Decoding your bill: how to understand the fees on your monthly credit card processing statement

doing taxes

Trying to get a grasp on your monthly credit card processing bill can make you feel lost, with a bunch of hard to decipher numbers and what-the-heck-does-that-mean jargon laid out before you. As a business owner, you want to make sure that you’re not paying more than you have to for credit card processing and that your costs haven’t suddenly increased from one month to the next. This starts by having a firm grasp on your monthly credit card processing statement.

Trying to decode your statement? Here’s what you need to know.

Compare more than two months of statements at a time

If you’re looking to examine your costs from month to month, it’s helpful that you grab more than one statement to compare side by side. Because of the nature of credit card processing, it may take more than one statement to get a clear picture of one month’s worth of charges.

Effective Rate

The effective rate of a credit card processing statement is the total processing fees divided by total sales volume. In other words, it’s the percentage rate you’re paying for accepting payments by credit card. Effective Rate can be calculated using the following formula:

(Total monthly fees / Total monthly sales) x 100 = Effective Rate

Your total monthly fees include everything from processing charges and gateway fees to statement charges and equipment rental. It’s everything that you see on your statement. By looking at your Effective Rate (which should be visible in the summary portion of your statement) you’ll be able to see the big picture cost of how much you’re paying for credit card processing.

Interchange fees and card brand fees (wholesale costs)

Credit card brands like Visa, Mastercard and the like will take a cut of processing costs – these are called brand fees or “card association fees and assessments.” In addition, banks that have issued the credit or debit card to the customer will charge an interchange fee to cover the cost of processing each individual card and transaction (the more perks the card has, the higher the interchange fee). These are called wholesale costs and they might not be visible on your statements because sometimes they’re integrated with markups.

Markups

Everything outside of the fees mentioned above is considered a markup. This includes Processor Acquirer (fees added by the processor behind your merchant account), Merchant Service Provider (MSP) (the organization that sets up and manages your merchant account) and Additional Service Providers (fees associated with equipment or gateway providers).

Effective Markup

Markup fees vary wildly based on the the MSP, so knowing your markup costs is a good way to see if you’re paying more than you need to be. If you’re able to see your interchange rates and card brand fees on your statement, you can easily calculate your Effective Markup, which lets you see exactly how much you’re paying in controllable fees each month. You can calculate it using the following formula:

[Total Fees – (Interchange Fees + Card Brand Fees)] / Total Sales = Effective Markup

When decoding your monthly credit card processing statement, it’s important to understand the individual fees, but also look at your costs from a big picture perspective. If you don’t have access to your interchange rates and card brand fees on your statement, focus on your Effective Rate because that will tell you how much you’re paying in fees per month.

Posted on Friday, October 19th, 2018