made up, but its shape is the shape of a real one priced on interchange-plus, the pricing model where the most lines can be read. If yours is priced flat-rate or tiered, the last section says what that means. Whichever it is, the first section applies to you.
The one number
If you only have two minutes, do one piece of arithmetic. Add up every fee on the statement, the percentages, the per-transaction fees, the monthly fees, the fee with the name you do not recognise, all of it. Divide by your card sales. That is your effective rate, and on the statement below it is 2.60 percent.
The effective rate is the one comparison on a processing statement that cannot be renamed. Every other line can. A processor's percentage may be called a discount rate, or "other discount", or nothing at all; its per-transaction fee may be an authorization fee, a ticket fee, an item fee, or three of those at once. A salesman can truthfully say "we have no discount rate and no per-transaction fee" and charge the same money under other names. One can say "we have no account fee" and charge a statement generation fee. The names are theirs to choose. The total is not.
So: fees divided by sales, this month and last month and the month before, written on the front of each statement. When you compare two processors, or this year to last, compare that. A month's card mix moves the figure a little, so compare several months rather than one.
One thing to take out before you divide. Processors and ISOs often bill other products through the merchant account: online-ordering software, a loyalty programme, a gateway, a terminal lease, a point-of-sale subscription. Those lines come out of the same deposit, but they are not the cost of taking cards, and left in they make the rate read higher than it is. Set them aside, work the rate on the processing fees alone, and judge them on their own. The processor's section below shows how much difference it makes.
The rest of this piece reads the lines, so that you know what each one is. But the reading is for understanding. The comparing is the one number.
The statement
A café. One month. $42,000 in card sales across 1,800 transactions, so the average check is $23.33.
Page one: the summary
| Card sales | $42,000.00 |
| Transactions | 1,800 |
| Total fees | $1,091.25 |
| Net deposited | $40,908.75 |
| Effective rate | 2.60% |
The summary is the whole statement in five lines. The effective rate is not printed on most statements; divide the fees by the sales yourself: 1,091.25 ÷ 42,000 = 2.60 percent.
Two things the summary does not tell you: who got the $1,091.25, and which parts of it could have been different. That is what the rest of the pages are for.
Where the $1,091.25 went
Before the line items, the answer in one table. Three parties take a share of every card payment, and they are not the same party.
| Who | What it is called | This month | Share |
|---|---|---|---|
| The banks that issued your customers' cards | Interchange | $667.05 | 61% |
| The card networks (Visa, Mastercard, and the others) | Assessments and network fees | $96.80 | 9% |
| Your processor | Its own fees, under whatever names | $327.40 | 30% |
The first two rows are set by the banks and the networks. Your processor does not set them, cannot discount them, and passes them through at cost on an interchange-plus statement. For a shop where the card is present and a good share of customers pay with debit, those two rows alone come to somewhere around 1.6 to 1.9 percent of sales. The third row is the processor's, all of it, and it is the one row where a conversation changes anything.
Interchange: the banks' share
Interchange is the fee the bank that issued the card keeps for letting your customer spend on it. It is set by the card networks in published tables, and it differs by the kind of card, how the card was used, and what kind of business you are. A statement priced on interchange-plus lists each category your sales fell into. Here are the café's five, with the program names a real statement would show translated.
| Category, as the statement names it | What it means | Sales | Count | Rate | Fee |
|---|---|---|---|---|---|
| Regulated debit | Debit cards from large banks; the rate is capped by law | $16,800 | 720 | 0.05% + $0.22 | $166.80 |
| Exempt debit (e.g. "CPS Retail Debit") | Debit cards from small banks and credit unions; not capped | $4,200 | 180 | 0.80% + $0.15 | $60.60 |
| Credit, basic (e.g. "CPS Retail Credit") | Ordinary credit cards with no rewards | $10,500 | 450 | 1.51% + $0.10 | $203.55 |
| Credit, rewards (e.g. "Traditional Rewards") | Credit cards that give the customer points or cash back | $8,400 | 360 | 1.65% + $0.10 | $174.60 |
| Credit, premium and commercial (e.g. "Signature Preferred", "Commercial Level 1") | High-end rewards cards and business cards | $2,100 | 90 | 2.50% + $0.10 | $61.50 |
| Total interchange | $42,000 | 1,800 | 1.59% | $667.05 |
Three things to notice.
