Tiered pricing is one of three major billing platforms a merchant service provider offers clients seeking to accept debit and credit card transactions—the others being interchange plus pricing and bundled pricing. Tiered pricing organizes various transaction types into tiers. There can be up to six, but are typically only two or three. The qualifying tier determines the rate merchants are charged by their provider. These charges are reviewable within monthly merchant statements.
To help you understand how tiered pricing works, here’s an example of a 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 swiped or inserted as a card present transaction. It is 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. Merchant service providers also include instances in which an employee must manually key in a customer’s credit or debit card, and any card-not-present purchases, within this tier.
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. But if none or very few of your transactions do not clear as Qualified, then you won’t be benefiting from that low rate anyway. So a good question to ask your provider is what percentage of your transactions are likely to fall into the Qualified Tier. Or, perhaps more importantly, you might want to ask them to price you on an Interchange Plus—learn more about what interchange is here—pricing structure so that your provider earns the same amount no matter that the interchange costs are.
Whether you own 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 you’re paying for those credit card processing services. To learn more about the different billing platforms available, contact a trusted merchant services company that will break down each option and determine those most optimal for your business.