HSBC’s merchant account statement is undoubtedly the most complex of all UK merchant account statements. So, if you understand this one, the rest are easy!
In 2009, HSBC’s merchant services business was sold to US-based card processor, Global Payments. Global Payments break their charges down into component parts whereas other acquirers usually give you an “all-in” inclusive rate.
Because Global Payment’s transaction charges (also called headline rates) only include a portion of the total costs, it may seem cheaper than other acquirers’ inclusive rates. It usually isn’t.
To work out the total rate, you have to piece together individual costs, gradually building up a complete picture. Global Payments would argue that their methodology is more transparent but for most merchants, it just makes their statement more difficult to understand.
In this article, I will break down an example merchant account statement from HSBC and explain what each individual charge represents.
Page 1 — Summary
There are no details of the amount processed. Instead, just a summary of the total monthly costs. What’s interesting is that only £296.14 of the total £433.21 bill relates to transaction charges.
The remainder of the total charge is formed from interchange fees (£96.97) and other fees (£40.10). In other words, 31 percent of the total monthly cost comes from extra costs above the headline rates.
Page 2 — Settlement
Page 2 shows the amount processed each day for and by each card scheme. It also shows the amount settled into your business bank account for each day. This may not be the same as the amount processed if there have been any adjustments, fees deducted from your settlement funds or amounts which have not been settled.
Page 3 and 4 — Charges
Pages 3 and 4 detail your charges in full. This part of your statement is broken up into three sections — Transaction Charges, Interchange and Scheme Fees — which must be added together to calculate your all-inclusive rate.
This page shows how many transactions you have processed, along with their value, the average transaction value (ATV), the transaction charge rate and the fee.
Debit cards will be charged a per item rate whilst credit cards will be charged a percent rate of the transaction amount. There will be marginally different rates for Mastercard and for Visa.
In this example, the Mastercard credit card rate is 1.14% whilst Visa credit card rate is 1.1%. Transaction charges for Mastercard and Visa debit cards are both 12p.
It’s interesting to note the different descriptions used for each card type.
when we look at the interchange costs below, you will find that different descriptions are used. This makes it immensely difficult to match up card types and calculate the total cost.
The most common card type is Visa Debit, which is listed as VDBT. In the example above, there have been 288 transactions with a combined value of £25,240 and an ATV of £87.64. These transactions are charged at a rate of 12p per transaction, making for a total charge of £34.56.
The acquirer pays higher interchange costs on any card not issued in the UK, that does not accept chip and pin or is not a personal card. The higher interchange costs are passed onto the merchant.
These higher costs can be can be illustrated in the following example.
- Non-Chip and Pin: Fees are higher when a transaction has been accepted over the phone and the cardholder is not present. In our example, there are five such card transactions (labelled as Visa CVV2 which all carry an additional charge of 0.33%. Additionally, there are 13 Visa debit card transactions (labelled as VDC CVV2) that incur an additional charge of 2.5p each.
- Non-UK Cards: All cards issued by banks outside the UK will incur an additional fee. There are a multitude of such charges in our example, including five labelled as Int’l Base, which all carry an additional charge of 0.93%.
- Non-Personal Cards: There are a lot of business, corporate, commercial and reward cards (collectively known as premium credit cards) which all attract a higher interchange cost than your standard personal credit card.
Most of the line entries in the transaction charge section and the interchange section relate to these premium cards. To work out the total rate, you need to identify each part and add them together. The task is difficult because the same card type will have a different description in each table.
As a simple example, a Mastercard World Signia card is denoted as MCWS in the Transaction Charges table but is split into 2 lines in the Interchange table — Wrld Sig Base and Wrld Sig Chip. There is an additional charge of 1.213% for CNP and 0.736% for chip and pin for this card type which materially increases the headline rate of 1.14%.
The bottom 9 rows of the interchange cost table relate to fees levied by the Card Schemes and recharged to you by Global Payments. There are different rates depending on whether the card is Visa or Mastercard, debit or credit and whether it was issued in UK, EU or the rest of world.
The rates look small and insignificant at fractions of a percentage but add up to material sums very quickly. Taking the most common card type, a UK Visa debit card, the card scheme fee for each transaction adds 0.015% of transaction value + 0.49p per transaction. With an ATV of £87, this adds a further charge of 1.8p per transaction to the headline rate of 12p, ie a further 15%.
Other fees include terminal hire costs (£18.50 + VAT per month) which is quite normal and a statement fee of £2, which some other acquirers charge and others don’t.
The piece to look out for is the authorisation fees (UK Base 24) which is an additional charge for every transaction processed. Again, taking debit cards, this adds a further 2.95p to the headline debit rate of 12p per transaction. In other words, it adds an additional charge of 25% per debit transaction!
You can perhaps now see why some merchants think the Global Payments’ merchant account statements contain a lot of hidden costs. Clearly, these are all outlined in their T&C’s and the salespeople we have spoken with are at pains to point out that this is fully explained to merchants before they sign up.
However, it is complicated and merchants often become fixated on the headline rates and forget the extras.
Let’s look at an example to illustrate everything we’ve just discussed.
The headline rate is 12p, to which you have to add scheme fees of 1.8p and authorisation charges of 2.95p, giving an all-inclusive rate of 16.75p. This all-inclusive fee is an eye-watering 40% higher than the headline rate!
If you process a CNP transaction, there would be a further charge of 2.5p.
If the card was issued outside the UK or, in the case of credit cards, was a premium card, there would be yet another charge.
With other acquirers, the inclusive rate will include scheme fees, some do not levy authorisation charges, some will quote the same rate for CNP and there are even some who will not charge extra for non-UK issued cards.
All will charge extra on premium cards but most others will bundle card types together to give one rate across all premium cards making it far easier to understand and often cheaper.
Our top tip is when you do compare costs across suppliers, make sure that it is like for like.
In the example above, don’t fall into the trap of comparing to the headline rates as you’ll get stung by an all-inclusive rate that is much higher!
We use a complex comparison model when calculating comparable transaction rates and are happy to provide a detailed, side-by-side comparison for any merchants considering alternatives.
Simply upload a copy of a recent statement below.