Get the Best Pricing Most business owners have difficulty understanding their merchant processing statement. Don’t feel bad – it’s intended that way. Let me explain: The majority of your business’s payment processing costs are interchange and transaction fees. Processors use one of two pricing models to assess these charges to a business. The first is called tiered pricing, and the second is called pass-through pricing. Interchange is what issuing banks charge and is set by Visa and MasterCard. Individual processors have no control over this “cost”. Processors are able to select a pricing model on a business-by-business basis. So, any given processor will charge some businesses using tiered pricing and others using pass-through pricing. The pricing model a processor uses has a greater impact on cost than its rate. What is Tiered Pricing? A processor will charge a business based on its own set of qualified, mid-qualified and non-qualified rates. The qualified rate of a tiered pricing model is the lowest followed by the mid-qualified rate and finally the non-qualified rate. For example, rates of 1.69% qualified, 2.25% mid-qualified, and 2.99% non-qualified each with a $0.25 transaction fee are a typical example of tiered pricing. The processor effectively "bundles" interchange fees, assessment fees, and its markup into its own rates, thereby completely concealing the fixed cost of interchange and assessments from unsuspecting businesses. The processor gets to choose which transactions are considered qualified, mid-qualified, or non-qualified. The ability to route a business's transactions to the rate of its choice allows a processor to increase the business's cost without having to increase its rates. All the processor needs to do is route more of the business's transactions to its higher mid and non-qualified rates. Tiered pricing results in a higher, inconsistent rate markup. Tiered pricing results in hidden costs to the business. Tiered pricing causes rates among processors to be incomparable. What is Pass-Through Pricing? With pass-through pricing a processor bills interchange fees charged by banks and assessment fees charged by card brands directly to a business at cost with no markup. Essentially, these fixed costs are "passed through" to the business. The processor makes money by charging its markup as a single flat rate and a single transaction fee. For example, 0.50% of sales volume plus a $0.10 fee for each transaction is a typical pass-through markup. Pass-through pricing is less expensive. Pass-through pricing eliminates surcharges. Pass-through pricing is 100% transparent: The three components of cost are reported separately on month-end statements, allowing a business to see a complete picture of fees. Pass-through pricing has the potential to be the most transparent, least expensive pricing model, but willing sales people know how to game the system. Don't assume a processor is offering competitive rates based solely on the pricing model. Be sure to look at the big picture and consider all rates and fees. The most accurate way to measure the competitiveness of a processor's rates and fees is to calculate the effective rate: Effective rate % = Total Processing Costs divided by Total $ Processed. What is your rate? Want more information on how you can lower your effective rate? Just give me a shout or shoot an email to: statements@ourlegacylife.us Roger Waibel, National Merchant Partner 855-349-6131