Tiered Pricing v. Cost Plus Pricing

Cost plus v. tiered pricing is commonly misunderstood by merchants. If you’ve ever scouted for better credit card processing rates, you’ve probably been asked by competing merchant account services to present your previous months’ statements for them to analyze.

When you get back quotes from them, you could see a difference in cost from just a few tenths of a percentage point, to hundreds of dollars a month in potential savings. However, if the rate you’re being quoted is the same as the one you have now, how is it that there is such a huge discrepancy in the numbers?

Welcome to one of the most misunderstood and potentially confusing parts of the payment gateway industry: merchant account pricing and its wide variety of different payment structures. The most common being Interchange/Cost Plus Pricing versus Tiered Pricing.

But, before we go into the pros and cons of each, you should first understand that one of the reasons behind why there could be such a huge difference in cost from one account provider to the next is how they have your company set up to process credit cards. There are a lot of different factors that can influence the rate you’re given by your merchant account provider:

  • Type of card used(a no-frills basic Visa card versus a Visa Reward Card will process at different rate “buckets” or “tiers;” the interchange on a rewards card will be higher)
  • The way a transaction is processed (swipe in-person, over the phone orders, keying in card number in person, accepting payments online)
  • The type of business accepting the card (are you selling high-risk, high ticket items? Is your business type historically prone to troublesome chargebacks?)

For example, if your business started out as an online store and now you’ve opened a brick and mortar store front processing card present transactions, you’ll save an incredible amount of money if you simply inform your merchant account provider of this change. Basically, each transaction will cost you less because you’re processing a card face to face, which is much more secure than a card not present transaction (processing a credit card through an estore or over the phone order). So before you even begin shopping for rates, make sure your business is set up to process card orders the right way.

Tiered Pricing

Let’s first look at how tiered pricing works. The word “tiered” means that the merchant account provider splits all card transactions into separate “tiers” or “buckets.” The most common tiered pricing structure includes three tiers: Qualified, Mid-Qualified, and Non-Qualified. Another tiered system that you might see is a six-tier which includes special pricing for PIN-entered and PIN-not-entered debit card transactions. Three tier pricing is much more common, so we’ll mainly focus on that system in this article. The major credit card networks post something called a Qualification Matrix which dictates what interchange category a transaction will post to based on:

  • How the transaction is entered (swiped, keyed in, etc.) and
  • What type of card is used (reward, non-reward, corporate)

Once the card is swiped or keyed in, the credit card terminal talks to the cardholder’s bank to identify the card type and then places the transaction into one of the three “tiers” we talked about earlier. To better understand this system here’s an example of how it works:

  • Qualified Rate: 1.85% (regular card, swiped in a card present transaction)
  • Mid-Qualified Rate: 2.25% (rewards card swiped, keyed in)
  • Non-Qualified Rate: 2.55% (corporate card, ZIP code verification incorrect)

Example 1: A rewards card is swiped at your terminal. You pay Mid Qualified 2.25% plus any surcharges that the MSP charges for this tier of transaction.

Example 2: A corporate card is swiped at your terminal. You pay Non-Qualified 2.55% and any surcharges that the MSP charges for this tier of transaction.

When speaking to an account rep and they quote you “their rate” of X% and if you know they’re based off of a tiered system, be aware that “their rate” of X% is the QUALIFIED RATE only. Trust me when I say you’re bound to process cards that fall under the mid and non-qualified tiers, so make sure you ask what their additional rates are when researching merchant accounts.

Cost/Interchange Plus Pricing

The second and just as common pricing structure offered by merchant account providers is interchange plus otherwise known as cost plus pricing. This structure is a little easier to understand. When a card is processed, it doesn’t fall into a “tier.” Rather, each card has its own interchange rate attached to it, and then your merchant services provider adds on its own interchange markup fee (a percentage) plus a flat-rate transaction fee (usually only 10 to 20 cents per transaction). For example, lets say you run a basic Visa card via a swiped transaction. That specific card is looked up on a standardized rate table that breaks card types into 400 or more categories and assigns each card a percentage based off of that table. Your merchant account provider then adds their own fixed percentage PLUS 10-20 cents. That total of percentages and cents is your processing cost for that transaction. Let’s break this example down further:

Your merchant account provider charges you .77% + $0.15 per transaction. You accept a basic, no-frills Visa with an interchange of 1.60%. Your cost for that transaction is 1.60% plus .77% plus $0.15 or 2.37% and $0.15.

After reviewing this information between Cost/Interchange Plus vs. tiered pricing, you’re probably wondering which pricing model is best for your company. The answer is: it depends on your business type, your processing volume, and which types of cards you encounter most frequently. I would recommend gathering at least three previous months of processing statements or, if you’re opening a new business, make some educated guesses about the aforementioned questions and send them to several different merchant account providers. Most will analyze your statements (or the information you’ve provided them) and be able to quote you how much they would charge you based on your transaction history. Some will be able to come in much lower than others based on either their flat cost plus fee or the way that they’ve set up their “tiers.” It pays to look at several offers from competing service providers while trying to get the best rate and price structure possible for your company.

