Merchant Account Tiered Pricing Explained:
What is Tiered Pricing? Tiered Pricing, also referred to as bucket pricing, standard pricing, qualified pricing, or packaged rate pricing, is a rate structure in which several hundred different processing rates (aka: Interchange) are packaged into separate pricing tiers. Most providers package the rates into three groups often called “Qualified,” “Mid-Qualified,” and “Non-Qualified” rates. These tiers, or “buckets,” represent three different possible fee tiers imposed by a provider on credit card transactions ran by a merchant, with Qualified transactions receiving the lowest markups and Non-Qualified transactions receiving the highest markups.
As a general rule, “Qualified” transactions include signature swiped debit card transactions and non-rewards cards without attached miles or points programs, while Mid-Qualified and Non-Qualified rates are applied to business cards, rewards cards, foreign cards, and card-not-present transactions entered by a non-MOTO business type. Although these markups are usually fairly similar from business to business, there is no regulation of how merchant account providers must package their tiers, which could result in some variation among providers.
Tiered pricing is generally structured so that credit card processors will make a profit on every single rate in a given tier. For instance, if two cards are grouped in a given tier, where one processes at an interchange rate of 1.30% + $0.15 and the other processes at a higher interchange rate of 1.50% + $0.30, both swiped transactions will still process at the established rate for that tier, which is already marked up over the most expensive card in that tier (in this example, it might be that this Qualified tier processes at a rate of 1.70% + $0.40, which is a built-in profit above both cards). The fact that these pricing levels are not regulated across the industry prevents merchants from knowing exactly how much a given provider is making on each swipe. It also prevents merchants from making apples-to-apples comparisons between providers. Despite the prevalence of tiered pricing in the credit card processing industry, a more competitive and transparent pricing model is available in the form of Interchange-plus pricing, which is described in detail in “Fee Sweep.”