Tiered pricing
Transactions are bucketed into 'qualified', 'mid-qualified', and 'non-qualified' rates.
Tiered pricing sorts each transaction into a pricing tier (typically qualified, mid-qualified, and non-qualified), each with a different rate. It looks simple but is the least transparent model, because the processor decides which tier a card falls into and can route more sales to expensive tiers.
How it works
There is no industry definition of 'qualified'. Each processor writes its own rules into the merchant agreement, mapping hundreds of interchange categories into three or four buckets and setting a rate for each. A basic consumer card, chip-read in store and batched on time, is normally qualified. A rewards card, a keyed card, a corporate card, or a late batch is not. The processor keeps the gap between your tier rate and the real interchange. Those buckets sit in your contract, not in any network rulebook, so categories can be shifted between them on written notice, raising your cost while every rate on your quote stays the same.
The number on the quote is the qualified rate, and it can apply to a minority of your sales. A plan advertised in the high 1% range can settle well above 3% once rewards, keyed, and commercial transactions land in the upper tiers. You can check in under a minute. Look on the statement for more than one percentage charged against the same card brand, or for the words qualified, mid-qualified, non-qualified, or standard. Then divide total fees by total volume and compare the answer with the rate you were sold. If a processor will not restate the same quote as a single markup over interchange, treat that as the answer.
Worked example
The quote reads 1.79% qualified, 2.49% mid-qualified, 3.29% non-qualified, plus $0.20 per transaction. Run $30,000 across 600 sales through it, with 35% qualifying, 40% mid-qualified and 25% non-qualified, and the percentage fees come to $188, $299, and $247. Add $120 in per-item fees and the month costs $854. That is an effective rate of 2.85%, not the 1.79% you were shown.
Frequently asked questions
- Is tiered pricing ever cheaper than interchange-plus?
- Rarely, and only by accident. It can win for a merchant whose sales fall almost entirely into the qualified tier, such as a shop taking chip-read debit on small tickets. For everyone else the buckets are set wide enough that the processor keeps more margin than an interchange-plus markup would give it, which is the point of the model.
- What is a non-qualified surcharge?
- Extra percentage, charged when a transaction lands in the processor's most expensive tier. On a tiered statement it appears as a separate line, often labelled non-qual surcharge or downgrade fee, and it sits on top of the qualified rate rather than replacing it. Read it as the difference between the rate you were advertised and the rate you are actually paying.
- How do I get out of a tiered pricing contract?
- An early-termination fee may apply if you leave mid-term, so check the term length before you cancel anything. You exit in writing under the termination clause in your merchant agreement, and these contracts often run for a fixed period with automatic renewal. Equipment leases are usually a separate agreement and can outlast the processing contract, so check both before you sign anything new.