Debit is cheap and credit is not. Forty percent of this café's sales came in on debit cards from big banks and cost $166.80. Twenty-five percent came in on plain credit cards and cost $203.55. The regulated debit rate is capped by the Federal Reserve under Regulation II, and applies to cards from banks with more than ten billion dollars in assets. The cap has been about 0.05 percent plus 21 cents, plus a cent for fraud prevention, for years; the Fed has proposed lowering it, so check the current figure before quoting it.
Rewards cards cost you more. The customer's points are not free. The issuing bank pays for them out of a higher interchange rate, which is to say out of your margin. A premium card costs this café a full percentage point more than a basic one on the same sale.
The names are the networks' names. "CPS" is Visa's label for its card-present programs; "Merit" is Mastercard's. Every program name on your statement is a row in a published table, and the two tables are public: Visa publishes its interchange reimbursement fees and Mastercard its interchange rates, each updated twice a year, usually in April and October. You can look up any line. The figures above are typical of those tables but are not quoted from a specific edition, so look up the current ones before you repeat a number.
One line to look for that is not in this café's statement: anything labelled "Standard", "EIRF" or "Non-qualified". Those are downgrades, meaning a sale that was charged a higher rate than it should have been, usually because of how it was entered or when the batch was closed. Downgrades are their own piece. For now: if you see one, ask why.
Assessments and network fees: the networks' share
| Line | What it is | This month |
|---|---|---|
| Assessments (about 0.13% of sales) | Visa and Mastercard's percentage for running the network | $54.60 |
| Per-transaction network fees (about 2 cents each) | Visa's acquirer processing fee, Mastercard's network access fee, and their equivalents | $34.20 |
| Fixed network fees | Visa's fixed acquirer network fee, Mastercard's licence fee, and the like | $8.00 |
| Total network | $96.80 |
This is the card networks' own income, separate from the banks. It is small, about a quarter of a percent in all, and it is also published and non-negotiable. The one thing to check here is that the lines are what they say. A statement that bundles something called a "network fee" at a round number like 0.30 percent, with no breakdown, is putting processor margin into a row that looks like a pass-through. The real assessments are odd numbers with four decimal places, because they are copied out of a table.
The processor's share: the same money under different names
This is what the processor charges for its own work: moving the money, carrying the risk, answering the phone. On the café's statement it comes to $327.40. Here is that $327.40 as it might appear on two statements from two processors, each truthfully describing its own pricing.
| Processor A, "0.25% plus 10 cents, plus monthly fees" | Processor B, "no discount rate, no per-transaction fee, no statement fee, PCI included free" | ||
|---|---|---|---|
| Discount rate, 0.25% of $42,000 | $105.00 | Other discount, 0.30% of $42,000 | $126.00 |
| Per-item fee, 1,800 × $0.10 | $180.00 | Authorization fee, 1,800 × $0.06 | $108.00 |
| Ticket fee, 1,800 × $0.02 | $36.00 | ||
| Statement fee | $10.00 | Account maintenance fee | $29.95 |
| PCI program fee | $19.95 | PCI program fee | $0.00 |
| Regulatory product fee | $4.95 | Compliance fee | $12.45 |
| Batch fee, 30 × $0.25 | $7.50 | Settlement fee, 30 × $0.50 | $15.00 |
| Total | $327.40 | Total | $327.40 |
Both statements are honest about every line, and every word of Processor B's pitch is true: there is no discount rate, no per-transaction fee, no statement fee, and the PCI programme costs nothing. The money moved. The percentage is higher and has a different name; the per-transaction fee became two smaller ones; the statement fee became a maintenance fee three times its size; the PCI fee disappeared and the compliance fee and the settlement fee grew. Every fixed fee a salesman waives can be found again in a line he did not mention, and the lines add to the same number.
