3 Tiered Pricing

3-Tiered Pricing 

Three-tiered pricing is one pricing model used by credit card processors. As the name suggests, it involves classifying transactions into three tiers or categories based on the nature of the transaction. 

Typically the three tiers used by payment processors are: 

• Qualified 
• Mid-Qualified
• Non-Qualified 

These labels can vary by card processor. 

Qualified transactions are preferred and are usually transactions that involve non-reward-based credit or debit cards that were physically present and were swiped or used a chip reader. 

These types of transactions qualify for the lowest processing rates. 

Mid-qualified transactions may involve rewards cards and transactions that are entered manually at a terminal. 

While these rates are not as favorable as qualified transactions, they are better when compared to non-qualified transactions.

Non-qualified transactions would typically involve corporate or high rewards credit cards or transactions where the card is not present. 

Because the card is not present, these types of transactions may also be subjected to a higher rate of fraud or chargebacks that accounts for the higher processing costs. 

It is important to remember that the credit card processing company creates the criteria to determine what tier the transaction will fall into. 

As with any pricing model, there can be advantages and disadvantages. 

One benefit is that depending on the nature of the industry, a business can realize some savings if their credit card transactions usually fall into the qualified category. 

A potential drawback, however, is that credit card processors often may not disclose what criteria they use to create the tiers; so a business may not be able to predict with much accuracy what the cost of processing will be until after the first statement. 

Any credit card processor using a three-tiered pricing system should be able to transparently share the rates applied to each tier; however, their model might be able to be relatively evaluated before establishing an account with them.