Reading an Interchange Plus Processing Statement

June 3, 2006

June 3, 2006

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This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started FeeFighters. Interchange Plus billing is the most transparent way to get billed (see “Interchange Plus“) because it clearly lays out what VISA and Mastercard are charging you (which isn’t negotiable) and what your Merchant Account Provider is […]

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This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started FeeFighters.

Interchange Plus billing is the most transparent way to get billed (see “Interchange Plus“) because it clearly lays out what VISA and Mastercard are charging you (which isn’t negotiable) and what your Merchant Account Provider is charging you (which is negotiable).  It is the only way to compare apples-to-apples a quote from one Merchant Account Provider against another (see “Inconsistent Bucketing“).

Here is an example of a Merchant Account statement for an account with Interchange Plus pricing.

1. The breakdown between each of the card types.

2. Notice that the Net Amount is the “Batch Amount” minus the “3rd Party Batch Amount”.  The “3rd Party Batch Amount” are the Discover and Amex transactions. Such transactions are still processed by your merchant account provider’s processor, but are then passed along to Amex or Discover both for authorization and settlement.  This merchant will still receive his Amex and Discover billings, but as seperate checks / EFTs from Amex and Discover, rather than from his Merchant Account Provider.  Likewise, the transaction fees for Amex and Discover will be billed seperately by those companies.

3. Each row in this section corresponds to an interchange category.  The category on this bill is denoted by a number (TYPE) and the merchant can get a key from the Merchant Account Provider which maps those the interchange numbers to the interchange description.  For each interchange category there are three kinds of charges, the first line is what is paid to the merchant account provider for transactions in that category.  The second line is the interchange charges for that category and the third line is the assessments for that category.  Interchange is the amount that is passed through to the card issuer, assessments are what is kept by Visa and Mastercard (see “Who Makes Money From My Merchant Account“).

4. Notice that this interchange category has no Amount but it does have a Processing Fee.  This must be the refund category (notice how it has the same number of transactions – 30 – as the VISA refunds on the first page).  VISA and Mastercard still charge interchange on refunds and usually at a slightly higher rate than on purchases.

5.  Figure out that rate being charged for assessments by dividing the assessment processing fee for an interchange category by the Amount of that category, in this case 15.61 / 16,882.28 = 0.0009 (or 0.09%).  Try it for a few categories if you are curious, the answer is always about 0.09%.  VISA’s assessment on every transaction is 0.092% while Mastercard’s is 0.095%.  It doesn’t always divide to exactly those numbers because of rounding.

6.The first line of each interchange section is the fee to the Merchant Account Provider.  On this bill it is 0.10% for every interchange category.  Do the math for this interchange category: 5,628.63 * 0.10% = 5.63.  In most cases there would be a per-item fee as well.

7. Look at these two interchange categories for an example of how interchange rates differ.  Every interchange category has a 0.10 transaction fee (see “What Is Interchange“) so start by subtracting 0.10 * 101 = 10.10 from the 347.79 total in the 1221 row.  The result is 337.69.  Now divide that 337.69 into the transaction amount 17,317.86, which yields 1.95%.  Now do the same for category 1231, you will get 1.64%.  By looking at the interchange charts you can see that 1.64% is the Mastercard Merit I rate for Debit Cards and 1.95% is the Mastercard Merit I rate for standard credit cards.  Merit I is just a name that Mastercard gave to transactions that have authorization (a credit card terminal or online terminal was used to authorize the transaction before the goods were transferred) but where the card stripe was not read.

8. The merchant account provider does not charge anything for Amex and Discover on this bill.  That service charge will come later from Discover and Amex.  Sometimes the merchant account provider will charge an extra per-item fee for each Amex or Discover transaction.

9. Your merchant account provider likely will also pass on to you the cost of authorizations, which it then passes on to it’s processor (see “Merchant Account Supply Chain“).

10.This merchant is charged an additional $6 / month here denoted as a “statement fee”. The other 3fees in this section are per-transaction fees, all of which are $0.00 for this merchant.

11. This is the total monthly bill for processing.  First figure out the total % that this merchant is paying – 2.02% (2,413.52 / 119,480.60) – which is pretty good and well below the average cost for a merchant of this size (see “Merchant Account Costs“). Now go back to page 2 of the statement above and you can add up how much of that total is going to Interchange and Assessments and how much is kept by your Merchant Account Provider.  In this case $119.50 in discount was paid to the Merchant Account Provider, plus the $6 statement fee and $67.50 in authorizations (some of which will need to be passed on to their processor), for a total of $193 and $111.58 was paid to Visa and Mastercard as assessments and the remainder, $2,108.94 was passed on to the issuing bank as interchange payments.

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