Tiered Pricing Explained
Tiered Pricing is a merchant account pricing model that groups all interchange rates into only a few distinct 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 interchange rates into a few categories to simplify statements is a good idea. In practice, however, it significantly reduces transparency and results in much higher processing 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 may include four or even six tiers, as well as separate tiers for credit and debit cards. The one constant 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 that are 2 to 3 times higher than they should be.
Sadly, 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 account for less than 10% of the total credit and debit cards in circulation.
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.