How to efficiently review and classify data from your merchant statements from both international and domestic providers
This is part two in a two-part series. Read part one here:
Bridget Meyer, Senior Director at Redbridge, chaired a panel for the Association for Financial Professionals (AFP) 2020 Virtual Experience. Guests Dennis Humble, assistant treasurer at Humana; Darrilyn Lawrence, treasury consultant at Lincoln Financial Group; and Angie Grunte, Senior Director at Redbridge, discussed their experience and recommendations to cope with the massive data encountered in merchant and bank fee statements. This article summarizes key concepts and takeaways from that session.
To download the session slides, please scroll to the end of the article.
What is a merchant statement?
- Like an account analysis statement, a merchant statement is a bill for services rendered.
- It provides a record of card brand fees and assessments as well as a detailed list of relevant interchange qualifications.
Lack of a standard format
Failure to properly identify and analyze the charges on a merchant statement can result in excessive costs and lower cash flow. One of the challenges in analyzing charges on the merchant statement, though, is the lack of a standardized format.
How to read a merchant statement
When you look at a merchant statement, what should you expect to see, especially with the lack of a uniform reporting format?
Critical data that a merchant statement should include is your overall volume. Typically, merchant statements are reported monthly. There may be other frequencies, but a monthly snapshot should provide the expected dollar volume and the number of transactions from the sale and return viewpoints.
Expect to see average ticket information and a clear list of applicable fees, including any transaction fees applied to your gateway. The fees may be based on authorizations or settled transactions and may be calculated on a fixed fee, a percentage, or a number of basis points, depending on your relationship with your gateway.
The statement should include a detailed listing of the applicable card rent fees, what might be called the “alphabet soup of fees.” These can include assessment fees and the specific card rent fees like fixed acquired network fees or brand usage fees.
Finally, the statement should include an itemized listing of the assist interchange fees for the period, including the interchange fee, the volume of transaction activity applied to each interchange rate, and the number of transactions.
Managing interchange
Each of the preceding data elements is critical for managing interchange. The largest acquirers, especially in the U.S. today, have robust reporting regarding interchange. However, they report the details differently. Some will publish the interchange rate as they appear on the public schedule. Others rely on codes. Confirming interchange rates from the codes on Visa or Mastercard statements is especially difficult.
Before beginning an analysis of your merchant costs, be sure that you have the critical details. Some acquirers provide reports in arrears, further complicating analysis and acquiring initial adjustments to get a true picture of your costs. Taking a top-level, fundamental approach — understanding the information you need versus what is received — will simplify your task. Since there is no uniform reporting structure standard, knowing how to work with the information you have and following up with your providers for necessary detail is required.
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Pro Tip: Ensure you have access to the data you need in a clear and concise format. Also, you will want to determine whether the reporting includes other ancillary or third party fees that acquirers are responsible for billing like gateway or middleware. If not, be sure that you get these reports from the third parties directly.
Chargebacks and paybacks
Merchant reports also include chargeback, electronic check, or check payment and return activity. The data is necessary for internal reconciliation and to ensure compliance with regulatory guidelines. Failure to adhere to the regulations can result in mandatory remedial programs to ensure compliance.
In the U.S., the large acquirers typically provide robust reporting packages. When data is not available, you can usually get the information by request. However, outside North America, Europe, Australia, and New Zealand, you may have challenges with the available reporting format, i.e., Excel spreadsheets. Sometimes, fees are self-reported or not reported by the providers.
Once essential data — equipment, middleware, gateway, point of purchase, and point of sale information — is available, identified, and recorded, harmonizing the data to understand the current environment’s costs is necessary.
The process typically requires establishing and tracking key performance indicators (KPIs) to understand the business impact of new solutions, technologies, payment types, and methods. The results of the analysis are essential for subsequent conversations with business partners and providers.
Humana’s experience with expanded card usage
Dennis Humble, assistant treasurer at Humana, reports that roughly 2% of Humana’s $65 billion of total revenues is from credit cards, more than $1.5 billion annually. Typically, the company has limited credit card payments to individual members to pay their premiums or the cost of prescription drugs delivered to them, averaging around $75 per ticket. In 2020, Humana extended credit card acceptance for many of the groups whose members experienced financial issues. The new credit card users have average tickets much larger, in the hundreds of dollars, escalating the per ticket expense. “Even though extending the privilege during COVID was the right thing to do, compensating for the extra costs is not feasible long term due to the hospital industry’s low margins,” said Dennis.
With the help of Redbridge, Humana’s treasury department was able to assess their credit card costs and policies. Since credit card payment data is critical to determine the company’s cost of doing business, Humana aggregated merchant statements together to determine interchange rates, volume per card type, and potential risk exposures. The analysis included understanding each element of card costs each month, its comparison to the previous year, and potential options to manage that cost.
Limited account leverage
“Complaining to our credit card relationship folks at Visa and Mastercard — ‘The cost of doing business is too high. What can you do for us?’ — has not been effective because we’re not Walmart, we’re not Target, we’re not a retailer,” said Dennis. “Our volume is nothing compared to what those companies are putting through. They have a lot more leverage than I do.”
Fortunately, Humana’s rates are a little lower since healthcare is considered an “emerging business.” However, its pharmacy business — the largest segment of Humana accepting credit cards — is considered a mature business by Visa, Mastercard, and the other card brands. Through its analysis, Humana learned that the interchange gobbles up the pie in terms of its exposure and dominance with fees.
The card brand sets the interchange fees. Humana found opportunities to qualify for optimal rates, especially when the card brands make or introduce changes multiple times each year.
Humana’s treasury team realized that they could manage the acquirers by putting the most transaction activity out to bid. “Whether it is the card brands Visa, Mastercard, or American Express, each acquirer is a gateway or debit network and should be PCI compliant,” said Dennis. “Routing preferences are the bottom line when you talk with your partners, vendors, and providers.”
Partnerships with card brands
Dennis encourages anyone who sees their volumes increase and want to understand why and what they can do to talk to Visa and Mastercard. “Develop a relationship with them, so they know your concerns and your expectations for them,” said Dennis. “They offer different tools that you can implement to get a lower overall rate. Take advantage of those tools to better understand and quantify your position. To shape the conversation effectively, you need to know and tell them the share of your wallet they represent versus what they could represent. Explore, together, details of individual card type activity and volumes to identify improvements you can spread throughout the organization.”
The bottom line
Organizations that do not proactively manage their card data can experience 50 to 120 basis point jumps in a 30-day period from six or more redundant fees. That alone is an excellent reason to have insight into your data to drive transformation and change.
Make sure you have the training, tools, and infrastructure needed to access, interpret, and harmonize your data effectively. You can do the work in-house or use a third party to help you. Your effort is worth it because knowing the numbers ensures that your organization can better manage its payment acceptance environment.
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