Credit card processing: How to avoid hidden charges

If you're processing credit cards on a tiered merchant account pricing model, inconsistent buckets are a vital subject for you to understand. The term inconsistent buckets is used to refer to a merchant service provider's ability to dictate at which tier an interchange category is charged on a tiered merchant account pricing model.

The tiered merchant account pricing model is responsible for much of the distrust in the credit card processing industry. Along with appearing to be less expensive than it actually is, it also allows merchant service providers to conceal surcharges through something called inconsistent buckets.

On a tiered pricing model a merchant is quoted a qualified rate that is followed by one or more additional surcharge tiers referred to as buckets. A tiered pricing model typically has a qualified bucket followed by two additional surcharge buckets referred to as mid and non-qualified.

The qualified tier represents the lowest possible percentage that a merchant will be charged to process a credit card transaction. Transactions that don't qualify to the lowest rate bucket will be charged at the higher mid or non-qualified surcharge bucket.

There are currently over 500 different interchange categories between Visa, MasterCard and Discover, and each category has its own charge that is comprised of a percentage and often a per transaction fee. A tiered pricing structure boils all of these interchange charges down into three buckets. And the merchant service provider, to an extent, can dictate into which bucket each interchange category will fall.

Since the underlying interchange categories aren't disclosed on a tiered pricing structure, there's no way of knowing into which bucket each category is being charged. It's very possible, and is often the case, that two merchant service providers will offer the same exact discount rates - but when the rates are applied to the same merchant's card volume, the final charges are vastly different.

Here's an example that will help you to visualize just how much of a difference inconsistent buckets can make in credit card processing charges. The interchange cost that a retail merchant must pay for accepting a Visa consumer reward credit card is 1.95% plus $0.10. Let's say that two retail stores each accepting a lot of rewards credit cards from their customers.

Miraculously, both stores have the same exact merchant account rates of 1.69%, 2.25%, 2.99% and $0.20 per transaction and they both accepted 30 transactions totaling $5,000 in consumer rewards cards. The actual interchange cost to process these transactions is the same for both stores at $105.50. The only difference is that the merchant service provider for store "A" routes consumer rewards credit cards to the mid-qualified bucket, and the provider for store "B" routes rewards cards to the non-qualified bucket.

Store A's final merchant discount fee is $118.50, and store B's final merchant discount fee is $155.50. Store B paid $37 more to process the same exact transactions simply because their merchant service provider routed rewards credit cards to the non-qualified bucket.

This example is over-simplified and uses only one of the hundreds of possible interchange categories available. Imagine how tough it would be to decipher into which bucket all of the interchange categories on your merchant account are being routed. The fact of the matter is, you couldn't even if you wanted to because interchange charges aren't disclosed on a tiered processing statement. Actual interchange rates are only published on statements where a form of interchange plus pricing is being utilized.

The subject of inconsistent buckets is no doubt a confusing one. If you're still a little fuzzy about the details, check out the articles about interchange fees, interchange plus pricing and tiered pricing vs. interchange plus pricing available at merchantcouncil.