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Merchant Services




The three main barriers to understanding a merchant processing statement are lack of knowledge, consistency and transparency which surround the industry and is typically what many companies and sales agents prey upon.


Not knowing what to look for is the main barrier to understanding a processing statement. Fundamental knowledge of how credit card processing fees work is a prerequisite to understanding charges on a processing statement.


We hope this tutorial will help you overcome this barrier by covering the necessary foundational knowledge about credit card processing fees.




The layout and structure of statements vary widely among merchant service providers, creating many different layouts and formats. Not only does this make it tough to understand charges on an individual statement, it also makes it tough to learn how to read a statement when tutorials such as this one don't match your processor's statement format.


We use statements from varios processors for the example statement analyses provided with this tutorial. You should be able to find a statement analysis with a format that is very similar to your own.




Merchant service statements embody the lack of transparency that is a major systemic issue in the credit card processing industry. Tiered pricing (also called "bundled pricing" or “bucket pricing”) makes it possible for processors to completely conceal base processing charges.


Quick example to relate: Imagine if you walked into the grocery store and there were only 3 prices for every item on the shelves. It would be easier to calculate your grocery cost, but would cost you much more money than I bet you’d like to pay.


This tutorial will show you how to overcome the cloudy view of tiered pricing by reverse engineering base costs to create an accurate estimate of fees.


Steps to Understanding Statements


Let's get started by outlining the basic steps to dissecting a merchant processing statement. Each step is important, and some build upon the last, so be sure to follow links that explain a supporting topic further if you're unclear on any details.


Know What to Look For — Separate Components of Cost


The first and most important step in reading a statement is separating base cost/wholesale from markups.


For example, if gross processing charges for a given month are $1,000, you should be able to look at your statement and see which portion of the $1,000 is going toward base cost, and which portion is going toward the processing markup.


Base Cost / Wholesale


Interchange fees and assessments combine to create the base cost of credit card processing that is the same for all processors. The sum of interchange fees and assessments is the credit card processing industry's version of wholesale pricing.


Don't worry about trying to decipher base cost on your statement right now; we will cover that in a moment. For now, the important point to understand about base cost is that it is non-negotiable and the same for all processors. Anyone who tells you otherwise, is not being honest with you. The base cost your business pays now is the same base cost it will pay if you switch processors. The base cost does not change because the merchant provider happens to be a bank, or a large provider claiming that have the best pricing, national negociated rates, or I’ve even heard, a special deal with Visa and Mastercard.




The markup portion of credit card processing services is any charge above the total of base cost (interchange and assessments). The markup is the only negotiable area of processing expense, and as you will see, it can also be the source of much aggravation when reading statements.


Identify Your Pricing Model


Now that you know to separate base cost from markup, the next step is to identify the pricing model that the processor is using to assess fees.

Tiered / Bundled Pricing or Bucket Pricing

(For purposes of this summary, we’ll stick to the term “tiered”)


Tiered or bundled pricing is the most common form of pricing, and it is identified in a couple of different ways.


Key Terms: Qualified, Mid-Qualified, Non-qualified


The easiest way to spot tiered pricing is by the terms "qualified," "mid-qualified" or "non-qualified" listed anywhere on the statement. Keep in mind that the terms may be abbreviated in a number of different ways such as "qual," "mqual," and "nqual." Tiered pricing is easily identified by the presence of these terms in the example statements below. You need to only see one of these terms on your statement to know that you have tiered pricing.

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Consistent Rates Across Card Brands

Another way of identifying tiered pricing is by rates that are repeated across different card brands. Examples of such statements are shown

Interchange Plus / Pass-Through Pricing

Another form of credit card processing pricing is interchange plus, or interchange pass through. It’s a fancy way of saying your paying the card cost plus a little more. Interchange plus statements look more complicated than tiered statements, but they provide far more useful information about charges. Interchange plus statements are most easily identified by a consistent low discount rate for all card brands, or by itemized interchange charges.


Consistent Low Discount Rate

Interchange plus pricing statements will show the processor's discount rate as a single low percentage for all card brands. The statements below show examples of how the processor's discount rate appears on various interchange plus statements.

Itemized Interchange Charges

Interchange plus processing statements will almost always itemize interchange detail. A few examples of interchange plus statements that itemize interchange charges are shown below.


The existence of itemized interchange detail is a good indicator of interchange plus pricing, but tiered statements may also itemize interchange detail. Interchange detail just means that your processor is showing you the many catetogies of interchange that were represented from the types of cards that your customers paid you with. There are thousands of different interchange categogies, so it’s impossible to know them all. That being said, don't assume that just because interchange categories are shown that a statement is interchange plus. Look also for elements of tiered pricing such as the existence of the terms "mid-" or "non-qualified", or consistent discount rates for all card brands. If any elements of these elements exist, assume the statement is based on tiered pricing.


Identify the Discount Method

Credit card processors can charge fees using daily or monthly discount, and the discount method used will affect how total fees are calculated on a processing statement.


What Is Daily Discount?

