What are downgrades?
Posted on Thursday, January 04, 2007
To briefly mention one layer of the complexity and introduce a topic that I’ll be writing about later, transactions can be downgraded when they don’t meet ‘interchange’ requirements. For example, if the employee at the restaurant swipes your card on their credit card terminal and it won’t read the magnetic strip, the hand keyed transaction is then downgraded or penalized for not being swiped. Transactions that are taken over the phone, via the internet, or are submitted without the proper information can also be downgraded.
The difference in a downgraded transaction can range from .30 basis points to 2.0%+, a significant penalty for any business. Downgrades are the industry’s dirty little secret. It’s also where service providers make most of their margin. These surcharges will usually show up on your monthly statement in some illegible format. My company is the only company in the industry that I know of that has created a specialty in helping companies minimize the number of downgrades.
