A Case Study

What is 4-Tier pricing?

And what does this mean to you?

Check out this offer many business owners receive in the mail:

How do you know this offer involves 4 Tier Pricing?

Well, take a look at the rate. Numbers that low can only mean 4 Tier pricing.

Now, most business owners don’t know that.  And of course, that’s just what they are counting on.

So how is this a problem?

Well, for starters, let’s take a closer look at what is NOT included in the offer.  No where on the offer sheet does it reference the other 3 rates classes.  To me, this is a serious problem for the business owner.

And the reason is simple…

This postcard mailer above implies that this will be the processing rate for all transactions.  But nothing could be further from the truth. And this, in my opinion, is an example of a “bait and switch.”  You’re shown one rate, but it doesn’t apply all the time (or at all).

Why is that?

Because this rate category ONLY applies to transactions that are classified as “Qualified Debit.”  Qualified Debit only happens when your customer uses a Check Card (issued from their bank, but with the Visa or MasterCard logo on it) , AND they use their card for swiped transactions (called “card present”).

What does this mean in plain language?

That this rate does NOT apply to:

1. Selling a product or service online
2. Using a virtual terminal to process transactions
3. Keying in transactions
4. Anyone using a corporate card
5. Anyone using a rewards type card (a credit card with miles, for example)

In my experience, face to face transactions that fit the “Qualified Debit” category averages out to roughly 20% of your total processing volume.  Possibly 30% if you own a liquor store or deli.

Okay, that’s problem #1.  And here’s problem #2…

Now let’s take a closer look at the offer itself.  Note the “plus 25 cents.” The reason for 25 cents per transaction, as opposed to 20 cents (or some other, lower amount) is because 4 Tier pricing includes a higher than average per transaction charge.

That’s the way it works.

Now here’s the problem.  You’re offered a lower rate that applies to maybe 30% of your total processing volume, but you have to pay the higher per transaction fee to ALL transactions.

Not a bad deal for the merchant account provider, right?  And I haven’t even discussed that the other 3 price tiers are NOT revealed to you, and who knows how much you’ll pay on those.

And here’s a little tip.  They aren’t going to tell you.

Now, let’s take a look at a quick example of 3 Tier versus 4 Tier pricing for a comparison:

Say the average transaction size for a business is $8.00.  Let’s assume swiped transactions with a “Qualified Debit” card.

3 Tier pricing: 1.71% and 20 cents
4 Tier pricing: 1.15% and 25 cents

Here’s the projected cost for this transaction:

3 Tier: $0.137 + $0.20 = $0.337 cents total
4 Tier: $0.092 + $0.25 = $0.342 cents total

Okay, not a big deal. The low rate of the offer didn’t save you any money, but it didn’t cost much either.

But here’s the thing.

Let’s say you have 1000 transactions per month.  Paying an extra 5 cents, across the board, amounts to $50 per month more.  As you could see in the example, the reduced rate (which only applies to a small percentage of transactions) doesn’t offset the increased per transaction charge.

Meaning?  The 1.15% rate saves you nothing on an $8.00 transaction.  And, the increased per transaction charge across ALL rates classes means that you’re overpaying by $50 per month.

So where’s the deal?

The above case study is the reason why I called this type of offer (and the marketing used to promote it) an example of “bait and switch” earlier.

So what’s the point?

Well, processing credit cards is more complicated that most business owners realize.  Just because it seems like you’re getting a deal, doesn’t mean you really are.

Request a Merchant Account Review

Are you ready to discover just how much you might be able to save each and every month?

If so, there are a couple of ways you can get started.

You can request a merchant account quote.  Simply fill out the short form and we will contact the appropriate merchant account providers for you.

You can download a free report of the Merchant Account Guide.  Just follow the link to download your copy today.

Finally, you can follow the link to scan a list of merchant account providers in your area that can help you set up a virtual terminal.

Comments?  Questions?  Other merchant account issue you’d like to share?

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