Understanding Tiered Merchant Account Pricing

Tiered merchant account pricing is currently the most common form of credit card processing. This article will go over what merchants need to know about tiered merchant account pricing and offer our advice on when it can be used as well as an alternative pricing model.

When it comes to choosing a credit card processing company, there is usually a lot of information immediately presented to merchants. It is important to note that tiered pricing comes down to trust with your processing provider. As it’s usually not as transparent as Interchange Plus, you will need to trust that your processing partner is providing you with a fair pricing schedule.

Whether you’re an eCommerce merchant, restaurant, or retail merchant, you should be aware of tiered merchant account pricing and precisely what it means.

What Is Tiered Merchant Account Pricing?

Tiered pricing, also known as bundled pricing, is a credit card processing structure that breaks down the price that merchants pay their processing companies per transaction. Processors group interchange fees into general rate tiers of their choosing, typically broken into three tiers: qualified, mid-qualified, and non-qualified.

In theory, tiered pricing is meant to make processing prices and fees the easiest to understand for merchants. However, less honest processors may pad “interchange fees” to increase their profit, which is why tiered pricing sometimes has a bad reputation.

Identifying Tiered Pricing on Statements

• Look for terms such as Qual Disc (Qualified Discount), M-Qual Disc (Mid-Qualified Discount), or N-Qual Disc (Non-Qualified Discount).
• Check for flat rates across all card brands.
• Note consistent percentages for card types, such as Visa, Mastercard, or Discover.

Interchange Fees

Interchange fees are the transfer of fees between acquiring banks and issuing banks. These fees cover the cost of handling transactions, transferring payments, and mitigating risks like fraud and chargebacks. Interchange fees range from 1-3% of the transaction amount, plus a fixed fee (usually around $0.10 to $0.15).

Factors Influencing Interchange Fees

• Card Present vs. Card Not Present Transactions
• Merchant Category Code (MCC)
• Brand of Card
• Type of Card (Debit, Credit, Rewards)
• Tokenization and Card Ownership (Personal or Business)

The Three Tiers of Tiered Pricing

Tier 1 – Qualified Discount

The qualified discount rate is the lowest rate a business will pay. This tier usually applies to non-reward debit cards, standard credit cards, and card-present transactions.

Tier 2 – Mid-Qualified Discount

Mid-qualified rates apply to transactions that do not meet the processor’s standards for the qualified tier, such as rewards cards, manually-entered transactions, or transactions not batched within 24 hours.

Tier 3 – Non-Qualified Discount

Non-qualified rates are the highest and often apply to high-reward credit cards, corporate cards, and CNP (Card Not Present) transactions. These are common in high-risk credit card processing industries.

Downfalls of Tiered Pricing

Lack of Transparency

Processors set the rates and criteria for transactions, making it difficult to compare pricing models between providers.

Inconsistency

Tiered pricing fees can vary month-to-month based on customer card usage, making it hard to predict costs.

Higher Costs

Tiered pricing often leads to higher costs due to added fees or inflated rates.

Why High-Risk Accounts Use Tiered Pricing

High-risk merchant accounts often use tiered pricing because acquiring banks and processors face greater risks, including higher chargeback rates and CNP transactions. This pricing structure helps mitigate financial exposure for banks and processors.

Alternatives to Tiered Pricing

The most transparent alternatives are Interchange Plus (ICC+) and Interchange Plus Plus (ICC++). These models show merchants exactly how much processors make per transaction and break down interchange fees, scheme fees, and acquirer fees.

Calculating Your Effective Rate

To compare pricing models, calculate the effective rate using this formula:

(Total credit card processing fees / Total processed amount) × 100

For example, if your total fees are $50 and the total processed amount is $1,000, your effective rate is 5%.

Corepay Pricing Models

At Corepay, we accommodate all forms of merchant account pricing. Our goal is to provide 100% transparency regarding fees, policies, and terms of service. We evaluate your business risks and propose the best pricing model for your needs.

Corepay Merchant Accounts

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