Practical Ecommerce

Ecommerce Know-How: Understanding Your Payment Processing Statement

While online shopkeepers are experts in their industries, they might not be expert at understanding their payment processing service or its statement, which can include adjustments, interchange charges, service charges, fees, and chargebacks.

At its heart, ecommerce is about the exchange of money. Customers pay online for goods and services using a credit card, checking account, payment account (i.e. PayPal), or even a wire transfer; and in turn merchants provide the goods or services ordered. But in all of these transactions there is a payment processor that is assessing fees and charges from every ecommerce merchant for every ecommerce transaction. In this edition of “eCommerce Know-How,” a recurring Practical eCommerce feature, I’ll walk through the seven sections in a typical payment processing statement, briefly explaining what each section is and how it affects your business’s bottom line.

Of course, payment processors each arrange their statements differently and may even offer somewhat different definitions for each fee or charge, but this article should serve as a general guide to payment processing statements.

Total Amount Submitted

Most (if not all) payment processing statements will start with a section called “Total Amount Submitted” or “Total of Payments Submitted,” or something similar. This is the income portion of the payment processing statement, and it should recount all of the transactions you submitted for processing. The key for this section is making sure that your accounting sales totals match the “Total Amount Submitted” for the statement period.

Third Party Transactions

If you accept the Discover Card, Diners Club, American Express, or in some cases payment via electronic check, you could have a section in your payment processing statement for third party transactions. Most payment processors are really Visa and MasterCard banks (association members) that also process other cards as a service to their customers. For example, payments via American Express fall into this category. While these transactions should be included in the “Total Amount Submitted” section, processors separate these transactions as they might be subject to different fees.


This simple sounding section might be the most confusing part of any payment processing statement because it may use terms like deposit and refund in unexpected ways.

First, this section is often included for merchants with a cash reserve payment account. In a cash reserve account, the payment processor actually holds some of the merchant’s money, typically $500 to $5,000. When a customer payment is processed, the merchant’s payment processor (bank) requests those funds from the customer’s (issuing) bank. At the same time, the merchant’s payment processor will subtract an amount equal to the transaction from the merchant’s cash reserve account. Oddly this is called a deposit on many payment processing statements.

Imagine that Jane is your customer. She orders $10 worth of almonds from your online nut store. You process the transaction and your payment processor, let’s say Chase Paymentech for example, requests the funds from Jane’s credit card company. At the same time, Chase subtracts $10 from your cash reserve account just in case something goes wrong with Jane’s order. This is called a deposit. After a few days, Jane’s card clears and the issuing bank transfers $10 to Chase. Now Chase puts that same $10 back into your cash reserve account. This transaction is called a refund.

Just make sure that your adjustments (both deposits and refunds) generally balance out. But don’t be surprised if they are not exactly equal since a transaction that comes in late in the month might have its deposit on one statement and the associated refund on the next statement.

Interchange Fees

An interchange fee represents the payment processors “cost” for processing a credit card transaction. Payment processors are members of credit card associations (Visa and MasterCard associations). These associations maintain, govern, and aid credit card payment processing, and they set the interchange fees that your payment processor must pass on to you. While interchange rates can vary (or potentially be eliminated) based on risk, most merchants pay some sort of interchange fee.

Generally, interchange fees are not going to be a huge burden. But if your store seems to be paying a lot in interchange fees consult your processor or look for a new one.

Service Charges

For some merchants this section is where the pain begins. Service fees are how your payment processor really makes a living. These service charges can include per transaction fees and discount rates that are calculated as a flat rate (say 2.5 cents per transaction) or as a percentage (like 2.5 percent of each transaction). These service charges vary greatly among payment processors. The key is to know what you’re paying. If it is more than about 5 to 7 percent of your total sales, consider looking for a new processor or asking for a discount.


The next section in your payment processing statement is as bad as the last, because again it represents money that is vanishing from your bottom line. This section itemizes other fees charged to your account. Often these fees include payments to hosted shopping carts. As an example, Yahoo! Merchant Services can take as much as 25 cents per payment batch as part of its fees. Your payment processor will access those fees and ultimately pay your cart for you.

These fees can also be monthly service charges. Discover Card, for example, offers a marketing service that many merchants neglect to opt out of. That service will cost $22 each month and shows up in this section of your payment processing statement whether you use it or not. Finally, this section may also include other bank fees like a penalty for having a chargeback that is over and above the amount refunded to the unhappy customer.

Watch this section carefully. Be sure you know what every fee is for, and learn how fees might be avoided or reduced in the future.

Chargebacks and Reversals

The final section in a typical payment processing statement deals with chargebacks. When a customer is unhappy, he/she can call her credit card company (the issuing bank) and get a refund. It doesn’t matter if the customer is right or wrong, your payment processor will hit you with a chargeback and subtract it from your revenue. No one likes to see chargebacks on their statement.

But you will have a chance to redeem yourself. If you challenge a chargeback and win, your payment processor will prominently display your victory in this section as a reversal.

Summing Up

Carefully monitoring your payment processing statement can help you identify charges or fees that you might be able to lower or even eliminate completely.

Armando Roggio

Armando Roggio

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  1. Poz One February 19, 2009 Reply

    My processing bank’s adjustments were making my monthly bank reconciliations a horror scene. Try playing "Where’s Waldo?" with your bank statements and payment processing statements! They were holding my money; for each transaction, for five days…even though they had payment from my customers’ banks much sooner. I finally called them and suggested they were prejudice against e-commerce businesses, as they don’t do this (I was told) with brick & mortar businesses. After speaking with several departments they agreed to stop the stupidity. Please call your processing banks if you’re experiencing problems…umm…you are their customer.

  2. Ty Nunez February 19, 2009 Reply

    Make sure you look closely at your Visa/MC charges. You’ll likely notice that charges for the month are broken down into three categories; Qualified, Mid-qualified, and Non-qualified. If you crunch the numbers for each category, you’ll notice that the discount rate that you are paying is significantly different for each (be sure to crunch the numbers, many merchant account statements don’t display their mid and non-qualified rates).

    A non-qualified rate might be 2 percentage points higher than a qualified rate! Why are they different? The type of credit card a customer has will cost the merchant different amounts. Have you ever wondered how credit card companies can afford to give people airline miles, cash back, or other rewards? The answer may startle you, but you as the merchant are picking up much of those costs. For example, a credit card that allows customers to redeem rewards may fall into the mid-qualified category. Corporate or foreign credit cards will likely fall into the non-qualified grouping (the most expensive one).

    Ty Nunez

  3. Credit Card Processing January 26, 2010 Reply

    The problem with the industry is that it is very confusing. Certain cards cost more because you are paying either for the risk or the reward. Reward cards cost more to process because you are picking up the tab on the reward part (aka mid -qual) and corporate and int’l are considered higher risk hence they are in the highest priced category. However most processors set up your account in a 3 tier category:qualified (generic visa , mc), mid qual (reward or keyed in -if your retail) and non-qual (certain reward mostly corp and int’l). One way to get around paying so much more for mid and non-qual is to set yourself for interchange pricing where you pay a small percentage above the true cost (aka interchange).
    This is how I typically set up my merchants.

    Abe Solomon