How to Read a Payment Processing Statement
The payment processing statement is perhaps the last thing you want to see when you spend your day owning or managing a business. Learn how to read your merchant card payment processing statement by identifying a few key components before requesting a statement analysis from your payment provider.
Your merchant card processing statement is a very important document provided by your credit card processor. Your merchant card processing statement helps you keep track of all your expenses related to accepting payments. It can also help identify any abnormalities with your payment processing service provider.
To ensure that you are not being charged more than necessary and that your service provider isn’t overcharging you, you need to understand every single entry on your payment processing statement before requesting a merchant processing statement analysis.
This comprehensive guide will walk you through the ins and outs of reading and understanding this document so that you can avoid potential high-risk merchant account fees and other potential pitfalls.
We have a lot to cover about reading a payment processing statement, so let’s get started!
What is a Merchant Card Payment Processing Statement?
Merchant payment processing is a service offered by payment processing companies and acquiring banks to accept credit and debit card payments. They in turn provide a merchant card processing statement to clearly communicate credit card processing fees.
Many online retailers use merchant payment processing services to accept online payments as well, and these services vary in terms of their fee structure and functionality.
Merchant payment processing services enable businesses to accept credit cards, debit cards, PayPal, and other forms of payment online. Merchants can also use these services to receive payments from customers around the world.
Merchant payment processing services are typically charged in a few ways. These typically include tiered rates, interchange plus BPS, or flat rate pricing. Some services offer both options; others offer only one or the other.
There are also options for a monthly discount or daily discount on fees.
Some services focus on larger business customers, while others are geared toward smaller businesses.
The core services specialize in accepting payments in person, or securely online. Other services tend to include providing fraud protection and intelligent payment routing for multiple merchant account payment processing. Each type of service has its own unique set of features and benefits that might be right for your business.
What is a Payment Processing Statement?
A payment processing statement is a document offered by your payment processing service provider that details all the charges, fees, and other activities related to your payment processing account.
The payment processing statement can be downloaded from your online account or can be mailed to you on a monthly or quarterly basis. It is important to perform a full merchant processing statement analysis on listed items and fees.
Why Is It Important to Read and Understand Your Merchant Statement?
You may be thinking, “Why does it matter if I don’t understand my payment processing statement? I just need to know how much I owe to my processor.”
While this is somewhat true, it is important to understand your payment processing statement.
Understanding your downgrade fees for merchant services allows you to keep an eye on your payment processing expenses to ensure that you are being charged fairly and that you aren’t being overcharged for any services. Requesting a merchant processing statement analysis will assist you when negotiating rates with other processors.
You can do this in one of two ways, you can pay attention to the total amount due and compare that with the amount that you pay each month or you can read through the payment processing statement to ensure that everything is being correctly charged.
How to Read and Understand Your Payment Processing Statement – Merchant Processing Statement Analysis
Reading and understanding payment processing statements can be a challenging task for even the most seasoned business owners.
The payment processing statement that you receive from your payment processor is a government-regulated document called the “payment card business (PCB) statement.”
There are certain rules that your payment processing company must follow when issuing these statements. This is to allow effective communication of transactions and fees, along with standardized approaches for merchant processing statement analysis.
The merchant processing statement should be organized into different sections that include your processed and unprocessed transactions, reconciliation fee/holding account fee, core processing fee, ancillary services fee, etc.
Fortunately, there are a few simple tricks you can use to make the process much easier and less overwhelming.
First, make sure that you read your statement from top to bottom and left to right. This will ensure that you don’t miss any crucial information that might be buried at the end of the document.
Next, use a highlighter to mark all the important terms and numbers that you want to review more carefully later on.
Now, let’s take a look at each of these main sections and some of their key components:
Now that you have the proper reading and marking techniques down, let’s look at some other terms and important information that you need to pay attention to when reading your merchant card processing statement.
Understanding the Basics of a Payment Processing Statement
Before we dive into each line item on a payment processing statement, let’s first look at the basic information that you’ll find on all merchant processing statements, regardless of your payment processing service provider.
