Merchant Statements: Everything You Need to Understand Your Processing Bill

Merchant statements, with their pages upon pages of numbers and industry jargon can be difficult to decipher. But getting your head wrapped around it is well worth it as it’s gonna help you cut costs and increase your profits.

Are you spending more than you should? How much are you actually taking home? Is your account provider giving you the best deal possible? This guide will answer these important questions and more so that you can make better financial decisions for your business.

What Is A Merchant Statement?

When you allow customers to pay for your goods/services using their credit cards, your merchant account provider charges you a small fee to process the transaction. A merchant statement is a monthly breakdown of how much you earn from these customer card transactions, as well as a list of the transaction fees and charges you need to pay.

Different merchant services providers may offer different pricing models and rates, so it’s important to get a clear picture of your net profit. Keeping track of your monthly statements will help you see if you’re making the most out of your sales or if you’re paying too much for credit card processing.

Important Terms


A merchant is any person, organization, or business that offers goods or services for sale.


A credit card processor is a third-party services provider like First Payment Services or TSYS. We provide merchants with a means to accept customer payments in the form of credit or debit transactions. We process all card transactions and liaise with card organizations to get authorization for the payments.

Card Organization/Network

There are four main card associations: Visa, Mastercard, Discovery, and American Express. They clear and settle all transactions. Interchange rates are dictated by the card organization.


A card issuer is usually a bank or financial institution that issues cards and credit card statements to customers. Some card organizations, like American Express, are also issuers.

Interchange Fees

Established by the card association, this is the cost of running card transactions. These are calculated based on the type of card used, the risk involved in processing the transaction, the amount of the transaction, and the type of merchant. Interchange fees are usually a percentage of the transaction total plus a flat per-item fee (e.g. 1.2% + $0.05 per transaction).

Interchange fees are also known as base or wholesale cost, a non-negotiable standard price that remains the same across all processors.

Discount Rate

The discount rate is the actual rate a merchant is charged per transaction. This includes both the interchange fee and the processor’s markup. This amount will vary between processors and can show up on your statement as either a percentage of your transactions or lump chargers.


Total dollar value/amount of your transactions within a given period of time. For example, if you made $100 in sales for the month, $100 would be your transaction volume.

Transaction Risk

All credit/debit transactions come with a certain amount of risk for the processor. When transferring funds, certain card types/payment methods are less risky than others. Swipe or face-to-face transactions and debit cards have less risk (and therefore lower fees) than key-entered or card-not-present transactions (like in e-commerce) and credit cards.

Why Are Merchant Statements So Difficult To Understand?

The first major obstacle to understanding a merchant statement is a lack of knowledge. Many people don’t understand how credit card processing works, what decent rates are, and how processing fees can impact their bottom line. Because they don’t know what to look out for, some merchants end up signing off on excessive charges.

Inconsistency is another thing that makes it harder for merchants to read their statements. There is no current industry standard for merchant statements; formats, structures, and even terminology can vary from processor to processor. This makes it tough to find tutorials or guides to help you understand your statement or to compare your merchant statements with other processing companies.

However, even with sufficient knowledge and experience with merchant statements, there is still a final hurdle—depending on the pricing model, charges aren’t always so transparent and clear. With tiered or bundled pricing, processors can conceal what their markup is.

How To Read A Merchant Statement

The goal of this guide is to help you understand exactly how much you’re paying your processor and identify if you can cut costs. Here are some useful tips on decoding your merchant statement.

Identify The Pricing Model

Your account’s pricing model can completely change how much you pay and how much you take home. There are two major models, tiered/bundled and interchange plus, with other models (flat rate and membership/subscription) slowly gaining popularity as well.

Tiered Pricing

There are hundreds of different interchange fees, so some processors make it easier by bundling together similar fees, averaging out their price, and charging a single rate per tier. You can identify a tiered pricing model by looking for the words “qualified”, “mid-qualified”, and “non-qualified” (shortened to “qual”, “mqual” and “nqual” respectively) on your statement. Another identifier is rates that repeat across different card networks.

There are 3-tier and 4-tier pricing models, which include:

  • Offline Debit: debit cards swiped and signed at the point of sale
  • Qualified Tier: credit cards swiped and signed at the point of sale
  • Mid-Qualified Tier: manually key-entered cards
  • Non-Qualified Tier: corporate, prepaid, and business expense cards

While the model is less complicated than others, tiered pricing is also generally more expensive and less transparent about the processor’s markup. Tiered pricing is best for small businesses with low volume/sales.

Interchange Plus

This model charges the standard interchange fee,
plus the processor’s markup. This is identified by lower, varied rates and a long itemization of fees. Interchange plus pricing has a steeper learning curve than tiered pricing, but it also gives you a much better profit margin as well as clear information about what your charges are. This pricing structure is best for high-volume transactions or merchants who get transactions in different interchange categories.


One of the newer pricing models is the membership/subscription model. Instead of charging a percentage (like in the interchange plus model), you only have to pay a small per-transaction fee and monthly membership charge. This is a great option for high-ticket/high-volume sales.

Flat Rate

Flat rates are fixed and consistent no matter what the transaction or card type is. It is the easiest pricing model to understand and predict but it’s also the least transparent. You won’t be able to see the exact breakdown of the fees, and you can end up paying 2-3 times more compared to the interchange plus model. Popular flat rate processors include PayPal, Square, and Intuit.

Avoid Unnecessary Fees in your Merchant Statement

Besides the processing fee, some processors can sneak in hidden charges These can include avoidable fees like application fees, annual membership fees (when you already pay monthly membership fees), early termination fees, and penalties for PCI non-compliance.

Compute Your Effective Rate

Your effective rate is the actual percentage of your sales that go to paying your merchant processor. Knowing your effective rate on a month-to-month basis can help you spot anomalous charges or rate adjustments. You can compute your effective rate with the following formula:

Effective Rate = (Total Fees / Total Sales Volume) x 100

There’s no single “good” effective rate; depending on the nature of your business, the size of your business, and numerous other factors, a low rate for you may be too high for someone else.


With enough time and practice, reading and understanding your merchant statement will be easy. While you should definitely check your monthly statements, you don’t need to worry about the small details. Think of the bigger picture instead—spend 10-15 minutes a month scanning your statements, monitor your deposits, and keep an eye out for any major changes to your fees. Always know how much you’re paying for credit card processing, and don’t be scared to switch to a different provider if they can give you a much better rate.  

Article Summary
The Simple Guide to Merchant Statements: Don't Get Ripped Off
Article Name
The Simple Guide to Merchant Statements: Don't Get Ripped Off
A brief overview of merchant statements. In this guide we break down some of the jargon to provide merchants with a better understanding of their merchant card processing.
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First Payment Services
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