Non Qualified Rate: A Figment of Your Processor Imagination

Non Qualified Rate

"Don't worry about the non qualified rate. It only applies to corporate and government credit cards."

Are you looking at your credit card processing statement every month while banging your head against the wall trying to figure out how to lower your non qualified credit card processing fees?

If so, you'll be really happy to learn that non qualified rates are nothing more than a figment of your processor's imagination often used to increase profits through the practice of excessive surcharing. Non qualified rates can be easily avoided, and this article will show you how to rid yourself of non qualified fees forever.


The frustration of non qualified charges.

Frustration with non qualified charges goes something like this for most business people...

It all starts when you read your credit card processing statement and cringe at all the non qualified fees. Then you pick up the phone and call your processor's customer service center to inquire about the charges. The person that answers the phone tells you that non qualified fees are a fact of life, and you are accepting business and reward cards that Visa and MasterCard consider non qualified.

At this point you start to get frustrated, so you push a little harder for a solution. Alas, it never comes. So, by now you're getting even more frustrated, the representative is the representative is becoming less helpful, and they agree to lower your rates to appease you.

Here's where you pause and ponder... it all seemed too easy. How can the processor lower my rates so quickly? Having accomplished what seems like a victory, you hang up the phone with a hollow feeling in the pit of your stomach. You won the battle, but know that the war is far from over. You fully expect to see those non qualified fees next month, but at least the rate will be lower this go-around, right?

(Repeat process next month)

If this sounds remotely like your situation, this article will save you time, money and a big headache.

Interchange rates are the only reality.

There's a little something called interchange that dictates what processing banks pay issuing banks when you process a credit card. Since interchange is the same for all processors, the details of how it works are incidental, so you don't have to worry about the terminology or intricacies of how things work.

Just understand that interchange is the equivalent of a wholesale price list for credit card processing.

A link to the actual interchange rate lists for Visa and MasterCard is provided at the end of this article, but let's not look at that quite yet.

Processors use the complexity of pricing to increase profits.

There are a lot of different interchange rates, about 400 or so, and they're assessed individually on a per transaction basis. This means that every single transactions is assigned an interchange rate based on the type of card the customer uses, how the transaction is processed (swiped, keyed, etc.) and a host of other variables.

Some of this may sound familiar because processors will often use a version of this truth to sell the story about non qualified rates. For example, you may have been told that "all of your transactions will be qualified except for reward and business cards," which is simply not the case.

A Non Qualified Rate Example

A perfect example of this twisting of the truth comes courtesy of Wells Fargo. If you check out that link, you'll notice that in the very first paragraph Wells Fargo says,

"A non qualified fee ... is ... generated when a transaction ... does not meet Visa®, MasterCard®, and Discover® Network requirements."

Visa, MasterCard and Discover don't have any requirements that determine whether a transaction is non qualified. They have guidelines that determine into which interchange category a transaction qualifies, but there is no such thing as a non qualified rate.

Wells Fargo goes on to say,

"... Visa, MasterCard and Discover Network assign the appropriate interchange level. Each account is set up [Read: Wells Fargo sets up each account] with an interchange level according to its processing method and business type. Any transaction that does not qualify at that level [Read: Any transaction that does not qualify at the level Wells Fargo determines] may result in a non qualified fee being charged."

So, which is it? Do Visa, MasterCard and Discover determine which transactions are non qualified, or do they simply "assign the appropriate interchange level?"

The answer is B. Visa, MasterCard and Discover assign the appropriate interchange level, and Wells Fargo determines what it feels is non qualified.

Since interchange is confusing, processors created a pricing model that simplifies costs by grouping interchange fees into fewer categories called qualified, mid-qualified and non qualified. The qualified rate is the lowest and the non qualified rate is the highest.

Processors got one thing right. The simplicity of tiered pricing often makes it easy to understand, but it also makes it easier for processors to separate you from your money. As we will explain in a moment, tiered pricing is opaque, misleading and expensive.

Your processor is the puppet master of your rates.

The reason why tiered is so evil is because it gives your processor the ability to manipulate costs behind the scenes by allowing them to control which pricing tier gets used the most.

For example, your processor doesn't have to raise your rates to increase its profits (and your costs). All it need to do is route more interchange fees to your mid and non qualified tiers. Sure, you will still have a nice low qualified rate, but it will rarely be used.

