If you are signing up for a merchant account, one of your primary considerations is going to be understanding credit card processing fees and pricing structures. There are two main fee classifications for merchant accounts: Tiered Pricing & Interchange Plus Pricing.
What is Tiered Pricing?
Tiered pricing is the most common, though not generally considered the most beneficial pricing structure for the merchant. With tiered pricing, all credit card brands and types are divided into three (or sometimes more) tiers. The most common tiers are known as Qualified, Mid or Partially Qualified and Non-qualified. While Qualified rates are generally the advertised rates and can be quite low (ie rates starting at just .90% for debit cards), they are also very difficult to achieve. Why? Corporate, Rewards, and other card types are not included in this tier, and who doesn’t use a Rewards card these days?
What is Interchange Plus Pricing?
The other option for pricing is to use what’s called Interchange Plus Pricing. Interchange Plus pricing works by adding a small margin on top of Visa and MasterCard’s interchange fees (the fees that Visa and MC to process their cards). Interchange Plus models typically charge a percentage fee and a per transaction fee above interchange fees.
For example: Interchange + .50% and .10 per transaction. So, if interchange is 1.6% and .10 per transaction + your rate is Interchange plus .50% and .10 per transaction = you would be charged 2.1% and .20 on the transaction. With this model, there are no pricing tiers or non-qualified cards which will incur higher rates, so the merchant usually ends up paying lower payment processing fees on almost all card types. See Visa and MC’s interchange tables.
Conclusions
Tiered pricing is often used and is generally easier to explain, though in practice it is still quite complicated and relies on several factors. Interchange Plus pricing is generally considered to be the more transparent pricing model for merchants. Either way, be sure you know which pricing model you are choosing so that you can better compare the real costs of opening a merchant services account.
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