First, you’ll see information about your accounts, such as your bank and account numbers, your business name and address, and your contact information.
This is the information that you’ll need to provide to your payment processing service provider every time you want to make changes to your account.
Next, you’ll find the billing cycle period. This is the period of time between the first day of one month and the last day of the same month.
Payment processing statements are usually issued 30-60 days after the end of your billing cycle.
Additionally, you’ll likely see some of the terms and conditions referenced below.
Payment Processing Statement – Merchant Category Code (MCC)
The first line item on your payment processing statement is the Merchant Category Code (or MCC).
This code is used to identify the type of business that you are in. It’s also used to categorize different types of businesses within the same industry.
The first digit of the MCC code represents different industry types. For example, if the first digit in your code is “2,” you’re probably in the “wholesale trade” or “retail” industry. If the first digit is “9,” then you are probably in the “other” industry type.
Next, the second and third digits in an MCC code represent different business types within the same industry. For example, if the first digits in your code are “26,” the second and third digits represent “general merchandise” and “grocery” business types, respectively.
Finally, the fourth digit in an MCC code represents the transaction volume or the total amount you process in a specific period.
Merchant Identification Number (MID)
The next line item is your Merchant Identification Number or MID.
This is a number that identifies your business, similar to your Social Security Number in the United States.
The MID is used to identify your business to your payment processing service provider and to distinguish your business from other businesses with the same MCC code.
Clearing Process and Network Fees
The next two-line items on merchant processing statements represent the clearing process fee and the network fee.
These fees are charged by your payment processing service provider for the clearing and settlement of your transactions.
The first fee, the clearing fee, is the fee charged for the processing of your payment.
The second fee, the network fee, is the fee charged for the processing of your payment through the payment processing company’s network.
This initial fee is charged regardless of whether or not the transaction is approved. The second fee is charged only if the transaction is approved.
Acquiring Bank Fees and Network Fees Together
Now, let’s look at the acquiring bank fee and the network fee together. This is a single line item found on your payment processing statement and represents the total fee charged by your acquiring bank.
The acquiring bank fee is a fee charged by your payment processing service provider’s bank to process payments made through your payment processing account. Therefore, this fee applies even if your customer’s payment is declined.
The network fee is the fee charged by your payment processing service provider to process payments through the payment processing company’s network. This fee only applies if the customer’s payment is approved.
Credit Card Company Fee
The next line item on your merchant card processing statement is the credit card company fee. This is the fee charged by the credit card processing company to issue the approval for your customer’s payment.
This fee applies if the customer’s payment is approved.
Currency Exchange Rate Adjustment (TER)
The next line item on your payment processing statement is the currency exchange rate adjustment (TER).
This is a fee charged by your payment processing service provider to convert the funds received from your customers into your business’s native currency.
The currency exchange rate adjustment is applicable if you accept payments in a currency that is different from your business’s native currency.
This is particularly common among businesses that accept orders in a foreign language and currency, such as via international websites.
Electronic Clearing House (ACH) Fee
Another line item on your payment processing statement is the automated clearing house (ACH) fee.
This is a fee charged by your payment processing service provider to send your processed funds to your financial institution.
This fee is charged regardless of whether or not the funds belong to you or your customers.
Reconciliation Fee/Holding Account Fee
The reconciliation fee should be another item on your payment processing statement.
This is a fee charged by your payment processing service provider to reconcile or review your payment processing account.
This fee is charged when your payment processing service provider has to manually review your payment processing account.
The Reconciliation Fee is the fee that your payment processing company charges you when they compare the transactions in your payment account with the funds that you have in your account to make sure that there are enough funds to pay out to customers.
If there are not enough funds to cover the amounts that need to be paid out to merchants, your payment processing company will place a “hold” on a certain amount of your funds to cover these amounts.
If these funds are not released within a specified period (typically 14-45 days), your payment processing company will charge you a “reconciliation fee” to cover the extra costs associated with having to keep these funds in your account.
This fee is separate from the funds that were placed on hold. You should also know that there are also circumstances where your payment processing company can place a “customer hold/ACH hold” on funds in your account even when there are enough funds to pay out customers.
