Tiered – Pricing
You show me a merchant on tiered pricing and I will show you a merchant who is over paying for credit and debit card processing, period!
You may never process a single transaction at the rate quoted
Tiered pricing means the merchant account provider states a base rate (say 1.49% + a $0.25 transaction fee) for processing. The rate is generally meant to be enticing. However, the under-the-breath caveat is that it is for “qualified transactions only.” Generally, this means the customer is present, the magnetic information on the card is read, and all of the other qualifications meet the requirements. Of course, the first problem with this seductive rate for eCommerce, phone-order-mailed-order merchants and even CPA’s and law offices is the customer is not present when making the payment and the magnetic information is not read. Even retailers and restaurants, where the card is present, may find that only 10% to 20% of the credit card transactions meet the qualifying requirements. I cannot tell you the number of merchants who thought they had a great deal with their merchant account provider and did not even realize that not a single transaction was being processed at the base rate written on the merchant agreement.
It gets even worse
The transactions that do not “qualify” they are now moved into different pricing tiers with much higher rates. There are many tiered rate plans, but the three-tier rate plan is the most common. It is made up of “Qualified”, Mid-Qualified”, and Non-Qualified” rates. Basic debit and credit cards where the magnetic swipe is not read, cards which earn hotel, airline miles, and alike generally qualify at the Mid-Qualified level. Business cards, International cards, plus basic cards and reward cards that do not meet the Mid-Qualified requirements qualify at the Non-qualified level. The Mid-Qualified level rate is generally around 2.50% – 3.50% plus transaction fees and the Non-Qualified level is generally around 3.50% – 4.50% plus transaction fee. However, I have seen rates over 7.0%.
Other than the merchant account provider, bookkeepers like the tiered rate because it looks simpler on the merchant statement. However, merchants interested in being priced fairly and maximizing profits should always insist on “Interchange Plus” pricing.