To exemplify, in this article I’ll show three examples of statements I have lately received from three distinct merchants.
Example 1: Record with No Substantial Detail
This announcement — reproduced here for legibility — provides no substantial detail.
I am amazed at the amount of merchants who prefer a no-detail credit card processing announcement. In their minds, they don’t understand the detail so that they simply prefer to be given a statement that shows the processing quantity and the processing cost.
In my posts here over the past 3 years I have shown a lot of examples of merchants paying a lot more than they should due to supplier order-entry mistakes, inflated interchange and pass-through fees, large monthly, quarterly, and yearly fees, merchant operational and system problems, plus continuing rate and fee creep by specific providers. A merchant who receives a statement with no specifics is putting all his faith in the supplier to be correct, fair, and honest. However, the less detail I see statement, the more skeptical I am of the supplier. The one thing this announcement confirms is that the merchant is overpaying for his processing solutions.
Example 2: Record with Minimum Detail
This statement offers minimal detail.
The above statement has more detail, like the amount of transactions, cost per transaction, and itemized monthly charges. I show only the processing section of the statement to deal with the point.
This merchant is on standardized pricing strategy for his industry. By that I mean other merchants in the same sector are put up at precisely the identical rate at this provider. Cookie-cutter pricing strategies are common with trade associations, chambers, purchasing groups, and other organizations that support a particular provider. I am not fond of endorsements or cookie-cutter rate structures since it’s typical for the company providing the endorsement to be covered by the supplier it endorses. I really don’t like cookie-cutter rate programs because each merchant has different issues and requirements.
I’ve seen this speed plan a few times before and so I know that the merchant has bigger problems than simply being on the wrong pricing program and overpaying for processing.
Especially, this merchant is on a tiered pricing strategy. The qualified rate is 1.93 percent + $0.09 each transaction. The merchant processed $88,636.02 in gross Visa, MasterCard, and Discover sales. The merchant doesn’t accept American Express because he considers the American Express rate of 2.89 percent + $0.15 for this business is too large.
But note that this merchant also had $73,732.02 in non-qualified prices at $1,479.85 or an extra 2 percentage (1479.85/73732.02). To put it differently, the merchant is truly paying 3.93 percent (1.93 percent qualified speed + 2% non-qualified rate) + $0.09 on 83 percent (73,732.02/88,636.02) of the merchant’s Visa, MasterCard, and Discover gross sales volume. Again, the merchant believed the American Express rate of 2.89 percent + $0.15 was too large.
Taking a look at the statement, it is tempting to suggest changing suppliers, reducing the speed, or altering pricing plans. However, there’s something deeper here since I know there could be several rate tiers under the single heading”Non-Qualified.” As a result, the increased cost might be a result of procedural errors or system difficulties. As you will see in another example, changing the pricing plan alone might not help the underlying problem.
Example 3: Record with the Essential Detail
This statement offers sufficient detail.
The above Example 3 announcement also shows substantial detail concerning all other supplier and card company charges. I show just the processing section of the announcement to follow up on the point I made in Example 2. This merchant processed $316,392 in gross Visa sales during the month — this figure isn’t shown. The merchant is on an interchange-plus pricing program, that is the proper strategy for this merchant.
This company asked that I audit its statements to make sure it wasn’t overpaying for processing. Because it had a comprehensive statement I could see that the merchant had much more costly issues compared to the supplier’s discount rate.
Notice the verbiage from the first column of the first, seventh, and ninth entries –“US BUS STD AO,” US VSP STD,” and”US PURCH STD AO.” Over $200,000 in sales was processed at this higher standard interchange rate. Notice the verbiage from the next entry,”EIRF CR.” Over $100,000 was processed at this higher EIRF interchange rate.
I’ve discussed”EIRF” and”Standard” in a previous article so I will not go into the detail of the origin and solution in this particular one. However, understand that EIRF and Standard aren’t card types. These conditions suggest a procedural or system issue which downgrades the merchant to much higher interchange prices.
This merchant was overpaying by $6,000 per year since the supplier’s speed was too high. Moreover, about 95 percent of those Visa earnings were downgraded to the greater EIRF and Standard interchange prices. Consequently, this merchant was paying an extra $12,000 each year. Lowering the discount rate will solve provider rate problems but it will not necessarily fix the EIRF and Standard troubles. These problems require research and corrective actions regardless of what provider or pricing program is used.
The merchant in Example 2 might have the identical issue and not realize it as the statement offers minimal detail. The merchant in Example 1 may have a great number of issues because the announcement indicates no detail. Therefore, changing providers or decreasing the speed alone may not solve all the issues.
Do Not Trust All the Detail on the Statement
Notice the third and fourth entry in the Example 3 announcement:”US CRDT VCR CN” and”US CRDT VCR CM.” Visa refunds the interchange to the supplier once the merchant credits its client on returned products and services. The statement notes the yield sum, the appropriate interchange rate, and dollar amount to be reimbursed — shown at the far right column at $96.13 and $42.20. Thus, a merchant may believe that simply because the credited amount is mentioned on the announcement which he’s receiving the credit. This isn’t the case here. This merchant isn’t getting the interchange refund and that’s also costing this company around $2,000 each year.
- Merchants need detailed statements whether they understand it.
- EIRF and Conventional interchange rates indicate a possible issue which needs to be investigated with the supplier.
- Do not trust the information on the announcement without confirming the mathematics.