Interchange Downgrades

If you’re a business owner, you’ve probably heard of the term “interchange downgrade.” Downgrades are not easy to understand, but they can end up costing you hundreds of dollars in credit card fees per month. While they’re not totally avoidable, it is possible to learn to recognize some of them and save money.

What Are Downgrades and Why Do They Happen?

In tiered pricing, each credit card transaction falls into a pricing category: qualified, mid-qualified, and non-qualified. Qualified rates are the lowest, and you might think that most of your credit card transactions fall into the qualified category. Not so! Downgrades can occur for several reasons, including, but not limited to:

Expired authorizations: if a transaction is not authorized within the allotted timeframe, the transaction will be downgraded and the merchant will be charged a higher rate.
Failing to use AVS: AVS, or Address Verification Systems, is meant to protect against fraud. If an e-commerce business does not use AVS, it could put everyone involved at risk of fraud. Therefore, this kind of transaction would be downgraded.
Not capturing required data: Credit card transactions require a certain amount of data to be captured. Some of the data includes:
- Date of transaction
- Transaction amount
- Merchant name

Failure to capture this data will result in a downgrade.

Common Types of Downgrades

Visa

Each Visa transaction has what’s commonly referred to as a “target interchange rate”, which is the lowest rate for that particular transaction. When a transaction is downgraded from that target interchange rate, it falls into one of the following two categories:

EIRF

EIRF stands for Electronic Interchange Reimbursement Fee. This is considered the first step of downgrades for Visa. For example, if a transaction does not meet the requirements for the target interchange rate, it gets downgraded to EIRF. If it doesn’t meet the requirements for EIRF, then it gets futher downgraded to Standard. To qualify for EIRF, the transaction must be either card-present or key-entered, be electronically authorized, and settled within 2 days. The credit rate for EIRF for Visa Signature cards is 2.40% + $0.10, while for all other Visa credit cards the rate is 2.30% + $0.10. EIRF is only applicable to consumer transactions.

Standard

Each Visa card type has a “standard” rate associated with it, but that standard rate only applies if the transaction itself does not meet the requirements for the target interchange rate or the EIRF rate. As such, the standard rate is the most expensive rate. Standards rates can apply to both commercial and consumer transactions. The standard credit rate for Visa Signature cards is 2.95% + $0.10, while for all other Visa credit cards the rate is 2.70% + $0.10.

Mastercard

Standard

Like Visa, Mastercard has a standard interchange category for each card type. Also like Visa, transactions get downgraded to their standard rate if they do not meet the requirements for their target interchange rate. The following are the standard rates for each Mastercard card type:

Core (USD)	Enhanced Value (USD)	World (USD)	World High Value (USD)	World Elite (USD)
2.95% + $0.10	2.95% + $0.10	2.95% + $0.10	3.25% + $0.10	3.25% + $0.10

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How Can A Business Prevent Downgrades?

The best way to prevent downgrades is to make sure that you are processing using the “interchange plus” pricing model instead of the “tiered” pricing model. If that is not possible, other ways to prevent downgrades are to swipe or dip (in the case of EMV chipped cards) cards instead of keying them in to the system to make sure that all required information is captured, using AVS for e-commerce transactions to reduce the chance of fraud, and batching out everyday to make sure that none of your authorizations expire.

Contact PayArc to speak with us about how to change your pricing model to interchange plus!