An Affordable Online Payment Solution for Sports Leagues

Trying to find the right online payment solution for your sports league can be confusing and expensive. Some of the mainstream solutions can charge up to $5.00 per registration and then processing fees of up to 3% on top of that. It doesn’t have to cost that much!

 

Web Payment Software was used by the Rhode Island Breakers, a girl’s basketballSample payment page for a girls basketball league.league, as an affordable registration and payment solution. The RI Breakers hold several basketball tournaments throughout the year. Each tournament has several hundred teams that need to register, make payment and submit team information. This can make for a ton of administrative work.They say “time is money” so streamlining this process helped save the organization a hoop-load of both.

 

By using Web Payment Software’s “payment pages”, the RI breakers set up a separate payment page for each of their basketball tournaments. Using a separate page for each event lets them tailor the details and collect different data for each event. It also lets them sort the registration and transaction data in to event specific Excel spreadsheets for use at the event.

 

The payment pages were branded to match their Website and are hosted in Web Payment Software’s PCI compliant data center. The experts at Web Payment Software set up their first payment page with all of the options and information necessary. Then, the staff at RI Breakers cloned that page and tailored the details and options for their next event. Along with having the ability to create as many pages as they need.

 

WPS’s solutions costs significantly less than the credit card processing would cost with PayPal. The merchants get their money in two days instead of the normal week or two. Web Payment Software also offers a virtual terminal, recurring payments, and can work as an e-commerce payment gateway service all for $15.99 per month.

 

Web Payment Software is an affordable online payment solution for sports leagues. Want to find out more about our top of the line merchant services? Feel free to email us at sales@web-payment-software.com or call us at (518)583-0300. We look forward to hearing from you.

 

What is a QR Code?

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QR codes (also known as Quick Response Codes) are those square barcodes you can find on almost anything. Like right next to this paragraph, for instance. Even though these codes rose to fame in the late 2000’s, they were actually created in 1994. They were originally developed by Denso (which was an affiliate of Toyota) to track parts going through the factory.

What they do is pretty simple. Just like how a cashier scans a barcode on a product, you can scan a QR code with your phone. It brings up a website, a video, a Skype call, an application in the app store – anything really. QR codes are used in all types of businesses, with all forms of advertising, on literally anything – the bench at a bus stop to a page of a magazine can have a QR code on it. And the best part is that they don’t take any fancy designing to make. You can just go to a QR code generator site and go to town within seconds.

QR codes can be very useful, because they’re a free way to get consumers to interact with different components of your brand. Let’s pretend you work for a car company and you’re at a trade show. You’re really trying to get the word out about your new line of cars. You can give consumers fancy photos, let them sit in the cars, etc. But what you really want them to do is like your Facebook page, so they’ll constantly get up to date information about your cars. How can you do that? Well, there are a few ways:

Option 1) Set up a computer and have people log in to Facebook to like your page.
The problem: People are concerned about security, and don’t want to type their e-mail address and password in on a random computer.

Option 2) Tell them to go to Facebook on their phone and like your page.
The problem: There’s a good chance they won’t actually do it.

Option 3) Have a QR code that leads to your Facebook page posted somewhere very visible.
Why this is the best option: Consumers are curious. They want to see what that QR code does and where it will take them. Once they scan the code, all they have to do is decide whether they want to like the page or not.

And in a perfect world, this article would stop here, and QR codes would rule the world. But they’re not. Why?

1) iPhones can’t scan them unless you download an app.
2) They’re ugly.

But don’t let that get you down. Would you rather stick a QR code on your piece of advertising, and potentially get more customer interaction? Potentially increase sales? Potentially get more video views? The list goes on and on.

Or would you rather leave the QR code off? Then you’ll never know what it could have done for your business…

PayPal vs. Web Payment Software

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Paypal is one of the most useful e-commerce solutions in the world – we won’t deny that! Founded in 1998, PayPal is a 10,000+ employee company that helps millions of people send and receive money — every day.  But does bigger always mean better? Check out how PayPal weighs in with Web Payment Software, below.

Lets start with the account setup.  We charge $98. PayPal is free. But why?  We only charge $15.99 a month, whereas PayPal charges $30.  Our transaction fees our lower, too.  We charge 2.25 – 2.7% + $.25 each transaction, when PayPal charges 2.2 – 3.9% +$.30 each transaction.  We also don’t charge to receive payments outside the U.S.

Put all of that on top of the fact that it takes funds 2 business days to clear the bank with us, and 3-4 business days with PayPal (or two months with rolling reserve). Rolling reserve could put you out of business.

Next, let’s talk about payment pages.  That’s one of the big things we do.  We support unlimited payment pages.  PayPal does not.  Our payment pages can be custom branded.  PayPal’s cannot.

At the end of the day, if you want to send money, PayPal is probably what you want to look into.  But if you’re running an online business and need to accept payments, Web Payment Software is the solution you need!