Remember how your processor was able to lower your rates so easily? Your processor knew that lowering your rates a few percentage points wouldn't hurt its profits because it can simply route a larger portion of your transactions to the mid and non qualified tiers. Sure, your rates went down, but your overall cost will remain the same, or may even increase.

Interchange pass through: The light at the end of the non qualified tunnel.

This article began by telling you that non qualified fees are nothing more than a figment of your processor's imagination. Well, it's true. Tiered pricing isn't the only game in town.

All you need to do to completely rid yourself of non qualified rates is to get interchange pass through pricing. That's it! Dump tiered pricing for pass through and you will eliminate your processor's ability to play games with your rates.

Unlike tiered pricing, pass through functions by allowing you to pay the actual interchange fees. Instead of charging several different rates, your processor makes money by charging a single fixed markup. The result is lower cost and a more transparent processing statement. Imagine, you will actually be able to see where your money is going each month.

So, where can you get pass through pricing? If you want to do things the easy way, sign up for free at CardFellow and get competitive quotes from multiple processors instantly. We'll even help you decide which option is best, and we'll make sure you rates stay low indefinitely.

Alternatively, you can pull up your favorite search engine and start calling processors one by one asking if they offer pass through pricing.

The links to the Visa and MasterCard interchange fees are here.

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5 Responses to Non Qualified Rate: A Figment of Your Processor Imagination

  1. Vu phan says:

    I was recently approach by a merchant processing company that quoted me a 1% qualified credit, 2.99% non qualified, and 7 cents on all transactions. The rates will stay the same for the entire life of business. Is this considered tier pricing, and is it a good deal? Thanks

    • Ben says:

      This is considered tiered pricing, and it’s unethical tiered pricing at that. It is not competitive. This processing company is engaging in bait-and-switch pricing. You should really sign up here at CardFellow to receive free, instant quotes. Each quote you receive is guaranteed to be based only on interchange plus pricing, all pricing is locked for life, and no quote will have a cancellation fee. Additionally, CardFellow sticks around to ensure the processor you choose delivers on pricing and service.

      If you still want to learn more about processing, check out CardFellow’s credit card processing guide.

  2. j smith says:

    I have been with Leaders Merchant Services for 2 months and I’m already getting gouged. My fault — I should have seen your Web site first. can I get them to change to pass-through pricing, or not? What should I do?

    • Ben says:

      Hi There,

      Even if your current provider is willing to change your pricing model to pass-through, there’s no guarantee that rates, fees and terms will be competitive. I would suggesting signing up here at CardFellow to receive free quotes from multiple processors. Our expert advisers will help you review the various quotes to select the most competitive option for your business.

  3. Enablepay Direct says:

    CardFellow has this 100% correct. If you (the merchant) are not on a cost-pass-through program with your current processor, then you are on a confusing three-tier program, and have to deal with qualified vs. non-qualified transactions, and hidden surcharges over the real interchange rates. As a result, you have no idea how much revenue your processor is making off your business over the actual cost of processing, and therefore you are probably grossly overpaying for processing.

    To save money on your processing, you have to stop thinking in terms of “rates”. For example, let’s say you currently have a “great” qualified rate of 1.48% + 10 cents. Well, the reality is it isn’t great — since it is already marked-up by about 50% over the actual cost! How is that possible? Well, that “great” rate probably only applies to debit card transactions! And debit card transactions typically have an interchange rate of about 1% + 10 cents (which will be even lower once the recent government regulations become effective). So, that rate offered by your current processor is already marked-up far above the real, lower interchange rate! That stinks!

    And what stinks even more, is that most of your transactions are going to be non-qualified! And that means your processor’s mark-ups over the real interchange rates will go even higher! Expect to pay even greater mark-ups if you accept a credit card, even more if it is a business/rewards credit card, and even more if it is keyed-in (as opposed to swiped). Those mark-ups are on top of the actual, real interchange rates, which are going to be higher for a credit card, or a keyed-in card. So, for example, a business rewards credit card might have a real interchange rate of 2.1% + 10 cents. But since it is non-qualified, your current processor may add an additional 2% non-qualified surcharge on top of that, so you would be paying 4.10% for that transaction. Some non-qualified surcharges are even higher!! Their surcharges are adding insult to injury!

    The good news is that if you’ve read this much on CardFellow, you’ll soon be able to avoid all this three-tier, qualified vs. non-qualified, hidden surcharge nonsense by getting your business on a cost-pass-through pricing platform (like those offered through CardFellow). Good luck!

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