How to Read a Credit Card Processing Statement – Effective Rate

Credit card processing statements are difficult to read and understand.  I’ve looked at thousands of credit card processing statements over the last eleven years in this industry.  And I am still surprised by the lack of transparency in the statements.  There is even blatant dishonesty in some cases.  To decide if the fees are competitive or not by looking at a statement is very confusing.

Here is the good news.  There is one simple number that will tell you if the fees on a statement are competitive or not.  Anybody can calculate this number.  And I’m going to share it with you today!

Only two numbers from the statement are needed in order to make this calculation.  Whether the statement is on tier pricing, interchange plus, subscription rate, or flat rate makes no difference in this calculation.   The total processing volume and the total fees paid to process that volume are all that’s needed.

The total fees paid should be found in one of two places on the statement.  Look at the very top of the first page or the very bottom of the last page.  Understand that you need the TOTAL fees paid throughout the entire month.  Merchants on “daily discount” pay fees throughout the month.  For those statements, in the total fee section you’ll see “discount paid” or “debit to bank account” and then the remaining fees.  Those two numbers must be added together.  Find the TOTAL amount paid throughout the month.

Also, keep in mind that the fees are not always on the statement.  Sometimes fees come out in the middle of the month.  There might be a terminal rental fee, a subscription fee, or an annual fee, etc.  These are not on the statement.   Make sure you take into account the TOTAL fees paid that month to process the credit card transactions on the statement.

After finding the total fees, look for the total processing volume.  This number will be the largest number on the statement.  It is called “total submitted” or “submitted volume” or “submitted transactions” and is usually found on the first page.  However, that first page may be confusing, also.  There might be wording such as “total amount submitted” and then “refunds” before “total amount deposited.”  Be sure you’re finding the biggest number.

If the total processing volume is not found on page one, look on the second or third page.  You should see a “card type summary report.”  The names of each card brand will be listed:  Visa, MasterCard, Discover, Amex, Pin Debit, etc.  The amount processed for each of these card types is listed.  If there is not a total at the bottom of that list, simply add all the volume from each card type to get the processing total.

The next step in the calculation is to divide the total fees by the total processing volume.  Consider hypothetical statements to further explain.  

·       A statement with $10,000 in volume and $300 in fees.  300 divided by 10,000 = 3%.  Therefore, this is a 3% effective rate.

·       A statement with $10,000 in volume, $300 in fees, and $50 monthly equipment rental fee.  350 divided by 10,000 = 3.5% effective rate.

Before explaining how to identify a competitive effective rate, I’m going to give what I call the “cheat code.”  Recently, I created examplemerchantquote.com to show off our quote tool and the amazing things it can do.  This is our marketing campaign feature.  It’s a direct link which allows users to provide an instant quote without talking to a sales person or looking at a statement.  Our algorithms run from a huge database of statements.  All that’s needed is the business type, the total volume, and the total fees from the statement.  Then the tool can provide an instant quote to show whether this statement pricing is competitive.  So, please go to examplemerchantquote.com to check that out.

Now, here are a few numbers which will tell if the effective rate is competitive.  If the effective rate is below 2%, the odds are that the pricing is extremely competitive, no matter what the business type.  However, for businesses that have a large average ticket with a lot of debit transactions, that pricing could still be high.  Large ticket businesses would include those doing a lot of $100 to $400 transactions with customers using debit rather than rewards cards.  When using a debit card on a large ticket item, the effective rate should be extremely low – much less than 1% on those transactions.

I’ve seen effective rates as low as 1.2% or 1.4%.  One of my clients is an auto repair place.  They have a 1.2% effective rate.  The reason for that low rate is their average ticket size of $300 to $500 and many people paying with their debit cards.  Customers don’t want to pay with their credit card for regular maintenance on a vehicle.  So, that’s an example of an extremely low effective rate.  As a general rule, a normal business below 2% probably has a very good deal.

Depending on business type, up to 2.5% pricing is probably still fairly competitive.  (Again, just using broad strokes averages.)  When you go to examplemerchantquote.com and select your business type, the algorithm will pull hundreds and hundreds of statements from similar businesses.  The tool will compare those to your statement and be able to tell with much more accuracy.  Generally speaking, 2.5% is still very, very competitive.

With an effective rate up to 3%, there are usually savings available.  This rate is on the other end of the spectrum.  Whereas the price should be very low for large ticket merchants, small ticket merchants should expect to see much higher effective rates.  For statements with the average ticket size of $10 to $15, effective rates above 3% (even 4% or 5%) should be expected.  The reason behind this is the Durbin Amendment, which makes a 22 cent per-item fee on about 85% of all debit transactions.  Who cares about $0.22 if processing a $500 transaction?  However, $0.22 is 22% of a one-dollar transaction!  So, that $0.22 matters a lot more when the average ticket size is below about $15.  When you get below $15, you should expect to see an effective rate that is a little higher on that statement.

Once the effective rate is in the range of 3.5% or higher (unless average ticket size is $10 or less), there are almost certainly some potential savings.  Take that statement and shop it around a little bit.

Hopefully this basic information is helpful for you today.  Make sure you go to our tool at examplemerchantquote.com.  That’s not a landing page or a promo for our tool at all.  Rather, it’s literally just a place where you can go to get a quote.  It will show how our marketing campaign features work with our instant quote tool.  Don’t miss it!

If you have any questions or need anything from me, you can always email me  james@ccsalespro.com.  Hopefully, I’ll hear from you soon.  And I hope you have a great day!