Tiered pricing is deceptive, the least advantageous and the most confusing pricing structure offered by the credit card industry today. It also referred to as bundled pricing and for good reason: it allows processors to group Interchange Fees into 3 to 4 buckets (qualified, mid-qualified, and non-qualified rate tiers).
Why is this bad for business?
First, let’s look back at Interchange pricing. As we learned, this form of pricing provides the greatest level of transparency as it effectively line items each type of card accepted.
Tiered pricing on the other hand obfuscates the pricing by grouping cards and their associated Interchange pricing together. This not only makes it difficult for the merchant to review the cards they’ve accepted in a given month, but also means that they they could be overpaying for a card since the rate is set for the highest card in that bucket regardless of whether or not it was accepted in a given month.
Tip: processors will often present the merchant with the lowest tier. This is also called the “qualified” or “qual rate”. For example, the merchant is presented with a rate of 1.29%, which is the “qual rate”. However, upon receiving the bill, 75% of the accepted cards for that month DIDN’T fall into the “qual” rate. What does this mean? The bulk of these cards are “downgraded” to the mid or non-qual category, which are the two most expensive rates.
Tip: Moreover, some processors will add an additional monthly surchage, further padding their fees and greatly increasing your cost. Look for this during the on-boarding process.