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Differences in tiered bundled pricing

Most people believe the price of credit card processing (also called non-cash payment

processing) is complicated. Taken as a whole, it can be bewildering until you break the

processing pricing down and understand the components that make up the pricing schemes.

With each instance of accepting credit card payments, there are a number of calculations and processes initiated that add up to the entire amount charged for any swipe or transaction.

In fact, a transaction is really defined as any interaction between you as the merchant and the processing bank. If a card is declined, you as a merchant still pay a transaction fee; likewise, when you close your account batch at the end of a day, you might also pay a transaction fee. Add these factors to others, such as your type of business and industry, the card used for the purchase, online transactions and many others also affect how the transaction is categorized and charged to you.

The overall system of categorizing transactions is referred to as interchange and the

associated fees for interchange form the basis for all online credit card processing fees. Visa,

MasterCard and Discover revise their fee schedules in April and October every year and

provide an updated list of categories under which their credit card processing transactions

fall. In addition, the banks issuing the cards have a say in how the transactions are directed,

making it daunting to figure out what is really the best tiered pricing scheme for your


Tiered/Bucketed/Bundled Pricing

Most businesses use three-tiered merchant service accounts and these are confusing and

more expensive than the interchange plus pricing plans. Six tiered pricing (separate buckets

for credit and debit transactions) are also coming into popularity.

Tiered (also called buckets, rate buckets, bins or bundled) pricing merchant accounts base

their pricing on a set of qualifications for each instances of processing credit cards. At the

most simplistic level, the tiers look something like this:

  • Qualified discount rate: 1.xx%

  • Mid-Qualified discount rate: 2.xx%

  • Non-Qualified discount rate: 3.xx%

When you’re shopping for a merchant services provider, they always quote the qualified

discount rate, as it’s the least expensive for you. However, in reality, the card brands and the

banks work to move your transactions into higher priced categories and you are pretty much

helpless to appeal their decisions.

Buckets of Inconsistency

Merchant services providers are notorious for making their buckets or tiers “apples to

oranges” with other processors so that you find it impossible to compare tiered pricing

credit card processing quotes. Tiered pricing gives the processor free rein to adjust their rates behind the scenes so they covertly raise your costs without overtly raising your rates. This occurs by routing your incoming interchange fees to higher priced mid- or non-qualified tiers. With no standards over interchange qualification, it’s effectively impossible to accurately compare tiered pricing schemes from processor to processor.

Here’s a fictitious example of tiered pricing quotes from two different merchant service


Provider #1

  • Qualified rate: 1.48%

  • Mid-qualified rate: 2.58%

  • Non-qualified rate: 2.99%

Provider #2

  • Qualified rate: 1.68%

  • Mid-qualified rate: 2.26%

  • Non-qualified rate: 2.48%

On the surface, Provider #1 offers a much better deal on the qualified rate but you can’t

know how many interchange categories will be directed to that tier. If Provider #1 routes

most of your transactions to the mid- or non-qualified tiers, that makes Provider #2 a better

alternative. Unfortunately, you really can’t tell much by just looking at their quotes

superficially. Experience with each provider may be the only way to understand their pricing

in action.

Action – Whether you should select tiered pricing or interchange plus pricing for your

business depends on many variables. Get a free, no obligation analysis and comparison of

processing rates for your business by contacting Sales Sense Payments at 585-704-6453


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