If you're a business owner processing credit cards, you're on one of two pricing models: tiered pricing or interchange-plus. The one you're on determines how much of your revenue goes to processing fees — and most people are on the expensive one without knowing it.
How Tiered Pricing Works (And Hides Costs)
Tiered pricing groups every transaction into one of three buckets:
| Tier | Typical Rate | What Triggers It |
|---|---|---|
| Qualified | 1.69% – 1.99% | Basic debit cards swiped in person |
| Mid-Qualified | 2.20% – 2.80% | Rewards cards, keyed-in transactions |
| Non-Qualified | 3.00% – 3.99% | Corporate cards, international cards, e-commerce |
The processor advertises the qualified rate — the lowest number. That's the one on the contract. That's the one the sales rep quotes.
But here's the thing: the processor decides which tier each transaction falls into. There's no standardized definition. A transaction that's "qualified" with one processor might be "mid-qualified" with another. And there's no way for you to predict or control which tier you'll get.
The Hidden Math
On a typical business doing $50,000/month, only about 25–35% of transactions actually land in the qualified tier. The rest get bumped up to mid-qualified or non-qualified — where the processor makes the real money.
How Interchange-Plus Works (Transparency)
Interchange-plus is fundamentally different. Instead of buckets, it has two components:
- Interchange — the base cost set by Visa/Mastercard. This is the same for every processor. It varies by card type (debit, credit, rewards, corporate) and ranges from about 0.5% to 2.5%.
- Plus — the processor's markup. A fixed percentage and per-transaction fee (e.g., + 0.15% + $0.10).
That's it. You see the base cost. You see the markup. There's nowhere to hide.
Example: Same $100 Transaction
Tiered: "Qualified rate" of 1.99% = $1.99. But wait — this was a rewards Visa, so it gets bumped to mid-qualified at 2.59% = $2.59
Interchange-plus: Interchange for this card is 1.65% + $0.10. Plus markup of 0.15% + $0.10 = 1.80% + $0.20 = $2.00
Savings on one transaction: $0.59. Multiply by thousands of transactions per month.
The Real-World Cost Difference
Let's model a real business doing $50,000/month in card volume with a typical card mix (42% debit, 52% credit/rewards, 6% corporate):
| Tiered Pricing | Interchange-Plus | |
|---|---|---|
| Debit cards ($21,000) | $420 (2.0%) | $315 (1.5%) |
| Credit/Rewards ($26,000) | $702 (2.7%) | $520 (2.0%) |
| Corporate ($3,000) | $105 (3.5%) | $75 (2.5%) |
| Monthly fees | $45 | $15 |
| Total monthly | $1,272 | $925 |
| Effective rate | 2.54% | 1.85% |
| Annual cost | $15,264 | $11,100 |
Annual savings: $4,164. And that's on a modest $50K/month. At $100K/month, the gap doubles.
Why Are Most Businesses Still on Tiered?
Three reasons:
- It's the default. Most processors push tiered because it's more profitable for them. The sales rep earns a higher commission. The company keeps a wider margin.
- The qualified rate sounds lower. "1.69%" beats "interchange + 0.15%" in a 10-second pitch. Most business owners don't do the full math.
- Switching feels hard. Nobody wants to deal with new equipment, new software, or early termination fees. So they stay — even when it's costing them thousands.
How to Tell Which Model You're On
Pull out your latest processing statement and look for these clues:
You're on tiered if you see:
- Words like "Qual," "Mid-Qual," "Non-Qual"
- Different rates for different transaction types with no explanation of why
- A "surcharge" or "downgrade" fee column
You're on interchange-plus if you see:
- Individual interchange categories listed (e.g., "VS Credit Rewards 1")
- A consistent markup line (e.g., "Processor Fee: 0.15% + $0.10")
- Interchange costs itemized separately from the markup
Still not sure? That's normal — some processors intentionally make statements confusing. Upload your statement or run our calculator and we'll tell you exactly where you stand.
Making the Switch
Switching from tiered to interchange-plus is usually straightforward:
- No equipment change needed in most cases — it's a pricing model change, not a hardware swap
- Check your contract for early termination fees (if any, we can often help offset them)
- It takes 3–5 business days from approval to processing
The hard part isn't switching. It's realizing how much you've been overpaying and deciding to stop.