Why Interchange Downgrades Occur

Why Interchange Downgrades Occur
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So far, we’ve discussed how many Merchant Account Providers exhibit unethical practices by charging unnecessary or hidden fees. Some providers take it a step further by failing to mention best practices or not offering updated processing terminals to ensure you are getting the best processing rates possible. Hence the topic of this post’s unethical practice: downgrades.

What Are Interchange Downgrades?

A downgrade results when a transaction is re-classified to a higher rate tier, resulting in a more expensive transactional cost. They are avoidable, but are unfortunately common because many providers intentionally allow their customers to maintain poor methods for taking payments.

Interchange downgrades are presented on merchant statements using the descriptors EIRF or Standard for Interchange rates. With a Tiered rate plan, they are categorized as Non-Qual. Here are a few examples:







Note: Non-Qual downgrades require a report for further details.

Now, let’s get into why they happen.

Why Do Interchange Downgrades Occur?

How you run transactions will determine if they will result in Interchange downgrades. Both the equipment and the process you use to run a transaction are at play. Here are the most common instances that trigger them:

  • AVS mismatch (both address and zip code)
  • AVS is not run on a hand-keyed transaction
  • Batch is not settled within 48 hours of authorization
  • Tax is not entered separately from the transaction total
  • Tips are not entered separately from the transaction total
  • Settled transaction amounts don't match original amounts
  • Your terminal software is not up to date

Simply addressing these issues can result in a significant reduction in your processing fees. Here’s how.

Avoid Interchange Downgrades With a Trusted Provider

Since some providers profit from Interchange downgrades, they are not incentivized to help you. Working with a reliable Merchant Account Provider that offers the following operational benefits will greatly decrease the chances of them occurring.

  • Require AVS on any keyed transaction. A trusted provider should require this feature by default so you never chance an AVS mismatch or forget to run AVS.
  • Always enter sales tax and tip amounts separately from the transaction total. This should be easy for you to do with a dedicated provider. The system you enter transactions into should always have separate fields for these amounts.
  • Automate daily batches so you never accidentally settle past the 48-hour window, which can trigger a Interchange downgrade.
  • Use a Smart Terminal that automatically runs software updates.

Though your rates are important, the equipment and service you receive from your Merchant Account Provider are just as significant. Be wise in choosing who you work with to avoid unethical billing.

Find out if you're getting excessive Interchange downgrades.


Does your provider lack any of the techniques above to prevent this? Do you often get downgraded transactions? Tell us more in the comments section.

About Author
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Ursula Librizzi

Ursula is the sales and marketing operations manager for PayJunction. She oversees daily marketing tasks and liaises between the sales and marketing departments.

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