No More Tiers

(Or, the tale of how you pay for convenience)

Not as delicious as it looks when a processor proffers it, I assure you.

This post was inspired by an earlier entry that began by addressing folks who only wantto accept quotes for merchant services over the phone.  While looking for material for the post, I came across a Sage Payment Solutions page that looked like it was offering a great deal.  Observe:

(Via http://na.sage.com/us/sage-payment-solutions, captured October 1^st, 2014)

Okay, looks solid.  But, there’s an asterisk, and, at the bottom of the page we see this:

(Via http://na.sage.com/us/sage-payment-solutions, captured October 1^st, 2014)

Seeing those two images made me want to address the three-tiered pricing plans that many processors still seem to have no trouble doling out to merchants like candy.  How come no one cries foul?  Well, because they look pretty attractive on the surface.  But, as with most things that look attractive, it’s good to give them a closer look before diving into something serious.

The Message in Their Tiers

Let’s look specifically at the graphic and text from the Sage Payment Solutions page above.  Those qualified transactions they mention, along with mid-qualified and non-qualified transactions, make up a three-tiered pricing plan, so we can infer that the claim of 1.85% for qualified transactions is part of this kind of plan.  The three-tiered plan really does make life simpler for merchants, as it breaks the 350 or so card types down into just three categories with three distinct prices.  You might see something like this:

(Via http://firstpays.com/gofirstpay2011/public/images/statement_img/statement.png, captured October 1^st, 2014)

So, in this case, qualified transactions cost 1.75%, mid-qualified ones cost 2.75%, and non-qualified ones are 3.25%.  Sounds okay—just have to make sure they’re all qualified and you’re golden, right?

Not so fast.  Unless you have a policy where you only accept debit cards, you’re in trouble.  And, even if you do have that policy…you’ll never know what kinds of cards came in until you saw your statement at the beginning of the next month.

Universally, when it comes to these pricing structures, all regulated debit cards fall into the qualified category.  All consumer rewards cards fall into the mid-qualified category.  And, all business-type credit cards fall into the non-qualified category.  One hundred percent of regulated debit cards cost less than 1.75% to process.  In fact, they usually cost 0.05%.  The same goes for consumer rewards cards, coming in at an average of 1.5% compared to the 2.75% mid-qualified rate.  The very same goes for business-type cards and even GSA cards, coming in around 2-2.5% with the proper qualifications—not 3.25%.  Across the board, the three-tiered pricing plan raises costs for merchants a full percent or more.  Great deal for merchant services providers.  Not so great for you.

Conclusion: Avoid these pricing plans unless you have a thing for throwing away money

Now that you know that bit about three-tiered pricing plans, you should be able to spot similar plans when you see them advertised.  Square does something similar with its 2.75% swiped and 3.5% keyed rates, for example.  Intuit does the same with many of its merchant services customers as well.  (If you already knew about Intuit's own pricing and were hoping to get away from that, lucky you!  Go check this out.)

In summary: three-tiered plans are very convenient because processors can drop any merchant into one and NEVER lose money… but, they’re a raw deal.  It’s worth the additional legwork (research, getting customized quotes) to save the hundreds—or thousands—of dollars per month.

Hopefully this helps you in your journey to finding the right merchant services provider for your business.

Until next time,

Jeremy