This is why the piece does not tell you to look for the processor's rate on the statement, or to shop by which fees a processor says it does not charge: there may be one such line or five, and the names and the amounts move between processors and between years. What does not change is the arithmetic. Take the total fees, subtract the interchange and the network fees, which are listed and published, and what remains is the processor's, whatever it is called and however it is split.
A few of the monthly lines deserve a word, not because their names matter but because two of them are things you can act on.
The two PCI fees are different in nature, and a statement can carry both. The PCI program fee pays for the tools the processor gives you to meet the card industry's security standard: the yearly questionnaire, the scan if your setup needs one, the portal they sit in. Some processors give the programme away, as B does above; some charge for it monthly or yearly, as A does at $19.95. Either is a price for a service, to be judged like any other. The PCI non-compliance fee is something else: a charge for not having done what the programme asks, usually the questionnaire, often $30 to $50 a month, every month until you do it. It is not a price for anything. It is the most common avoidable fee on a small merchant's statement, and the way to remove it is to ask where the questionnaire is and fill it in.
A monthly minimum is charged only if your fees fall below a floor, and an equipment lease appears if you lease the terminal rather than own it. Neither is on the café's statement this month. Both are their own piece. Know the floor; read the lease.
Other products billed through the account sit in this section too when they are present, and this is where the first section's warning is worth a number. Suppose the café also pays for two licences of a restaurant ordering product at $79.95 each, billed on this statement. Taken as given, the month's fees become $1,251.15 and the effective rate reads 2.98 percent instead of 2.60. Nothing about the processing changed; a software bill is riding on the statement. Set those lines aside, work the rate on the processing fees alone, and judge the software against what the same software costs anywhere else.
Bundling is not wrong in itself. One bill is convenient, and some ISOs price the whole package fairly. But tying other products to the merchant account is where things get muddled, because neither part can be judged alone: a merchant who is overcharged for the software cannot see it in the rate, and one who is overcharged on the rate can be told the software is included. Where you have the choice, have software billed separately. Where you do not, insist that the statement itemises it, so that it can be taken out.
Putting it back together
| This month | As a rate | |
|---|---|---|
| Interchange, to the banks | $667.05 | 1.59% |
| Assessments and network fees, to the networks | $96.80 | 0.23% |
| The processor's own fees, however named and split | $327.40 | 0.78% |
| Total | $1,091.25 | 2.60% |
The banks and the networks took 1.82 percent and there was nothing anyone could have done about it, short of changing which cards your customers carry. The processor took 0.78 percent, and every part of that was a number somebody chose, under a name somebody chose. The 2.60 is the number to keep.
If your statement does not look like this
Two other pricing models are common. Before either one, the fact that sits under all three: the banks' interchange and the networks' fees are set by the card and the network, not by the pricing model. On the café's month they were $763.85, and they would have been $763.85 priced any other way. The pricing model decides only how the processor's share is presented, and how much of it there is. That is not a reason to stop learning how the methods work; each one shows and hides different things, and knowing which is how you read the statement in front of you. It is a reason to judge all three by the same number.
Flat rate. One percentage and one per-item amount for everything, often "2.6% + 10¢" for card-present. Here is the café's month twice: once on the interchange-plus statement this piece has been reading, and once on that flat rate.
| Interchange-plus statement | Flat-rate statement | ||
|---|---|---|---|
| Card sales | $42,000.00 | Card sales | $42,000.00 |
| Transactions | 1,800 | Transactions | 1,800 |
| Interchange | $667.05 | Processing, 2.6% of $42,000 | $1,092.00 |
| Network fees | $96.80 | Per transaction, 1,800 × $0.10 | $180.00 |
| Processor's fees | $327.40 | ||
| Total fees | $1,091.25 | Total fees | $1,272.00 |
| Effective rate | 2.60% | Effective rate | 3.03% |
Each column is what its statement shows. The flat-rate statement has no interchange line and no network line, because the merchant is not charged them as such. But the processor was. The same 1,800 cards went through the same networks to the same issuing banks, and the processor paid the same $763.85 the other column prints. Its underlying cost was the same on either plan. What differs is what it kept: $327.40 under interchange-plus, $508.15 under flat rate. The $180.75 between the two totals is not a cost the flat-rate merchant incurred. It is additional profit the ISO or processor collected, for the same work, on the same cards. Seen one transaction at a time: a regulated debit tap that cost the processor about 27 cents was charged the café 71.
