While talking with banks about their financial institution’s merchants services programs, one theme resonates across the board. When they’re out in the field meeting with prospective merchant services customers, a huge percentage of the businesses they encounter are unable to make heads or tails of their monthly statement.
Now this probably doesn’t come as a huge shock to those of you who have been in merchant services for a while. But for those of you who may be newer to the industry and may have a few questions about the statement review process, I’d like to share a few tips to help you understand the various types of statements you’ll come across.
After all, if you’re unable to clearly explain a merchant’s statement when you’re meeting with them, do you think they’ll be eager to trust you with their merchant services program?
1. Familiarize yourself with the key components of merchant services pricing.
There are several elements that most pricing plans have in common. Be sure you’re able to recognize them. For example, you will almost always see a discount rate and/or transaction fee, authorization fees and monthly fees. When you review a merchant’s statement, your primary goal is to identify these components, however it can be a bit tricky depending on the merchant services provider you encounter.
2. Determine which pricing plan the merchant is on.
When reviewing a statement, your first step should be to figure out the merchant’s pricing plan. The most common plans you’ll see are “discount” (or “tiered”) pricing and “interchange plus” (or “pass through/cost plus”) pricing. There are also confusing combinations of those two programs, such as billback and enhanced revenue recovery.
With “discount pricing,” you’ll typically see discount rates ranging from 1.3% to 4.0%. Although you generally won’t see detailed interchange categories, you will see the following:
- Qualified Check Card: If present, it will be the lowest rate.
- Qualified rate: This can be the same – or different – for credit vs. debit.
- Mid-qualified rate or surcharge: Sometimes this is a total rate, and other times it can be a surcharge in addition to the qualified rate.
- Non-qualified rate or surcharge: This is the most expensive tier for merchants as it captures transactions that were not eligible for “qualified” or “mid-qualified” rates.
Here’s a sample statement from a merchant on “discount” pricing. Note the discount rates of 1.58% to 3.73% and the references to “mid-qual” and “non-qual.” This merchant is priced on a 4-tier plan (qualified Check Card, qualified, mid-qual and non-qual).
Now with “interchange plus pricing,” the markup over interchange typically will fall between 0.10% and 0.90%. The spread among all card types is usually consistent. On the statement below you will notice detailed interchange categories and a “rate + transaction fee” associated with each category. As a general rule of thumb, when you see several different rates and transaction fees on a statement, it’s likely an interchange plus merchant.
Now here’s a tricky one. You might think this merchant is on “interchange plus pricing,” but he’s actually a “discount” merchant. How can you tell? Note how the transactions are grouped by interchange category, whereas you would normally only see line items for qualified, mid-qualified, and non-qualified.
3. Try to look past confusing names and unorganized formatting.
The general formatting of the statement has a lot to do with whether or not the merchant will be able to understand their statement. The same is true with how various fees are named, and how the column headers are named, if they do in fact have a name, as oddly enough some do not, as you’ll see below.
Confusing naming conventions can also make it hard to tell if numbers are supposed to be percentage rates (e.g., 0.25%) or transaction fees (e.g., $0.25). When in doubt, see if the math checks out. On the statement below, “item rate” is a transaction fee. The merchant is paying $0.27 per transaction on those that qualify and $0.32 for transactions that fall to mid or non-qual.
You should also be prepared to see unusual abbreviations and made-up forms of shorthand, both for the names of interchange categories and for other fees. For example, you will sometimes see “WAT” in the name of authorization fees, which is not intuitive to those who are new to the industry.
Now mind you that these are just some of the issues you need to be aware of. Be sure to check back next week so you can learn more about reviewing merchant services statements so you can continue to grow your financial institution’s merchant services program.
In the meantime, if you have any specific questions or comments, I’d be more than happy to discuss them with you.