Tiered pricing is one method of charging transaction fees for payment processing. While it is not as common as other pricing models, it is one that many merchant account providers and credit card processors have in place.
With a tiered pricing model, there are three tiers - qualified rates, mid-qualified rates, and non-qualified rates.
At first glance, it appears that tiered pricing is a very good value. Qualified transactions may incur fees of around 1% or so, which is quite low.
The problem is that most transactions will fall in the mid-qualified or non-qualified category. Ultimately, this usually ends up being a much more expensive option for payment processing.
Some processors may charge as much as 4% for non-qualified transactions.
Some business owners prefer only having three types of rates for their own internal accounting purchases. But that’s really the end of the list of pros for tiered pricing.
This pricing model is much more expensive than interchange-plus, even though it may be easier to understand. Processors that offer tiered pricing usually only advertise their lowest rates. This makes business owners think they’re getting a great deal on their transaction fees.
Most of the time businesses end up paying a lot more to process payments with tiered pricing. There is no transparency, and it can be difficult to tell what category specific purchases will fall into.
The best alternative to tiered pricing is interchange-plus, which offers more transparency. Interchange rates are set by credit card companies twice a year.
Depending on the situation, flat-rate pricing may also be a better option. Though it is also problematic because it charges the same rate across the board for all purchases.
Surcharging and cash discount pricing are two other options that pass the cost of transaction fees on to the customers. Many businesses find that these models are preferable.
Tiered pricing may not be the best option for you for payment processing. Interchange-plus offers much more transparency and will keep your costs down as much as possible.« Back to Glossary Index
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