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Tier-Based Merchant Account

by Jul 4, 2013Rates & Fees

Tier-based merchant account pricing is a very common form of merchant account billing.

Merchant account providers use this rate structure to assess interchange fees and other costs associated with having a merchant account.

Tier-based pricing is also known as “bucket pricing” or “bundled pricing” and is easier to understand than other forms of billing.

Each tier level is displayed on the monthly merchant account statement and thus, somewhat easier to read than interchange plus pricing.

This article will discuss the standard procedures for tier pricing. It’s important to note that there are variations of tier pricing based on which merchant account provider you use.


Tier Pricing Structure

With tier pricing all of the interchange levels are grouped into categories.

Historically the 3 tiered program was the standard and in recent years the 4 tiered program has become the preferred pricing structure.

What are the 4 tiers?

  1. Qualified
  2. Mid-Qualified
  3. Non-Qualified
  4. Signature Debit Qualified

For any transaction that takes place you will be charged ONE of the tier levels along with a transaction fee (if applicable), which is covered later.

For the chart below, each requirement guideline gives you an idea of how and why the transaction will fall into a particular category or “tier.”

The “average cost” column contained within this chart shows typical fees for each tier category. This is a range of fees and can vary based on a variety of factors, i.e. type of business, average ticket, method of accepting credit cards, etc.

The “category” column is the title of each tier. It’s what shows up on the statements and next to each label is the corresponding tier level from above.

The “qualification requirements” column illustrates card acceptance method associated with each category. In other words, it tells you what needs to take place in order for a transaction to be classified under a certain tier.



Average Cost

Qualification Requirements

Signature Debit (4th tier)

1.29 – 1.69%  Swiped transactions, non-pin based, consumer cards only

Qualified (1st tier)

1.71 – 1.99%

Swiped transactions, consumer cards only

Mid-Qualified (2nd tier)

2.39 – 2.99%

Key entered, card not present, telephone orders, swiped rewards (“points”) cards

Non-Qualified (3rd tier)

3.20 to 4.50%

Business corporate cards and some rewards cards


Each transaction is channeled into one of the tiers based on the interchange level that it’s associated with.

The most commonly hit tier categories in a retail setting are the offline debit and the mid-qualified rates due to the large number of debit cards and reward cards that are used.


Signature Debit Card Rate

The signature debit card rate is charged when a consumer pays with a debit card where NO pin number is required.  The debit card must be swiped through the POS device and an approval code must be generated.

This category or “tier” is also known as “Offline Debit” or “Swiped Check Card.”


Qualified Rate

Qualified rates are charged when consumer credit cards are authorized and approved through the method of swiping the card through the reader. These transactions must be non-business and non-reward related in order to qualifiy.

This rate category is often referred to as a “swiped rate.”


Mid-Qualified Rate

This category is largely comprised of key entered transactions and swiped reward cards.  Key entered transactions are made up of debit and/or credit cards where the card number has to be hand keyed into the terminal.

This may occur if the magnetic strip on the card doesn’t work, or you may receive a phone order from one of your customers.

Reward cards are also known as “Points” cards. These types of cards have a different rate than the qualified swiped rate.

A reward card that is swiped through the card reader at the point of sale is considered a mid-qualified rate.

Rates in this category usually have a cost of 2.39% to 2.99%


Non-Qualified Rate

Non-qualified rates will be charged when a business card is accepted.  Some of these transactions can be swiped and others will be key entered.  Rates in this category usually have a charge of 3.20% to 4.50%.

This rate category is also referred to as “corporate card” rate.

Additional Costs For Tier Pricing

In addition to the 4 tier levels, a transaction fee is often charged with a tier-based pricing structure.


Transaction Fee

The transaction fee is charged every time a transaction takes place.  Transaction fees are usually a flat fee and is the same for all tier levels.

For example, you run a transaction that hits the qualified category your transaction fee cost (set by your merchant account provider) will be the same as if it were to have hit the non-qualified transaction category.

Transaction fees usually range from $.15 to $.30.

They are also referred to as “per item fees.”


Wrapping Up

The tier-based merchant account program is great if you want a simple pricing structure.

Bundling rates into tiers or categories makes it easy to calculate effective rate. Additionally, it makes it easier to negotiate and discuss rate changes with your provider because you are only dealing with a max of 4 rates vs. 20 or 30 with interchange plus programs.


Brian Manning

Bancardsales founder and 15 year payment processing veteran, Brian Manning has helped thousands of businesses streamline their electronic payment systems. With a healthy disdain for things like terminal leases and "lowest rate" guarantees he regularly advises on best practices to anyone setting up merchant account related solutions. Brian's mission and passion is to help business owners use their merchant account simply as one tool in the big picture of growing their own business and creating an experience that is positive and meaningful for their customers.
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