How To Understand Your Merchant Statement & Cut Costs

How To Understand Your Merchant Statement & Cut Costs

Due to the difficulty you may face in understanding your merchant statement, business owners, like yourself, often associate the payment processing industry with feelings of confusion and/or frustration.

In fact, most disagreements between merchants and payment processors are the result of the merchant lacking sufficient knowledge of payment processing.

Therefore, it is important that you, as a business owner, understand the payment processing industry and its various pricing structures.

Once you are able to understand your merchant statement, you will be able to determine the viability of your current or future processor’s pricing.

Interchange fees

The main fees associated with payment processing are interchange fees.

Interchange refers to the cost that credit networks (Visa, Mastercard, Discover, American Express) charge for each transaction.

Each credit network standardizes its rates for the different card types it issues.

As it pertains to interchange fees, the payment processor is a payment-receiver. Therefore, interchange fees are non-negotiable.

However, the markup on top of interchange is oftentimes negotiable.

Understanding your merchant statement: pricing models


Tiered/bundled pricing refers to a pricing structure in which the processor assigns a rate to the three different types of transactions, which are often non-qualified, mid-qualified, and qualified. Qualified transactions typically have the lowest rate out of the three transaction buckets.


Interchange-plus pricing refers to a pricing structure in which the processor charges a rate in addition to interchange. Although the interchange-plus pricing structure offers transparency to the merchant, it is not necessarily the most cost-effective.

Flat Rate

Flat rate pricing refers to a pricing structure in which the payment processor charges a single rate on all transactions including interchange. This pricing structure is the least transparent and most straight-forward. However, it, like the interchange-plus structure, depending on your type of business is not necessarily the most cost-effective option.

The Issue of Variability

Since each card type has a set interchange rate, variability between the usage of certain card types within a certain billing period distorts the cost-effectiveness of a pricing structure. The issue of variability also adds to the confusion most merchants have in understanding their merchant statements. Therefore, you must look to the other fees on your merchant statement when assessing your current processor’s pricing.

Markup fees

Markup fees refer to costs that are passed onto the merchant by the processor. Such fees could be PCI fees, MID (merchant id number) fees, or other fees that the processor receives then marks up.

Miscellaneous fees

Miscellaneous fees refer to additional fees that are often non-essential. In most cases, there isn’t even a cost that the processor is passing onto the merchant. Therefore, miscellaneous fees are often unnecessary. Examples of miscellaneous fees are “program” fees, batch fees, and receipt paper fees.

POS/Terminal fees

A business must have a POS, terminal, or payment gateway in order to accept credit cards. Oftentimes, a processor charges a lease fee or an upfront price in order to provide a piece of hardware.

Software fees

Another cost associated with payment processing is a software fee. Payment-related software can help streamline your day-to-day processes and reporting. Clover POS offers a wide range of add-on software that can help business owners simplify their managerial workload. Additional services include employee time-tracking such as Homebase, payroll reporting, and invoice distribution.

Now that you understand your merchant statement…

In order to understand your merchant statement, you must first assess the value your payment processing solution offers you. If your payments solution offers you additional functionalities that are of value to your business such as instant funding and/or POS software, then you should take note of that when assessing how much you are willing to spend on said processing solution. For help selecting a POS system, reference our guide for what to look for in a POS system.

How we can help

We, at TAP Payments, offer 2.5% flat rate processing for all card types. In addition, we take a transparent, no-frills approach on pricing in which we do not charge merchants unnecessary, miscellaneous fees in order to raise our bottom line.

Hopefully, this article has given you the tools necessary to understand your merchant statement and the fees passed onto you by your current processor.

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