Key Takeaways
- Three buckets, three prices. Processors sort every transaction into Qualified, Mid-Qualified, or Non-Qualified tiers; each tier carries a progressively higher rate.
- Who decides? Your processor—not Visa or Mastercard—chooses which cards or situations land in each tier, so classifications (and costs) can change without warning.
- Why it stings. The model looks simple but hides mark-ups and “downgrade” surcharges, often making it the priciest and least transparent way to pay for credit-card processing.
- Spot the downgrades. Keyed-in, rewards, corporate or international cards—and any batch settled after 24 hours—are frequent culprits that push a sale out of the cheapest tier.
- Smarter move. Audit your statement for tier surprises and compare against transparent alternatives like interchange-plus or true flat-rate pricing before you sign the next contract.
Three Tiered Pricing: Qualified, Mid-Qualified and Non-Qualified
Language, fees, and sliding scale behind tiered pricing
Here’s the situation… You’ve signed your business up for a merchant account. I’m sure you finally think you’ve read through all the fine print, and you may feel like you are still trying to get a handle on all the confusing terms, pricing structures, and fees. One question you may have is: what is the difference between Qualified, Mid-Qualified and Non-Qualified transactions? And why does it matter?
In this article we hope to help merchants understand the answers regarding the nuances of transaction qualification and provide context for how it affects your business.
- Why aren’t my processing fees the same month to month?
- What does qualified mean?
- How are some of my customers qualified and some aren’t?
- Why do I get charged different rates at different times?
- Is there anything I can do to save money?
Let's talk about pricing tiers!
Most credit card processors operate within a three tiered pricing structure. Each of your credit card transactions (or more accurately, each of your customer’s credit cards) falls into one of three tiers. Processors assign different rates to the different tiers based on certain risk factors.
Other categorization systems do exist, but the three-tier approach is the most common pricing model.
How does a three-tiered pricing model work?
It’s actually pretty simple…
Credit card transactions are sorted into three tiers: Qualified, Mid-Qualified and Non-Qualified.
Customer cards can fall into these tiers based on the type of card being used as payment, how promptly the transaction is settled, or other risk factors (which we’ll talk about later).
Pricing Tier 1: Qualified Transactions
If you own a brick and mortar store, most of your credit card transactions will be swiped or read by a terminal (CP, or card-present). Online merchants primarily rely on internet-based transactions and a payment gateway (CNP, or card-not-present).
When you sign up for a merchant account with a credit card processor, the types of transactions your business processes, determines your QUALIFIED rate.
Most major consumer credit and debit transactions, and therefore, most of your transactions as a business, fall into the QUALIFIED category. For this reason, most processors quote this discount rate when you ask about account pricing.
Pricing Tier 2: Mid-Qualified Or Partially Qualified Transactions
As you can probably guess, MID-QUALIFIED, or partially-qualified, discount rates apply to cards and transactions that don’t meet the standards for a fully qualified transaction.
Acquirers can label a transaction “mid qualified” when:
* Your customer’s card is a rewards card
* You or one of your employees key a card number into the credit card terminal instead of swiping it
* Transactions are not batched out within 24 hours of the transaction
Since MID-QUALIFIED transactions have a higher processing rate, consider what types of cards your customers typically use when you’re evaluating different processors.
Pricing Tier 3: Non-Qualified Transactions
A transaction falls into the NON QUALIFIED category if it does not qualify for one of the above mentioned rates.
An acquirer can label a transaction as NON QUALIFIED if:
* Your customer uses a certain card type that has greater risk
* The transaction has missing or incomplete information
* You or your employees fail to settle a daily batch of transactions within the allotted time frame (typically 48 hours)
* Your customer is using a federal or state government issued card, a corporate issued card, or a cart issued outside of the United States
Keep in mind that an AVS (Address Verification System) match has no bearing on the rate schedule. Having the AVS “match” DOES help to prevent fraud, but that’s an entirely different conversation.
Why do banks implement a tiered pricing model?
To limit liability, acquiring banks pass liability and potential cost onto the merchant in the form of tiered pricing.
Every time a transaction is processed, there is associated risk for the processing bank. Acquirers worry about chargebacks and fraud impacting interchange cost. Additionally, when a card issuing bank offers higher “rewards” or “cash back” points to their customers, this drives up the interchange costs (there is no free lunch).
Any Questions?
We’re happy to help clear up any confusion about tiered pricing. Or anything else for that matter! Contact us HERE.
If you’re looking for a FREE QUOTE, click that big orange button below! We’ll evaluate your business needs, go over all possible fees, and walk you through savings at every tier.
I'm ready to learn more!
If you’ve made it this far into our blog, you’ve probably learned that we like to take the confusing jargon out of the payment processing industry. We interpret confusing terms into “real people” talk and put the power of understanding BACK into the business owners hands. If you enjoyed this post, you’ll probably enjoy these too…
FAQ — Three-Tiered Credit-Card Pricing
What exactly is “three-tiered” pricing?
It’s a billing model where every card transaction you accept is sorted into one of three buckets—Qualified (Q), Mid-Qualified (MQ), or Non-Qualified (NQ). Each tier carries a preset percentage + per-item fee, and you don’t see the underlying interchange cost. Qualified is the cheapest (usually swiped consumer debit or non-rewards credit), Mid-Qualified is pricier (key-entered cards, basic rewards), and Non-Qualified is the most expensive (premium rewards, corporate, international, or late-batched sales).
Who decides which tier my sale lands in?
Your acquiring processor does. Visa and Mastercard only publish interchange tables; the processor writes its own rules for what they’ll label Q, MQ, or NQ. Those rules can vary by provider and may change mid-contract, so the same card could cost you more next month without notice.
Why do transactions “downgrade” to Mid- or Non-Qualified?
Common triggers include:
Manually keyed or phone orders instead of chip/tap.
Rewards, corporate, or foreign-issued cards.
AVS or CVV data missing.
Batch settled more than 24 hours after authorization.
Each trigger signals higher fraud risk or higher interchange, so the processor moves the sale to a costlier tier.
Is three-tiered pricing ever a good deal?
It can be simpler to read than interchange-plus, but simplicity often hides mark-ups. Merchants with many keyed, B2B, or premium-card transactions typically pay more under a tiered plan than they would on transparent interchange-plus or a modern flat-rate model.
How can I tell if I’m overpaying?
Grab a recent statement and calculate the effective rate: total fees ÷ total processed volume. If it’s materially higher than 3 %—or if more than 25-30 % of your sales fall in the Non-Qualified tier—you’re probably subsidizing hefty mark-ups.
What’s the alternative?
Ask processors to quote interchange-plus (your cost = published interchange + fixed markup) or flat-rate (one blended percentage for every sale). Both models expose true costs and remove surprise downgrades, making it easier to forecast margin and compare providers.
