Term: Tiered Pricing

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Tiered pricing is one of four pricing models used by merchant services providers/credit card processors to bill a merchant. Tiered pricing is the most common pricing method in use today. In this model the Merchant Account Provider takes your transactions and sorts them into Tiers or bins. Typically there are three, four or six Tiers although there can be more. The processor will charge a fixed amount/and or percentage for each transaction in the first tier, a higher fixed amount for each transaction in the second tier and so on. This was originally seen as a way to simplify billing instead of listing transactions individually with 120+ classifications from the Interchange fees.

The problem with Tiered Pricing is that it is a model created by each processor to its own preferences. The typical three tier model uses tiers named something like “Qualified,” “Mid-Qualified” and “Non-Qualified.” Let’s say you’re a storefront and swipe a card; that might be a “Qualified” transaction. If you take an order over the phone with no card present, that might be “Mid-Qualified”. If an order comes in over the internet, that might be “Non-Qualified”. The Qualified tier should have the lowest rate for your transactions and you’ll probably be made aware of what that rate is. The processor may not be so forthcoming about the other tier rates.

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