What's a bucket you say? Well you're not alone. It's real scary that many MLS's and direct merchant sales representatives have no idea. Yet the bucket philosophy is literally the foundation of all merchant pricing, with the exception of interchange plus plans.
For the bucket program to make sense to you we must first talk about interchange. Interchange is composed of different categories of pricing that the card associations set up for Visa and MasterCard acceptance. It is primarily governed by card type & method of
acceptance. Currently Visa has 60 + catagories and Mastercard 70 +
categories. So how do we put 130 + possibilities into 2, 3 or 4 categories? We use BUCKETS.
Buckets are groups of similar interchange levels, bundled into one
rate. The idea is to simplify the rate structure for the merchant,
but as with any great idea it can also be used for evil. For this
example we'll use the simplest of rate structure, 3-tier retail.
That's a qualified rate, mid-qualified and non-qualified in a simple retail environment. You go in and look at the merchant's statement, you see that they are paying 2.00% for Qualified, 3.00% for Mid and 3.50% for Non. Can you save this person money? Well most likely you can, but unless you know your buckets you can't be sure. That is why you need to know what card types are in the buckets of their existing processor and what card types are in your buckets. There really is no industry wide standard that will allow you to compare a Qualified rate from one company with a Qualified rate from another. For example, you could say I'll lower their rate by .20 basis points so their rates will be 1.80%, 2.80 and 3.30 and that will save them money right? Not necessarily, let's look at the buckets. With my current processor for Visa, 20 card types fall into Qualified, 8 into Mid and 8 into Non and with MasterCard, 27 Qual,
6 Mid and 22 Non. Now let's say your processor puts 5 Visa cards in Qual, 4 in Mid and 27 in Non and 10 MasterCards in Qual, 3 in Mid and
42 in Non. Although you've given the merchant a seemingly better rate across the board, many more of that merchant's transactions may run at the higher rate of non- qualified.
Let's look at the above example. One processor is priced at 2.00%, 3.00% and 3.50% and the other at 1.80%, 2.80% and 3.30%. But the lower rate processor has only 1/3 the amount of cards that will run in the 1.80% bucket and only 1/3 the amount of cards that will run in the 2.80% bucket while the amount of transactions that will downgrade to 3.30%–an increase from 30 to 64 which is more than double. So in this example the merchant may end up paying more on the lower rate plan, because the buckets are not spread as evenly. Forget about the fact that the merchant may now also be paying an additional .10 cent transaction surcharge that was buried in the fine print of the lower rate agreement.
Let's take an example that I've actually seen in the past. When check cards were first broken out into their own interchange category they became the lowest % rates for merchants to process. Some processors began to break out these cards into a lower rate category and pass the savings along to the customer. Some blended it into their Qualified bucket, but a few actually moved the new cards into the NON Qualified Bucket. So let's again take the above example. We can pretty safely say this retail merchant will be receiving 25% of their transactions as offline debit. Now my processor has the check cards running at a Qualified rate of 2.00% with a cost of approximately 1.20% or .80 basis points profit on 25% of the merchant's transactions. Now, the company offering the lower rate of 1.80% will have 25% of those transactions running at 3.20% or 200 basis points of profit. This gives the “lower rate” provider 2.5 x more profit on that card type.
What does all of this mean? Lower rates don't mean savings unless they are compared to “like” buckets. You should have an understanding of what is in your processor's buckets. Are they evenly distributed? Have they moved any low cost cards to a higher cost buckets?
I have different bucket charts available, the most popular categories; Retail 3 tier and 4 tier, MOTO Standard, MOTO Checkcard, Restaurant and Restaurant Small Ticket. So make sure you know your buckets before giving someone a “better rate” where they end up paying more. 
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