Four Tier Credit Card Processing

Up until just a few years ago, there was no such thing as Four Tier pricing. I guess you can thank the retail giant, WalMart, for this pricing model. They filed a class action suit against Visa/MC saying that since debit cards were taking money directly out of an individuals checking account, that they would be less risky. Since they were less risky, and therefore, would see fewer chargebacks, they should carry a lower interchange rate. They won on behalf of all merchants. So, many processors began offering this new "hybrid" type pricing called Four Tier with the First Tier representing Signature Debit cards swiped thru a terminal or POS system. Here's how it works:

The general rule of thumb here would be that if you have average tickets of less than say $50, Four Tier pricing is likely your best bet. Again, if you would like some help deciphereing your situation, you can email your questions to me or fax a copy of your current statement for a FREE ANALYSIS, of course, with no obligation. Here's the contact info for your convenience:

FAX: 888-783-8690

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And, if you'd like to get even a more thorough understanding of how this whole industry works, discover how Interchange Rates affect your costs, and increase your knowledge overall, go to my website. It will introduce you to my eBook that provides a wealth of information for you regarding this ever-increasing cost center in your business. It will be a wise investment of your time and money.

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This level would be for any Visa/MC debit cards swiped thru your terminal or POS. Using the same pricing grid referred to in the Three Tier scenario, for a new retail merchant, this level would be 1.49% + $.25. As you can see, it's a full .30% lower than the First Tier (Qualified) in Three Tier pricing which is where debit transactions would have been going in that pricing model. Now, this could add up to HUGE SAVINGS for you, over lots of transactions. If you have average ticket sizes of less than $50, Four Tier is the way to go. Studies done a few years ago indicated that nationally, retailers with an average ticket of $25-$50 would see 51% of their sales as debit cards. Average tickets in the $10-$25 range see nearly 75% debit cards. And, with the increased popularity of debit card usage, these numbers are likely higher today.">

These transactions are going to be for those that fell into your Qualified category in the Three Tier Pricing. Surcharges here, utilizing the previously mentioned pricing grid, are .35% for Low to High Risk Merchants. So, as you can see, now, for a swiped credit card, you will be paying 1.84% + $.25 (1.49% Tier 1, for debit cards, plus .35%). The reason this is higher is that under the Three Tier pricing, the processor knows they can give you a lower rate on Qualified transactions because they know from national numbers, that many of your sales will actually be debit cards. Their cost (Interchange) on debit cards are less (currently a little over .50% less) than for credit cards so while they may be making less on credit cards sales, they're really making out on debit cards.

Transactions in this category would equate to the Mid-Qualified transactions referenced on my site on Three Tier pricing (please refer to that site for a description). Surcharges, over and above your Tier 1 rates, could be 1.00% upwards to 2.00%. Again, ask your provider what transaction and card types they are classifying into this category. Some providers will put Visa Rewards 1 and 2 in this category. Some will put just Rewards 1 here and Rewards two into Tier 4 (Or Non-Qualified on 3 Tier Pricing). And still some, at their discretion, will put ALL Rewards cards into this highest category, obviously, to their benefit.

Now, these transactions, as you might have guessed by now, will equate to the Non-Qualified transactions in the Three Tier pricing model. Surcharges, tacked onto your Tier 1 rates (which is the base), could range from 1.25% to over 2.00%. These transactions can be very costly so you need to know what card types are being classified as such.

I know of a processor who recently "reclassified" Visa Rewards 2 type cards, across the board for their merchants. Prior to October 2008, they were treating them as Mid-Qualified (on a Three Tier model) or Tier Three (on a Four Tier model). In October they notified their merchants that they were going to now be clearing them as Non-Qualified or Tier Four. In addition, they increased their rates for these two upper categories even though there were no Interchange increases passed on to them. Quite simply, they know that more of these cards are showing up in the marketplace so it's an opportunity to make more off their merchants. Nice huh?

Now the last thing I want to do is appear like all those other merchant services reps out there trying to get your business. I know from years of experience in the field how vaguery and outright misrepresentation, unfortunately, seems to prevail in this industry. If for any reason, you think you're not getting the straight scoop from your current provider, or from those that are courting you, please don't hesitate to contact me. No matter where you are in the country, I can be of service so don't let my location in beautiful western Michigan be a deterent for you. I'd welcome the opportunity to be of service.

FAX: 888-783-8690
PHONE: 231-329-4400
My Email

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