On daily discount a processor charges its qualified rate prior to settlement, and then charges credit card transaction fees, non-qualified rates, and other charges at the end of each month. Daily discount is identified by the existence of the term less discount paid on a processing statement. Simply put, it means they’re billing you before they deposit your money, then they’re billing you on the money deposited at the end of the month also. Sometimes it’s done for businsses that don’t want to pay a hefty bill at the end of the month, but would rather pay the fees as each settelment deposits to your account. Sometimes however, providers setup their customers merchant account to take the fees out after each settled batch, then bill them more at the end of the month to help hide fees and make more money.


In order to calculate total charges on a daily discount statement, fees paid throughout the month must be added to fees charged at the end of the month. A tutorial on how to read a daily discount statement is linked below.


Monthly Discount

On monthly discount a processor charges all fees in one lump sum at the end of each month. Statements based on monthly discount are much easier to reconcile than statements based on daily discount.

So you think that just because you have a small business you can't get the competitive credit card processing rates that big businesses get? Think again! Follow these five tips and you'll be able to secure credit card processing rates for your small business that will make Starbucks jealous. Yes, we’re being a little bit facetious, but you get the idea.


  • Run your small business like a big business

  • Know where your money goes.

  • In most cases, stick with interchange pass through pricing.

  • Just say no to contracts. Make sure there are no fees to terminate a contract.

  • Buy inexpensive equipment and always avoid leases.


If you like these five small business credit card processing tips, you'll love our list of other credit card processing tips.


Run your small business like a big business.

Size may matter for some things, but it's out the window when it comes to finding the best credit card processing service. The ridiculous level of competition in the industry will have processors fighting tooth and nail for your business no matter how small it is.


Don't let sales people push you around because just because your business doesn't process a ton of money (yet). The bigger you think the smaller your rates and fees will get -- regardless of the actual size of your business.


Know where your money goes.

Before you can negotiate the best credit card processing fees for your small business, you have to know what's flexible. There are two areas of cost that even processors can't change. The first is interchange, and the second is assessments.


Interchange is the same for all processors and it's the rate that card-issuing banks charge processing banks (called acquiring banks) to accept their credit cards. Interchange rates are a fixed component of credit card processing expense, and they're the same for all processors. You can check out the actual interchange fees for Visa and MasterCard here.


Assessments are a series of rates and fees charged by Visa and MasterCard, and they are the same for all processors. You can see a list of the different assessments at the credit card processing fees page here at Vibrant Payments.


The only area of processing cost that is negotiable is the processor's markup over interchange and assessments. The markup is where you want to attack, and here's how to do it.


In most cases stick with interchange pass through pricing.


Don't make the mistake of focusing just on rates and fees when negotiating. The first place to start is with the pricing model on which the processor's markup is based.


Processors use two types of pricing models called tiered and interchange pass through. Tiered pricing is opaque and expensive. If your business already accepts credit cards, you're probably familiar with tiered pricing because it's the one that results in expensive mid and non-qualified surcharges.


Processors prefer to offer tiered pricing to small businesses because tiered pricing generates decent profits even on lower volume businesses. Interchange pass through pricing, on the other hand, results in lower costs and it doesn't have any surcharges or pricing tiers. This makes interchange pass through more transparent and much less expensive than tiered pricing. Big businesses in the know are paying credit card processing fees via an interchange pass through pricing model, and there's no reason why you can't get the same money saving pricing for your small business. Just be sure to ask for interchange pass through pricing by name.


Just say no to contracts. Make sure there are no fees to terminate a contract.


Small business or not; no one likes to be locked into a long-term merchant account contract with a cancellation fee. Many processors attempt to impose a contract term with a cancellation on the merchant accounts that they offer. Some may even say that it's standard practice. Well, it's not. Just say "no" if a processor tries to lock you into a contract with a hefty cancellation fee. You will find that most processors will be willing to waive the cancellation fee if that's what they have to do to earn your business.


Buy inexpensive equipment and always avoid leases.


If you've followed the first five steps you're well on your way to getting the best credit card processing for your small business, but you've done a number on processors' profit margins along the way. If a merchant provider is giving you an exceptionally low processing rate, the service portion may not hold up to where you need. Sometimes pricing versus support is a gray area and different for every company. As long as you’re comfortable and you know how your pricing works, finding the rigth support and price combination is much more in your control.


Credit card processing machines are pretty cheap compared to even a few years ago. You should be able to buy a new EMV ready, dual-communication terminal (Internet and phone connection) for roughly $200-$300. Anything beyond that and the processor is padding the price.


Leases are something that you shouldn't even consider for your small business. There's never a good reason to lease a credit card machine for $50 a month over four years when you can buy the same machine for $250. If you are told that you are renting the terminal, be careful of jargon that sly sales reps use. A lease is not renting. Companies typically don’t rent their equipment. They lease it, or sell it, or provide it at no cost which is something we typically do for our clients if we are able to. If a processor tries to lease you a machine, it’s someone you probably don't want to do business with. Many times the agents are paid on selling leases and don’t care about servicing, pricing, no taking care of their new found account. They make their money, and walk away.  It’s unfortunate, but it happens more often than one would think.

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