Credit Card Processing 3-Tier Billing Overview - Understanding Qualified, Mid-Qualified and Non-Qualified Rates

3-Tier Billing Overview
The 3-tier system is a means to simplify the 300 plus (and growing!) interchange categories that have different fees attached based on such factors as type of credit card used, how the card is processed, and the nature of the merchant’s business. Instead of applying over 300 plus different fees, the fees are categorized into one of three tiers, Qualified, Mid-Qualified or Non-Qualified.

The 3-Tiered billing system is most common pricing system in the industry. Must be great for the merchants right? Wrong! It is popular because it works best for the Merchant Processors, allowing them to attract merchants based on a rate they will least often pay (think bait-and-switch). With 3-Tiered Pricing, the merchant account provider groups the transactions into 3 groups (tiers) and assigns a rate to each tier based on a criterion established for each tier.

With a firm understanding of this model and rate buckets, you can persuade merchants to provide a statement so we can provide a detailed analysis and cost comparison. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. On average, this rate applies to about 20% of a merchant’s transactions. This rate applies to one-card type from each association (Visa, MC, Discover), a plain card with no other logos or reward programs.

Qualified Rate
To receive the Qualified Rate on a transaction, certain criteria apply including, but not limited to, swiping the card and getting a signature if you are a swiped merchant or keying the card with Address Verification Service (AVS) if you are a keyed merchant. To qualify, a merchant must also batch within 24 hours. Any card not meeting these requirements is “downgraded” to either mid or non-qualified and is then subject to higher rates and fees.

Mid and Non Qualified Rates
A fee that is often listed in the "fine print" is the mid-qualified and non-qualified downgrade surcharges that apply on certain types of transactions. VISA/MC transactions may "downgrade" to a mid or non-qualified level based upon the transactions matching the specified criteria for this from the processor. Rewards Cards or International Cards almost always result in a “downgrade.” Other common reasons cards will slide to mid or non-qualified are: Card is keyed instead of swiped, AVS results don’t match , transaction not batched within 24 hours, or more than one authorization attempt. The use of "rewards cards" alone can comprise as much as 40% a merchants transactions, making it critical that the financial impact of this fee be understood
Mid-and Non Qualified cards will pay the qualified rate PLUS a surcharge. This surcharge can be as high as ___ basis points. Many merchants do not know how many of their cards are downgraded and why. Our goal is to get their statement so we can provide them with a better understanding of their business, and ultimately a better plan for their business.

While ISO’s technically have the ability to designate what determines a Qualified, Mid-Qualified, or Non-Qualified Rate, the diagram above represents the most common patterns.