Tiered Pricing VS. Interchange Plus Pricing

There are two main types of pricing models for credit card processing: tiered and interchange plus. Both have their own pros and cons, so it's important to understand the difference between the two before deciding which is right for your business.

Tiered Pricing:

With tiered pricing, businesses are typically charged three different rates for credit card transactions: qualified, mid-qualified, and non-qualified. Qualified rates are the lowest rates, and are only charged on transactions that meet certain criteria (such as being run as a credit card rather than a debit card). Mid-qualified and non-qualified rates are charged on transactions that don't meet the criteria for qualified rates, and are generally higher.

One of the main drawbacks of tiered pricing is that it can be difficult to understand which transactions will be charged at which rate. This can lead to businesses inadvertently being charged more than they should be, or not taking advantage of lower rates available to them. Additionally, because the qualified rate is typically the lowest, businesses can end up paying more for transactions that don't meet the criteria than they would with interchange plus pricing.

Interchange Plus Pricing:

With interchange plus pricing, businesses are charged a single rate for each credit card transaction, which is based on the interchange rate (the rate that Visa and Mastercard charge their banks for each transaction) plus a small percentage. This pricing model is generally more transparent than tiered pricing, as businesses know exactly how much they're being charged for each transaction. Additionally, businesses can save money with interchange plus pricing if they process a lot of transactions that don't qualify for the lowest rates under a tiered pricing model.

However, interchange plus pricing can sometimes be more expensive for businesses that don't process a lot of credit card transactions, or that mainly process transactions that qualify for the lowest rates. Additionally, businesses may have to pay additional fees with interchange plus pricing, such as a monthly fee or per-transaction fee.

Tiered Pricing VS. Interchange Plus Pricing - Which is Right for Your Business?

The best pricing model for your business depends on a variety of factors, such as the type of business you run, the amount of credit card transactions you process each month, and the average transaction size.

If you're not sure which pricing model is right for you, contact a credit card processing specialist for help. They can evaluate your business and recommend the best pricing model based on your specific needs.