Tiered Pricing

A payment processing pricing model that groups the hundreds of possible interchange categories into three simplified tiers—typically Qualified, Mid-Qualified, and Non-Qualified—with each tier charged at progressively higher rates set by the processor.

Tiered pricing was historically the most common pricing model offered to small and medium-sized merchants, simplifying the complexity of interchange categories by bundling them into easy-to-understand tiers. A typical tiered structure might charge 1.89% + $0.15 for Qualified transactions, 2.49% + $0.20 for Mid-Qualified, and 3.49% + $0.30 for Non-Qualified transactions. Qualified rates are advertised as the merchant's "discount rate" and generally apply to standard consumer credit and debit cards processed with complete security data. Mid-Qualified rates apply to rewards cards or transactions missing certain data elements. Non-Qualified rates apply to premium cards, corporate cards, or transactions with incomplete authorization data.

The fundamental problem with tiered pricing is lack of transparency regarding how processors assign transactions to tiers. While interchange categories are standardized by card networks with published rates, tier assignment is controlled by processors who can manipulate definitions to maximize their markup. For example, a processor might advertise a competitive Qualified rate but then qualify very few transactions at that rate, instead downgrading most to Mid-Qualified or Non-Qualified tiers with much higher markups. Merchants on tiered pricing often pay 0.50% to 1.50% more than they would on interchange-plus pricing for identical transaction mixes.

Tiered pricing makes it difficult for merchants to compare competitive proposals because processors can define tiers differently, advertise attractive Qualified rates while qualifying few transactions, and adjust tier assignments over time to increase revenue without obviously changing rates. The pricing model also prevents merchants from benefiting when they improve data capture or qualify for lower interchange categories, as processors may still place improved transactions in higher tiers. Most payment processing experts recommend interchange-plus pricing over tiered pricing for any merchant processing over $5,000-$10,000 monthly, as the transparency and cost savings typically outweigh any simplicity benefits of tiered pricing.

Optimize Your Payment Processing

Let Verisave analyze your merchant statement to identify hidden fees and misconfigurations related to tiered pricing.

Get a Free Audit

Related Terms

3D Secure

An authentication protocol for online card transactions that adds an additional verification layer between the cardholder and issuing bank, shifting fraud liability from merchants to card issuers when properly implemented.

ACH Payment

Automated Clearing House payment is an electronic bank-to-bank payment method that transfers funds directly between bank accounts through the ACH network, typically used for direct deposits, bill payments, and recurring transactions.

Acquirer

A financial institution that processes credit card payments on behalf of merchants, maintains merchant accounts, and facilitates the settlement of funds from card-issuing banks to merchant bank accounts.

Address Verification Service (AVS)

A fraud prevention tool that compares the numeric portions of a billing address provided during a transaction against the address registered with the card-issuing bank, returning match result codes to help merchants assess transaction risk.

Aggregator

A payment service provider that enables multiple merchants to process card transactions under a single master merchant account rather than each merchant having their own dedicated merchant account, common with services like Square, Stripe, and PayPal.