The cost of accepting card payments is driven primarily by interchange. When you settle your transactions each day, your processors network routes them to the respective card associations (like Visa®, MasterCard®, Discover® Network and UnionPay) and debit networks through interchange. Card associations and debit networks establish the rules and manage the interchange of all transactions, for which they charge fees to offset their costs. Interchange fees are paid at the time the transaction is exchanged.
Although interchange fees are applied to all credit card processors equally, they fluctuate in amount based on a variety of factors. Card associations quote the lowest rate for a transaction, assuming that a number of requirements (which vary according to the card type, the type of business accepting the card payment, and the transaction channel) are met. Transactions that meet all of the requirements for your industry are charged the “qualified rate.” If one or more of these requirements are not met, the transaction is categorized at a more expensive interchange level, known as a “downgrade.”
Some common causes of downgrades include manually entering or requesting voice authorization for a significant number of transactions rather than use a POS device; or you routinely settle transactions more than 24 hours after they are authorized.