“Qualified rate” is probably the most widely used term in the payment processing industry. This rate is generally the one that is sold to merchants based solely on the fact that it is the lowest rate in the 3 tier category. But what is this rate and how does it affect what I pay for my VISA/MasterCard processing?
The 3 tier pricing model is the most commonly used pricing model on the market today. Its simple, easy to explain and very profitable for a payment processor. Most importantly, it’s the easiest pricing model for you to understand. This does not, by any means, make it the best pricing model to use. The 3 tier model uses the following:
Tier1: Qualified Rate
Tier2: Mid qualified Rate
Tier3: Non-Qualified Rate
Not many processors will want to explain the rates associated with Mid and Non Qualified categories, however these categories are the most important ones. Mid and Non qualified tiers account for transactions made with reward cards, corporate cards, keyed in cards and travel and entertainment cards. Tier 1 (qualified) only accounts for cards that were made with debit, or regular (non rewards) cards. Most card transactions you will accept will have some sort of reward programs attached to them which means that the Mid and Non Qualified categories will be most common. What’s most important to understand is that processors make most of their profit through the Mid and Non Qualified Categories.
The 3 tier model is very simple to understand because it already accounts for interchange charges from VISA/MasterCard (please see “what is Interchange”). The interchange fees are built in to the tiers along with a profit margin. With this type of model, it is impossible to be transparent and show what the markup really is. You, as a client, will never know how much the processor is marking up above their cost.
Don’t be fooled with claims of “low discount rates”. Ask questions about mid and non qualified fees, as well as surcharges that may not be included in any initial conversation. Don’t sign a contract that does not fully disclose all the rates and fees in a clear matter.
To find out more information on how to understand the 3 tier pricing structure please call us at 866-799-8975.