Downgraded Transactions

Interchange is actually a general term describing dozens of credit card transaction processing rates legislated by the Credit Card Networks. They depend on a variety of factors related to the sale and the way the charge is processed. There are three general classifications. When a transaction is processed in accordance with the rules and standards established in the Payment Processing Agreement, signed by the merchant and his or her merchant account processor, and complies with all applicable security requirements, it is charged the most favorable credit card payment processing rate. That rate is called a qualified rate and is set in the Payment Processing Agreement. Should a transaction meet some but not all of the above mentioned criteria, it will be classified as either mid-qualified or non-qualified and it will be billed at a higher rate. This is known as a downgrade. Most likely, your credit card merchant processor will report downgrades as non-qualified transactions. But many small business merchant accounts providers simply lump all of the downgrades together and report them as a miscellaneous fee.

Generally, if your downgrade levels exceed 10%, you have a problem.

To protect the integrity of their system, Visa and MasterCard do not publish their rules and regulations or the payment processing standards required to get the lowest interchange rate. It’s up to credit card processing companies to know and implement them to their merchants' benefit. A high downgrade rate may indicate that your processor does not know the standards, or may be reluctant to implement best practices or new rules changes.

Please be advised that such problems may arise from the way you process your orders, and may have little to do with your merchant services provider. Yet, even if the cause originates with your business practices, your credit card processing service partner should be reviewing your merchant account and suggesting ways to reduce these downgrades.