Merchant Account

Merchant Accounts: Rates and Fees

When you’re doing research into Merchant Account services for your business, you’re going to encounter a seeming labyrinth of pricing tiers, rates, and fees, written in the complex language of the industry jargon, and further encrypted into legalese. Especially when you’re just starting out, the full implication of what is written before you may not be apparent without a translator. We’re going to provide you with a bit of a ‘decoder ring’ to help you see pull some meaning out of what you’re reading.

Pricing Tiers

Pricing tiers often describe a set of rates and fees as applied to a merchant account, as well as describing the circumstances under which they will come into effect. These are usually marketed to specific types of merchants in such a way as will ostensibly benefit both the company providing the service, and the merchant utilizing it. This may usually be the case, but careful investigation will let you know how much they toe that careful balance between profit and usury.

There are three common pricing tiers, the 3-tier, the 6-tier, and an interchange rate. The 3-tier is both the simplest and most popular, but with the growing availability of interchange rates there has started to be both competition and debate about which is the right way to go. The 6-tier plan isn’t seen very often, and again is mostly relevant to larger companies.

3 Tier

The 3 tier pricing plan includes rates and fees determined by which tier a particular transaction falls into. They are, individually, the Qualified Rate, the Mid-Qualified Rate, and the Unqualified rate respectively. The Qualified rate is applicable when a transaction is made through what is considered a ‘standard’ transaction method, such as swiping the card through a reader for a physical store, or an internet exchange for a virtual retailer. The Mid-Qualified rate applies in other circumstances such as keying in the information, or the card is non-standard, such as a rewards card. As might be expected, mid qualified transactions cost a bit more. All other relevant transactions are processed via the non-qualified rate, and thus suffer the highest amount of fees being charged.

6 Tier

The 6 tier plan was a result of a settlement with major world retailer Wal-Mart, and was created specifically to help Visa and Mastercard compete with PIN-based debit cards. This sort of pricing plan drops the interchange rates far below that of credit cards, and added 2 types of classification for debit cards processed without a PIN, and one for those processed with a PIN for a total of 6 tiers.

Interchange Plus Pricing

The Interchange plus pricing plan is commonly used for companies that have very large monthly transactions, in excess of $25,000. Rather than being based on a tiered system like the two above, this one is based on a set of interchange rates published by both Visa and Mastercard. Rather than having potentially 6 tiers of rates to consider, there are only two for any given vendor. The first is the markup percentage fee, the other is transaction fee. For example, you may pay 0.25% per transaction, along with a $0.15 fee per transaction, rather than a sliding scale of fees.

These are the most common forms of rates and fees in the world of Merchant Account Services today, and choosing the right one is one of the most important things you can do to protect your profit margin. A careful study of the details of what you’re about to agree to will make sure you get the right services for your business.