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.
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:
Failure to capture this data will result in a downgrade.
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 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 further downgraded to Standard. To qualify for EIRF, the transaction must be either card-present or key-entered, be electronically authorized, and be 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.
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. 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.
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 |
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 into 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 every day 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!