There are two main merchant account pricing plans, Tiered/Bucketed pricing and Interchange Plus pricing. However, from a cost savings perspective, there’s only one plan you should consider – Interchange Plus pricing.
Interchange Plus pricing is the most transparent pricing plan for credit card processing and is the payment processing plan type VeriProcess recommends for all merchants. The merchant pays the interchange rate set by the card association – without any intermediary markup. The ‘Plus’ portion of the pricing plan, the markup to cover merchant service costs, is fixed no matter what kind of transaction occurs.
You will hear the terms “qualified” and “qualification” used often when talking about merchant account rates and fees because they describe which interchange category a credit card transaction is assigned to. In the case of tiered merchant account pricing these terms are used to refer to the tier or bucket that a transaction falls into.
The term “Merchant discount” is used in the payment processing industry to describe the markup from interchange to the rate that a business pays to accept credit cards. The interchange portion of a merchant account discount fee goes to the bank that issued the customer’s credit card, called the issuing bank. The other fees that comprise merchant discount are split between card association dues, the merchant service provider’s fees and other charges.
Tiered Merchant Account Pricing
All tiered merchant accounts have a base rate called the qualified rate and anywhere from one to several additional tiers that carry a surcharge that is added to the qualified rate to arrive upon the final rate for that tier. Most tiered merchant accounts have two additional tiers referred to as mid and non qualified. However, some tiered merchant accounts have as many as 12 or more additional tiers in addition to the lowest qualified discount rate. For example, the rates for three and six-tier accounts would look like this:
Three Tier Merchant Account Rate Structure
- Qualified Discount Rate (lowest)
- Mid Qualified Surcharge (Qualified discount + Mid Qualified Surcharge = Final rate)
- Non Qualified Surcharge (Qualified discount + Non Qualified Surcharge = Final rate)
Six-Tier Merchant Account Rate Structure (Credit and debit transaction are separated)
- Qualified Credit Discount Rate (lowest)
- Mid Qualified Credit Surcharge (Qualified discount + Mid Qualified Surcharge = Final rate)
- Non Qualified Credit Surcharge (Qualified discount + Non Qualified Surcharge = Final rate)
- Qualified Debit Discount Rate (lowest)
- Mid Qualified Debit Surcharge (Qualified discount + Mid Qualified Surcharge = Final rate)
- Non Qualified Debit Surcharge (Qualified discount + Non Qualified Surcharge = Final rate)
Payment professionals refer to the different tiers as “bins,” “rate buckets” or simply “buckets.” This is significant because it has to do with an industry term that is vital to understanding how interchange charges are applied on a tiered account.
How the Charges are Determined on a Tiered Rate Structure
If you viewed the interchange fee schedule you would see that there are far more than three or six different rate categories. All of those hundred of different interchange rates and fees get packed into as little as three different rate categories or buckets.
Individual merchant service providers (acquirers) maintain a qualification matrix that dictates which rate bucket the various interchange categories will qualify to. This makes it difficult to accurately compare rates and fees from different providers unless you know how each provider will be qualifying the various interchange categories.
Interchange Plus Pricing
Merchant accounts that operate on an interchange plus pricing structure may sound more intimidating, but they’re actually much more transparent and less expensive than tiered accounts. On an interchange plus pricing structure, the merchant pays the exact interchange fee in addition to a flat markup to their merchant service provider. This eliminates inconsistent buckets and overpaying for inflated tiers.
The Visa, MasterCard, and Discover Card Associations all maintain Interchange Downgrade rates for credit and debit card transactions that do not meet the requirments for the transaction to clear at the card type’s correct Interchange Rate. Downgraded Interchange Rates are higher than the card’s normal Interchange Fee, so it’s always in a merchant’s best interest to avoid downgrades whenever possible. Always clearing transactions at the correct Interchange, and avoiding downgrades allows merchants to obtain the lowest possible processing costs. Interchange Plus Pricing gives merchants access their exact Interchange Rates and Fees, and allows them to work with VeriProcess to identify and eliminate downgrades, thus lowering card acceptance costs.
EIRF (Electronic Interchange Reimbursement Fee) and Standard are two of the most common Visa and MasterCard Interchange Downgrades. They can be applied to both card present and card not present credit, debit, and prepaid card transactions. The EIRF rate is applied to card transactions that are either missing compliance data elements or are settled within 2 days of authorization. Standard is applied to card transactions that are not settled within the card association’s specified timeframe or missing some data elements.