What Is Tiered Pricing?
Tiered Pricing is a merchant account pricing method that groups all of the interchange rates into only a few separate pricing tiers. These pricing tiers are typically listed on your monthly processing statement using the following terms:
- Qualified or Qual
- Mid-Qualified or MidQual
- Non-Qualified or NonQual
In theory, grouping all of the interchange rates into only a few categories in order to make statements easier to read is a valid idea. However, in practice, it significantly reduces transparency and results in much higher monthly fees.
Tiered Pricing works on a system of "Qualification" to determine which rate tier a transaction falls into. A simple example of this pricing model might look like this:
- Qualified Rate - 1.55%
- Mid-Qualified Rate - 2.65%
- Non-Qualified Rate - 3.70%
Some Tiered Pricing models might have four or even six tiers, as well as different tiers for credit cards and debit cards. But the one consistency is that the "Qualified Rate" is the lowest possible rate that a merchant can pay.
What is problematic is that most businesses rarely receive the "Qualified Rate". Instead, their transactions are frequently downgraded to a higher pricing tier, causing those transactions to be processed at rates 2 to 3 times higher than what they should be.
Sadly, many merchant services providers will falsely advertise their "Qualified Rate" as a single flat rate that applies to all transactions. But nothing could be farther from the truth.
The "Qualified Rate" normally only applies to consumer debit and credit cards that are non-enhanced or non-rewards based. These card types accounted for less than 10% of the total credit and debit cards in circulation during 2017.
Tiered-Pricing lacks transparency and will cause your business to substantially overpay in your credit card processing fees each month.
Four Points To Strongly Consider
- Transactions that are considered "Qualified" with one processor, could be Mid-Qualified or even Non-Qualified with another processor.
- Most processors do not disclose what interchange categories are grouped into each tier. Since a lower rate can sometimes be achieved by an action taken at the time of the sale, burying the interchange categories within the tiers makes it much harder to identify those opportunities.
- The total lack of transparency with Tiered-Pricing will often lead to problems and misunderstandings between the processor and the merchant.
- Tiered Pricing makes it much easier for the processor to manipulate the merchant to generate additional profits for themselves.