Tiered pricing is one of three major billing platforms a merchant service provider can offer clients seeking to process debit and credit card transactions — the others being interchange plus pricing and bundled pricing. This type of pricing typically includes two or three tiers but can sometimes include as many as six.
Tiered pricing organizes various transaction types into tiers based on certain predetermined factors. The tier a particular transaction falls into will then determine the rate paid by the merchant.
Whether you manage a brick-and-mortar store or an e-commerce business, it’s not only important to have a merchant account, but equally so to understand what exactly those credit card processing services are costing you.
To help you understand how tiered pricing works, here’s an example of a common, three-tier setup:
1. Tier One: Qualified Rate
A Qualified Rate applies when a customer uses a standard debit or credit card and, generally, when it's swiped or inserted as a card-present transaction. It's the lowest rate of the three.
2. Tier Two: Mid-Qualified Rate
A Mid-Qualified Rate applies when membership rewards and loyalty cards are used to make a purchase. This tier also includes instances in which an employee must manually key in a customer’s credit or debit card, and any card-not-present purchases.
3. Tier Three: Non-Qualified Rate
A Non-Qualified Rate is the highest rate you would be charged under a tiered-pricing model. This includes purchases made with corporate cards and international cards. Improper transactions are also categorized as such.
One thing worth noting is that when you’re priced on a tiered pricing structure, you are likely overpaying for your Mid-Qualified and Non-Qualified transactions. In fact, some providers set the Qualified Rate abnormally low to attract customers. If very few or none of your transactions clear as Qualified, however, you won’t benefit from that low rate.
Therefore, a good question to ask your provider is what percentage of your transactions are likely to fall into the Qualified Tier.
You might also want to ask them to price you on an Interchange Plus pricing structure so that your provider earns the same amount no matter what the interchange costs are.