This comparison assumes the same transactions, and that assumption needs saying out loud. The two columns are one café's one month, the same cards tapped in the same order. That is what makes them comparable. The shop across the street is not that café. Suppose its customers carry more rewards and business cards, so that its interchange on the same $42,000 came to $818.25 instead of $667.05. On interchange-plus its total would be $1,242.45 and its effective rate 2.96 percent, because the banks' share rose and was passed through. On the flat rate its total would still be $1,272.00 and its rate still 3.03 percent, because the flat rate does not care what cards were used; the processor's share there would have narrowed to $356.95. The flat rate is a fixed price for a cost that varies. The merchant pays for that certainty in the months the cards are cheap, and the processor carries it in the months they are dear. Flat rate suits a shop with very low volume or a very high average check. It rarely suits a café.
Tiered. Sales are sorted into "qualified", "mid-qualified" and "non-qualified" buckets, each at its own rate, and the processor decides which bucket each sale falls into. The buckets do not correspond to the interchange table, so the processor's share cannot be separated out: it is spread across the three rates in a proportion only the processor knows. The underlying $763.85 is in there all the same.
Whatever plan you are on. The three plans write the processor's share three different ways, and only interchange-plus lets you see it as its own line. The method does not need you to see it. On any statement, add up every fee and divide by the card sales. The answer is what you paid to take cards that month, as a share of what you sold, and it means the same thing on every plan. Put this month's beside last month's, or put your statement beside a competitor's quote worked onto the same month, and compare. A plan can change how the bill is written. It cannot change that number.
Why interchange-plus matters when you shop around. An interchange-plus statement is the one kind a competing processor can price against line by line. Hand one to three processors and each can say: your interchange and network fees were $763.85 and would be the same with us; here is what we would charge on top. That is apples to apples, and it is a comparison the merchant controls. Hand them a flat-rate or tiered statement and each one has to guess at your card mix, and their quotes compare to nothing but each other's guesses. Even a merchant who stays on flat rate for its simplicity is better off having had an interchange-plus statement at the moment of choosing. If you are shopping, ask your current processor for one, or ask each bidder to quote on interchange-plus so the quotes can be set side by side.
What to do with this
- Set aside any line that is not the cost of taking cards: software, ordering, loyalty, leases. Price those against what the same product costs elsewhere.
- Work out your effective rate on what remains, every processing fee included, and write it on the front of the statement. Do the same for the last two months.
- When anyone quotes you a rate, ask what your effective rate would have been on last month's statement. A quote that cannot be turned into that number is not a quote.
- When shopping, ask every bidder to quote on interchange-plus, so each quote is the same cost plus a stated markup, and the markups can be set side by side.
- Look for "non-qualified", "EIRF" or "Standard" in the interchange detail. If present, ask why.
- If a PCI non-compliance fee is on the statement, complete the questionnaire this week.
None of this is legal or financial advice; it is how to read a document you are already paying for. What your particular business should do about what it finds is a question for you and your accountant.
Sources
- Visa, Visa USA Interchange Reimbursement Fees, published on visa.com and updated twice a year.
- Mastercard, U.S. Region Interchange Programs and Rates, published on mastercard.us and updated twice a year.
- Board of Governors of the Federal Reserve System, Regulation II (Debit Card Interchange Fees and Routing), 12 CFR Part 235, for the regulated debit cap and the ten-billion-dollar threshold.
- PCI Security Standards Council, Self-Assessment Questionnaires, for what the PCI programme actually requires of a small merchant.