The Myth of Non Qualified Rates

We've all seen them. The postcard that comes in the mail or the flyer strategically placed at the checkout lane of your favorite warehouse club, offering in big letters "Credit Card Processing as Low As X.XX%". Boy, that "As Low As" rate sounds great! What’s the catch?

The catch is called Tiered Pricing

The biggest untruth in the credit card processing industry is the use of Tiered Pricing, i.e., Qualified, Mid Qualified, and Non Qualified rates. Tiered pricing is a rate structure that the credit card processing companies have invented to apply artificially higher fees to transactions they label as Mid Qualified and Non Qualified.

There is no Tiered Pricing Department at Visa or MasterCard. They do not recognize the term. The wholesale costs on transactions that all credit card processing companies pay to Visa and MasterCard is called interchange. Processors then markup the Interchange costs, and bundle then into different programs offered to the merchant, (The Discount Rate). The most profitable of these programs is Tiered Pricing.

A typical example of Tiered Pricing is:

Qualified Rate: 1.39%
Mid Qualified Rate: 2.89% (Qualified Rate plus 1.5%)
Non Qualified Rate: 3.89% (Qualified Rate plus 2.5%)

Remember our example above? In this case, the "AS Low AS" Rate is 1.39%, printed in BIG Letters on the postcard you received. What may not be presented, or hidden in the small print, are the mid and Non Qualified rates. Many processors have designed these programs so a minimum of 40-50% of your transactions are charged at the higher Mid Qualified or Non Qualified rates.

So what determines which transactions are charged Qualified, Mid Qualified, or Non Qualified rates? Therein lies the secret. Each processing company can determine which transactions go to which category as they see fit. What one company determines to be a qualified transaction, another company may determine to be a non qualified transaction. There is no regulation or consistency in the process. Each company can change which category a transaction points to at any time. And as Visa and MasterCard introduce new card types and products, each company can point these to any category they please.

The one thing that you can be sure of is that with a Tiered Program, you are a very profitable customer to your processing company.

The good news is that today, there are alternative to tiered pricing. With the Bankcard Associates Straight Rate Program, merchants receive the true Interchange costs. We recommend that you review your month end statement today to see if you are paying Mid Qualified and Non Qualified rates. If you are, you can do a comparison to the true wholesale costs, (Interchange) at our website www.ratewatchdogs.com. (Click here to review the current Interchanges)