3 Aspects of Payment Processing Rates Your Small Business Needs to Know

January 6, 2016

We’re pulling back the curtain on our industry, and discussing credit card processing rates.

We’ve covered interchange rates, and other miscellaneous processing fees you’ll see on your statement, but today, we’re going to try and shine some more light on processing rates to help you understand why you may be charged different amounts for different credit card processing rates.

A lot of merchants go into a relationship with a processor completely unaware of what to expect, or what a fair rate should be.

As much as we’d love to criticize and say that those who don’t share rates openly are cowards and rip off artists. We can’t.

Because rates are painful to understand

There’s not a lot of transparency when it comes to processing rates in the industry. And while we will admit, some of this secrecy is from shady processors trying to rip you off (believe us, there are plenty of those in the industry). The honest truth though is there’s no such thing as a universal, fair, flat rate for every merchant.

Okay, now that we’ve enraged you, stay with us. We’re going to try and explain why there’s no such thing as a universal rate.

There are so many variables

When processors are looking at your credit card processing statement, or are asking to know your volume and type of transactions, they are trying to figure out what pricing tier your transactions will generally fall into.

Every processor has different criteria they use to set rates for merchants, some will use a tiered rate, or an interchange based rate (which is extra confusing, so we’ll leave that for another time).

We’re going to put a disclaimer before we dive into the whirling cluster of variables that make up the tiers.

This is some pretty complicated stuff, and unless you’ve been in the processing industry for 5 plus years, you’re probably never going to fully understand your processing statement.

Much like reading WebMD won’t make you an expert on heart surgery, reading this won’t give you a complete understanding of all the complexities on how rates are calculated.

For some simplicity, here’s a crash course explanation of the tier system and how rates are calculated.

Remember, every processor will have a few different variations on how each transaction is categorized.

The 3 tier solution

Lots of credit card processors use either 2 or 3 tiers to categorize each transaction. What that means is each transaction, depending on the variables will fall into a tier. The three tiers are usually referred to as:

Qualified, Mid-Qualified, and Non-Qualified.

Let’s break the tiers down more so you know what category tier each individual transaction might fall into.

All credit card processors have the same exact cost from the card brands (Visa/MC/Discover) called interchange. Each processor has slightly differing soft costs, like marketing, support, sales, but their hard costs "interchange" are exactly the same, and there is no pricing benefit for using a large processor over a smaller competitor or vise versa.


A qualified rate is a face-to-face transaction when a card is present, swiped, and is a standard no bells and whistle credit or debit card; meaning it’s not a business rewards card or any kind of points or rewards based credit card. Since these are the lowest cost to process on the three tier solution.

Be warned! Many times, credit card processors will just say “You’re going to get a flat 1-2% rate for each transaction.”

Chances are they’re leading you to believe that every single transaction will be that amount.

Which it won’t.

Some of your transactions will be qualified, but most will be mid or non-qualified rates. Make sure when you’re talking to a salesperson from a credit card processing company, they can tell you what your mid- and non-qualified rates will be.

Mid-qualified rates are in between qualified and non-qualified, and some credit card processors will skip this tier altogether. Mid-qualified transactions could still be a face-to-face transaction, but if the card is a rewards card, it’ll bump the transaction from the qualified tier to the mid-qualified tier.

Generally, if credit card processors have a mid-qualified tier, the rate for that transaction will be a bit more of a percentage then a qualified transaction.


Usually, these are card not present transactions, or the card was keyed in instead of swiped. Recurring payments will always be run as a non-qualified.

If you swipe a business reward card face-to face, it’s going to fall into the non-qualified tier. Non-qualified will be the highest priced rate, since keyed in transactions are a higher risk of fraud resulting in higher interchange costs from the card brands.

High end business rewards cards are much more expensive to process do to higher reward kickbacks given to the card holder.

Now here’s the key part to understand

The rates in tiers for a brick-and-mortar merchant, will almost always be lower than an e-commerce/mail order store.


Because card not present transactions are more likely to receive a chargeback or take a fraud loss on. Credit card companies and processors know this, and that’s why the rates are higher.

See why this is confusing to explain?

If you want a straight answer and a flat rate. Sorry, the truth is, no good processor can quote you a straight rate over the phone and have it be competitive, without seeing your statement.

As we stated earlier in this blog, some credit card processors will offer a flat rate, but in most instances it is only for a qualified rate (which many transactions won’t be).

In reality, a flat rate is only good for a business that is only processing roughly under $1k per month. If you process more than that, you’re likely getting a bad deal with a flat rate.

A good credit card processor will look at your statements and be able to calculate a rate based off your typical volume and what types of transactions you run. Every merchant is different, and will tend to run different tiered transactions (even if the guy down the street has the exact same business!)

You’re not going to get a one-rate-fits-all for every transaction

Sorry, even with those credit card processors who promise a flat rate; you’re going to ripped off either from the mid to non-qualified rates, or from paying too high of a flat rate if you are running any type of volume.

Ultimately, you’re going to have to find a processor you trust (crazy we know). One way to be sure that they’re trustworthy is to make sure they avoid these practices.

How can you tell if your business is getting a fair rate?


Check your statements and your transaction volume. While reading your statement is difficult, you should roughly be able to see if your volume matches what rates you were quoted.

For example. If you’ve been with a processor for a year, and have doubled your volume of transactions every month. The percent of total fees charged by your credit card processor should be doubled also. However, if your total fees charged are tripled, you should be suspicious and look for another processor.

We’re not saying your rates should never increase, inflation does exist after all. But if your transaction volume hasn’t been increasing, and your rates are, you need to start asking questions.

Want fair rates?

If you’d like to learn more about rates, and what our company can do for your business, contact us here. Give us a call, and we’ll be happy to look at your statement and let you know if you can get a better rate.