Introduction
Tiered pricing is a common pricing model that categorizes transaction fees into different tiers based on the perceived level of risk or type of transaction. This model serves as a way for payment processors to manage the costs associated with processing transactions while providing merchants with a structured approach to understanding their fees. Typically, tiered pricing consists of three main tiers: qualified, mid-qualified, and non-qualified. Each tier corresponds to different rates and criteria that transactions must meet to qualify for the lower processing fees.
Qualified Transactions
Qualified transactions generally include those made with consumer credit cards that are swiped in person, without issues such as address verification failures or international transactions. Because these transactions carry a lower risk of chargebacks and fraud for processors, they benefit from the lowest rates offered in the qualified tier.
Mid- Qualified Transactions
Mid-qualified transactions, on the other hand, may include more complex payments like those involving non-reward business credit cards or those that are manually keyed rather than swiped. These transactions are deemed slightly riskier by processors and, as a result, incur a higher fee than qualified transactions.
Non-qualified Transactions
Finally, non-qualified transactions represent those that are assessed the highest fees, often due to factors such as address verification being unavailable, high-level rewards cards, or transactions processed from outside the United States. This tiered approach can sometimes leave merchants perplexed, as it might not always be immediately clear why certain transactions fall into the mid-qualified or non-qualified categories, thus leading to unexpected fees that can affect the bottom line.
Conclusion
When evaluating the impact of tiered pricing on a business’s overall payment processing cost, it is vital for merchants to fully understand the criteria that lead their transactions to be classified into each tier and to compare these costs against flat-fee models or interchange-plus pricing structures. Please note that this is only some basic information on Tiered pricing, call us at 310.826.7000 for more information.