This is more common when you first start accepting credit card payments.
Core Processing Fee
The core processing fee is the fee that your payment processor charges you for processing each transaction.
This is a fixed fee and is charged for each transaction, regardless of the payment amount. The core processing fee is separate from any additional fees that your payment processing company may charge for additional services, such as fraud prevention.
You should also know that the core processing fee is likely to differ from one payment processor to another. It is important to compare the fees charged by different payment processors and choose the one that offers the best value for your business, given your payment volume.
Ancillary Services Fee
The ancillary service fee is the fee that your payment processing company charges you for providing additional services.
Some of these services may include fraud prevention and chargeback protection services, as well as a gateway fee.
Fraud protection services are used to identify fraudulent transactions that may be taking place on your payment processing platform and to help identify fraudulent users. Fraud protection services are provided either by your payment processing company or by a third-party service provider.
Payment Processing Statement – Other Miscellaneous Fees and Charges
The last line item on your merchant card processing statement is a catch-all for any other fees or charges that might not have been covered previously.
This fee is charged for any reason that your payment processing service provider deems necessary. However, most of these are already agreed upon within your agreement.
Assessing Payment Provider Costs
It’s crucial to differentiate between a statement’s base cost and its markups. Just like with any retail business, there is a base cost and a markup percentage added.
Credit card brand fees, Interchange fees, and dues and assessments are the base cost (credit card processing). They are the same for all processors.
Base costs are non-negotiable and standardized. The base cost your business pays now is the same base cost it will pay if you switch processors.
The markup is a variable part of credit card processing costs and can be different with different payment processors.
Which pricing model is best? The pricing models used can impact fees significantly. Unfortunately, the best option will depend on your business type and transactions. Here are the main types:
Interchange Plus and Pass-Through Pricing
Interchange plus pricing is useful for businesses that process a high volume of card transactions. While the average consumer will see no difference between tiered and interchange plus pricing, businesses will often find that the interchange costs on an interchange plus statement are significantly lower than tiered rates. This is especially true for businesses that process a high volume of international card transactions.
There are almost always itemizations of interchange information on statements.
Tiered Pricing
Tiered pricing is common and can be identified as rates that are the same across card brands with set tiers.
Flat Rate Pricing
Flat rate pricing is especially useful for businesses with unchanging transaction volumes. For example, imagine that you run a small consulting business, and you usually process around 100 transactions per year. With flat rate pricing, you will pay exactly the same amount as if you used tiered pricing.
The main advantage of flat rate pricing is that it’s simpler and easier to understand than tiered pricing. However, you might not be saving any money if your business volume fluctuates.
I Still Don’t Understand My Payment Processing Statement
Keep in mind that reading and understanding your payment processing statement is a process that takes time.
Take your time to go over every entry and try to understand why each entry is being made. If you still don’t understand a particular entry, feel free to contact your payment processor and ask them to explain the entry to you.
If you want to make the process of reading your PSR easier and more efficient, you can use payment processing software to help you manage your business and make more informed business decisions.
With payment processing software, you can simplify the process of reading your payment processing statement by generating reports that summarize the data on your statement.
You can also use payment processing software to integrate with your accounting software to streamline your business processes even more. This will help you avoid mistakes and misunderstandings when it comes to reading your payment processing statement and making more informed business decisions.
Payment Processing Statement – Conclusion
Now that you know what a payment processing statement is and how to read it, you can start to make sure that the fees you are being charged are fair by requesting a merchant processing statement analysis.
If you want to reduce your fees or want to switch providers, you can use your statement to shop around for a better deal.
However, keep in mind that the cheapest provider isn’t always the best for quality long-term service.
With this comprehensive guide, you now have everything you need to make sure you’re reading your statement correctly.
Now that you understand how to read and understand your payment processing statement, it will be much easier to identify any potential issues and negotiate for better merchant services.
With that, we have come to the end of this guide on how to read and understand your payment processing statement. We hope this information will prove to be invaluable in helping you to make more informed business decisions.
