Tiered Pricing

Tiered Pricing is a pricing model used by payment processors to determine transaction fees based on the classification of the transaction into one of several tiers. Payment tiers are typically divided into qualified, mid-qualified, and non-qualified transactions, each with different fees.

The classification depends on a variety of factors, such as the type of card used, how the information is captured, and the nature of the business. For instance, a swiped card transaction with a standard credit card may be considered a qualified transaction and incur the lowest fee, whereas a manually keyed-in corporate card transaction may be classified as non-qualified and incur a higher fee.

This model often results in unpredictability of costs for merchants, as they may not know which tier a transaction will fall into until after it is processed.

While it can be attractive due to the low rates advertised for qualified transactions, it often ends up being more expensive for the merchant because a significant percentage of transactions end up falling into the mid-qualified or non-qualified tiers, which have higher rates.

This pricing model has been subject to criticism due to its lack of transparency and has led many merchants to opt for interchange-plus or flat-rate pricing models instead.

In conclusion, tiered pricing, with its appealing lower rates for some transactions, can be complex and unpredictable, posing challenges for merchants. The model’s lack of transparency in categorizing transactions, often leading to higher fees due to many transactions falling into pricier tiers, results in unexpectedly high costs for businesses. This drives the search for clearer, more predictable pricing models like interchange-plus or flat-rate, offering more transparency and consistent costs. These alternatives better meet the straightforward, fair payment processing needs of businesses.