Different pricing structures offer ranges of fixed and variable costs. The right one for you depends on the size of your business, your transaction volume and your averseness to risk.
Tiered pricing, also called bundled pricing, is a fee structure in which processing companies assign three tiers of transaction cost based on three tiers of payment card transactions. These include:
- Qualified – debit card and non-reward credit card transactions
- Mid-qualified – membership rewards card, loyalty card and manually keyed-in transactions
- Non-qualified – Corporate card, high-reward credit card, international card and card-not-present transactions
The major benefit here is the simplicity and understandability of the structure. The downside is that high-volumes of downgraded transactions can really add up, generating significant costs.
For example, a Visa debit card with a chip inserted at a POS terminal is will cost the merchant less than a higher reward credit card such as American Express, especially if its typed in manually.
With interchange-plus plans, credit card companies use specific tables to calculate merchant credit card processing fees. The tables factor card type, transaction method and other variables.
On the plus side, these plans are usually more affordable than tiered plans. Problem is, they are also highly variable in cost susceptible to price increases by major card networks.
Flat-rate plans charge merchants a flat fee to process credit card transactions, regardless of card issuer or method.
The appeal here is predictability in budgeting and planning for transaction costs. The downside is the transaction volume threshold, at greater transaction volumes this plan becomes more expensive for the merchant.
Conversely, if your business experiences a slowdown in credit card transactions, you may get penalized for processing small transaction volumes by way of minimums.