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The 3 best price structures for credit card processing | Tiered

Posted by Alex Neir on Thu, August 26, 2010 @ 04:08 PM

The 3 best price structures for credit card processing | Tiered Pricing

pricing structure for a credit card processing
There are many ways to set up the pricing structure for a credit card processing account. We will discuss the 3 best price structures for credit card processingand give a detailed explanation of each.
  1. ERR Pricing: One rate
  2. Tiered: Two to four rates
  3. Interchange Plus: Every rate

The second price structure for credit card processing is called Tiered Pricing. Tiered pricing gets its name from the fact that there are multiple tiers set up to determine the price associated with the transaction.

Typically there are 2 to 4 tiers that are set depending on the type of business. Retail merchants usually have 3 to 4 tiers and internet business tend to have only 2. For this example with will look at are retail business.

The 4 tiers set up most often for retail business are as follows:

  • Debit
  • Qualified
  • Mid-Qualified
  • Non-Qualified

Each tier’s rate is negotiated with your merchant service provider. We will use the following for illustrative purposes.

  • Debit: 1.10%
  • Qualified: 1.69%
  • Mid-Qualified: 2.29%
  • Non-Qualified: 2.99%

Each tier’s qualification parameters:

  • Debit: Debit cards where the PIN is entered by the customer at check out
  • Qualified: Check cards that are swiped through the terminal
  • Mid-Qualified: Check cards that are keyed in to the terminal, Rewards cards that are swiped or keyed into the terminal
  • Non-Qualified: Corporate or international cards swiped or keyed

As a merchant business with a tiered pricing structure illustrated above, you will be charged the tier rate associated with the transaction regardless of the interchange table rate.

(The Interchange Table is the rate table set up by Visa, MasterCard, Discover and American Express to facilitate the acceptance of plastic as a form of payment. There are currently over 180 different interchange rates that can apply. The rate is determined by how the card is transacted – swiped vs. keyed and the type of card that is transacted – debit card, check card, rewards card, corporate card, international card) More information on interchange fees

Transaction Amount = $100

Interchange Qualification

Interchange Rate

Tier Rate

Cost

Check Card, Swiped

1.65%

1.69%

$1.69

Rewards Card, Swiped

1.90%

2.29%

$2.29

Check Card, Keyed In

2.35%

2.29%

$2.29

Rewards Card, Keyed In

2.45%

2.29%

$2.29

International Card, Swiped

3.07%

2.99%

$2.99

The tiered pricing structure for credit card processing is most advantageous for merchants that are transacting medium volumes.

What pricing structure is right for my business?

Tags: Interchange Fees, Pricing Structure for Credit Card Processing, Tiered Pricing, Credit Card Processing Fees