Small Business Credit Card Processing: Understanding 3-Tier Pricing
If you plan on starting a small business and you want it to grow, part of its growth will involve small business credit card processing offered by a merchant services provider, which can advise you on the best payment options for your company's present and future. 3-Tier Pricing: the most popular model
Most account providers use a 3-Tier pricing model, as opposed to one that has six tiers. First tier assigns a merchant a "qualified rate," the percentage it will be charged when it accepts a regular credit card in a transaction manner defined as "standard" by the account provider. As one would suspect, qualified is the lowest of the rates in the 3-Tier model, and is typically the rate quoted when you inquire about 3-Tier pricing. That's because qualified will apply to the majority of your business' credit transactions (e.g., at credit terminals, through an ecommerce account, via a mobile device, etc.).
Whereas first tier assigns a qualified rate, second tier assigns one that is "mid-qualified," the percentage a merchant is charged if it accepts a credit card that doesn't qualify the transaction as being standard. Bringing higher fees than qualified, mid-qualified could be charged for various reasons, with two common ones being: a card is keyed into a terminal instead of swiped, or an irregular card is used, such as a business card instead of a personal one. Mid-qualified transactions cost the provider more in interchange fees; hence their noticeable mark up over qualified rates.
The "non-qualified rate" is the highest rate a 3-Tier account provider will charge, with the increase again being due to interchange costs. As with second tier rates, third tier rates can result from several scenarios. When you speak with an account provider about 3-Tier rates, make sure the majority of your transactions will receive the qualified rate, and that a thorough analysis of your sales situation in terms of transaction types is performed prior to agreeing on the terms of an account. Receiving credit payment can expand your sales opportunities and improve your revenue. But to benefit as much as possible, it's critical to have an account that takes as little of your revenue in account payments as possible.
In my research on small business credit card processing, I've studied the tier pricing used by merchant services providers.
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