A bank account allows businesses to accept payments by credit or debit card. The account is set up through a payment processing company, an intermediary between the bank and the business.
It is a pricing model used by payment processors in which rates are based on the total monthly sales volume processed through the account. This model offers the business the opportunity to negotiate what rate they are willing to pay for credit card processing.
What Are Tiered Pricing Merchant Accounts?
Tiered pricing is a fee structure for credit card processing that determines how merchants pay processing companies for each transaction. The three tiers are qualified, mid-qualified, and non-qualified. Each tier has a different rate that the credit card processing company charges the merchant for each transaction.
Tiered pricing is the different rates applied to merchants based on their average monthly processing volume. Tiered pricing merchant accounts allow you to choose from three or more tiers with corresponding card swipe fees: the higher your average monthly volume, the lower your rate for each interchange category.
How Does It Work?
Tiered pricing is a strategy used to set a price per unit within a range. Tiered pricing works by lowering the price per unit after each quantity within a tier has been sold. It applies to merchants who process a large volume of transactions in which processing costs are reduced with higher volumes.
A tiered pricing merchant account usually charges a fixed rate for each transaction, which means that the more transactions you process, the more money it costs. If you have a high monthly credit card processing volume, which makes up a large portion of your business, then tiered pricing could save you money.
This is how Tiered Pricing Merchant Accounts work:
- Fees for Interchange: The first fee is the interchange fee, a percentage of the sale paid to the credit card company. This fee covers the costs of processing the transaction and varies depending on the card used.
- Fees for Assessment: Next is assessment fees, charged by both Visa and MasterCard. These are assessed for each transaction and vary depending on the card used.
- Fees for Processor: The processor fee is what the merchant account provider charges for processing the credit card transactions. This fee is usually a flat rate, regardless of the volume of transactions processed.
- Fees for Bundling: Some providers also charge a fee for bundling services. This is usually a monthly fee and includes all of the services you need to process credit cards—terminal rental, statement printing, customer service, etc.
What Do You Need To Know About Tiered Pricing Merchant Accounts for Credit Cards?
Merchant account providers use different pricing models, and one of the most common is tiered pricing. This model offers a few different pricing levels for the merchant to choose from, each with its own set of benefits and drawbacks.
These are the things you need to know about tiered pricing merchant accounts for credit cards:
- Prerequisites: Tiered pricing accounts have some additional provisions before you can apply, including monthly sales volume and average ticket size. If your business doesn't meet these requirements, you may use a different pricing model.
- It is incredibly costly: Tiered pricing merchant accounts for credit cards are generally more expensive than other processing options. It is essential to compare rates and fees on various plans before you settle on one, as there can be surprising differences in the costs from account to account.
- Markup Inconsistency: Tiered pricing is inconsistent with markups, meaning that the rates are different for each tier. This may result in a problem for merchants who process high volumes but don't want to pay higher fees on top of their volume processing discounts.
- Utilizes actual cost of processing: Tiered pricing accounts for the true cost of processing each transaction. This is beneficial to merchants who process high volumes because they get better rates with this model than other models, which instead offer flat fees per month regardless of the monthly volume processed.
- Allows the processor to retain refund credits: Tiered pricing accounts can keep the refund credits that come back to them, rather than processing it as a credit card transaction and paying interchange fees on top of your processing fees. This is a nice perk for businesses that tend to have a lot of refunds.
- Effectively address chargebacks: Tiered pricing merchant accounts for credit cards allows processors to effectively manage chargebacks by providing additional service levels depending on how much you pay. This can be helpful for businesses dealing with a lot of chargebacks.
- Flexible: Tiered pricing is one of the more flexible models out there because it offers merchants multiple levels that they can choose from. This gives businesses more options for their processing rates and helps them find the best deal for their needs.
- Get what you pay for: A tiered pricing merchant account benefits include lower rates, predictable fees, and typically no contract. This makes it a good option for businesses' stable and predictable sales volumes.
These are other types of merchant accounts to process credit cards:
- Interchange plus pricing: This type of pricing is also called cost-plus pricing. With this type of merchant account, the credit card processing company charges a fixed percentage markup on top of the interchange rate. This type of pricing can benefit businesses that process a high volume of credit cards because it allows them to avoid paying any additional fees above the interchange rate.
- Subscription pricing: This type of pricing is also called a subscription model. With this type of merchant account, the credit card processing company charges a fixed monthly fee in addition to the interchange rate. This type of pricing can benefit businesses that process a low volume of credit cards because it allows them to avoid paying any additional fees above the interchange rate.
- Micropayment pricing: This type is also called pay per use or variable rate pricing. With this type of merchant account, the credit card processing company charges a fixed fee for each transaction in addition to the interchange rate. This can benefit businesses that process many small transactions every day because it avoids paying any additional fees above the interchange rate.
This account is a great way to get the most out of your business while ensuring you have all the options available. The different tiers give merchants more flexibility and control over their payment processing needs, which is good for both them and their customers because it ensures they'll always be able to find an account that meets their requirements.
One of the most important decisions you'll make when setting up your new business is which type of credit card merchant account to get. There are many options for tiered pricing, but one thing remains true across every option available. You need a reliable and trusted partner who can provide you with knowledgeable customer service. BNG Payments can help understand what type of account would be best for your business needs. We also offer competitive rates to never pay too much in fees. Contact us today for more information.