Credit Card Processing

Merchant Statement: A Guide on How to Read a Merchant Processing Statement

Read Time: 6 min

There are many parts of a merchant statement, some of which can be overwhelming. This article includes a guide that identifies the various aspects of a merchant statement, such as identifying information, price models, discount methods, processing fees, and chargebacks.

Read on to learn how to decrypt your merchant processing statement and why it’s important to review it regularly.

What is a Merchant Statement?

man reading merchant statement at desk

A merchant statement is a document that merchants receive on a monthly basis detailing customer transactions and fees charged. 

The merchant account statement typically includes a deposit summary that has a breakdown of all the fees each party has paid. Details about any fee that the processor charged are also usually found detailed here. 

At first glance, it may appear like a merchant services statement is difficult to read, but understanding the pricing model and discount methods can help you determine the best processing rates for your business. 

Why it’s Important to Read and Understand your Merchant Services Statement

Reviewing and understanding your merchant statement is crucial. It’s a great way to keep track of the growth of your business. 

The merchant statement not only details your monthly transactions but also includes your sales activity, including chargebacks to your merchant account. The details of the credit card processing fees that your business is being charged as also included. 

Let’s dive into greater detail on how these two key pieces of information are valuable in managing your business. 

Identifying Chargebacks

A chargeback occurs when a customer requests their credit card provider return a charge on their account. The customer may initiate a chargeback because the product or service was not purchased by them, was purchased without them knowing, was unhappy with the product/service, or never received it. 

Chargebacks may also occur because of a stolen credit card or identity theft. 8 out of 10 merchants have reported an increase in “friendly fraud” during the COVID-19 pandemic. Friendly fraud is a type of chargeback that occurs when the individual who reported the charge as unauthorized had knowledge, somehow benefited, or was complicit with the transaction. 

Below is an example of how chargebacks are detailed on your merchant statement. You will see the last four digits of the card initiating the chargeback, along with the reason code, amount charged, chargeback date, and transaction date.

chargebacks listed on a merchant statement

Understanding Credit Card Processing Fees

Your payment processor, also known as a merchant services provider, charges you for each card transaction that your business runs. Reviewing these credit card processing fees regularly is important as they typically change about twice a year.

These changes in fees are usually small, but if you don’t keep an eye on them, they can add up. There are two main cost components that you can use to separate and analyze your merchant processing statement:

  • Wholesale or Base Cost – These are made up of interchange fees and assessments. Interchange fees are charged by banks to process each transaction. They vary depending on the card brand. Assessments are the fees that are paid to the card companies themselves. These costs are fixed amounts that can’t be negotiated. 
  • Markup – Any charge that goes above your wholesale or base cost is your markup. This is what’s paid to your payment processor. This component can be negotiated. 

Your payment processor may include the percentages that are charged for these components on your merchant processing statement. That makes it easy to see how much in fees you’re paying each month. If you aren’t able to calculate your fees or your statement doesn’t include this information, be sure to contact your processor and ask for this information. 

How to Read a Merchant Statement

men discussing merchant agreement in an office meeting

Reviewing your merchant processing statement is a balance of looking at the big picture and the details. If you think you’re paying too much or believe you have questionable charges, you might need to check every fee on your statement to identify and confirm its source. 

On the other hand, you shouldn’t need to get that detailed with the individual fees and rates if you’re tracking the overall costs to ensure your amounts are reasonable and consistent each month. Now let’s get into the five steps of reading your credit card merchant statement. 

Step 1: Identify Important Information

The first thing to do when reading your merchant processing statement is review the document to identify the important information. These statements will look different from processor to processor so you’ll want to gain an understanding of the structure of your credit card merchant statement and see where the key information is found.

At the top right of your statement, you will find your processor’s name and contact information. Below that is your business’ name and information. On the left, you’ll see the processing month, your Merchant Identification Number (MID), the deposit amount number, and the dollar amount deducted in this billing statement.

Example merchant statement first page

Below this, you will see your plan summary. This section itemizes the number of sales you’ve processed for each card brand and the interchange fee (discount percentage and discount due) associated with each transaction. In this statement, the discount rate is 2.29% for Visa Card (VS) transactions and 2.59% for AmericanExpress (AM) transactions.

The total amount of sales reflect the gross sales volume for your account.

example of plan summary on merchant statement

Step 2: Determine which pricing model is used

The type of pricing model you have depends on your merchant processor. The most common include membership, flat-rate, interchange-plus, and tiered:

  • Membership or subscription – This is a newer model where the markup is charged as a monthly subscription fee. There is also a separate small per-transaction fee which is favorable if you have larger transactions.
  • Flat-rate – All transactions will cost the same, including the wholesale cost. This typically results in high transaction costs, particularly with debit transactions.
  • Interchange-plus – The wholesale and markup fees are all laid out, which makes it the most straightforward pricing model to understand, though may take longer to review a merchant services statement. 
  • Tiered – This pricing model categorized all your transactions into Qualified, Mid-qualified, and Non-Qualified. You receive the lowest rates on your qualified transaction and the highest for your non-qualified. 

A tiered pricing model is demonstrated under “Plan Code” in the example below.

merchant statement deposit summary example

Step 3: Establish the discount method

A processor will use either a daily or monthly discount to subtract fees from your account. The discount method that’s used affects the total fees your account is accessed and it is something that you determine. Monthly discounting tends to be a better fit for most businesses, but here is a description of both:

  • Daily discount – the term “less discount paid” is typically how you can identify this method. The processor will charge its qualified rate before settlement and charge the transaction fees and other charges at the end of the month. The daily discount report will have the fees paid through the month and also those that are charged at the end of the month to calculate the total expenses.
  • Monthly discount – Each fee is charged in one lump sum at the end of the month. This method is much easy to track on a statement. 

Step 4: Calculate your processing fees

Now you’re ready to identify your processing fees. You can take your total fees charged and subtract that amount from your interchange costs which are are your wholesale/base costs. What’s leftover is the markup that your credit card processor charges. 

The below section of the merchant statement details the amount in the merchant’s rolling reserve. The proeeding section lists the authorization fees and the interchange fees – the percentage processors charge to process each transaction.

Merchant Statement Processing Fees example

Step 5: Analyze the costs and compare with other processors

Keep track of what you pay in processing fees and review your rates annually. With zero to minimal chargebacks, you may be able to renegotiate your rates.

Below, we can see how processing fees differ per card brand and card tier level.

Also pictured below is the “batch fee.” A batch refers to the total dollar value of transactions charged in a business day that will be transferred into the merchant’s business checking account. The batch fee is the processing fee for this transfer.

batch fees example on merchant agreement

Final Thoughts

You now have the guidelines to make tackling your monthly merchant processing statement a lot easier. Once you’ve gotten used to reading your statements over several months, you’ll be able to analyze them with ease. Then you will be able to determine whether or not you’re paying too much on your credit card processing fees and if you should consider using a chargeback management tool.

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