Qualified and Downgraded Credit Card Transactions
Each Credit Card Association publishes an interchange rate table with the different credit and debit card processing rates. Interchange is actually a general term describing dozens of electronic card transaction processing rates regulated by the Visa and MasterCard. They depend on a variety of factors related to the sale and the way the payment is processed. There are three general classifications:
- Qualified Rate. When a transaction is processed in accordance with the rules and standards established in the Payment Processing Agreement, signed by the merchant and his or her processor, and complies with all applicable security requirements, it is charged the most favorable discount rate. That rate is called a qualified rate and is set in the Payment Processing Agreement. Should a transaction meet some but not all of the above mentioned criteria, it will be classified as either mid-qualified or non-qualified and it will be billed at a higher rate.
- Mid-qualified Rate. When a transaction is processed in accordance with the rules established in the Payment Processing Agreement, signed by the merchant and his or her processor, but does not meet the highest standards for payment acceptance and/or complies with most but not all applicable security requirements, it is charged a discount rate that is less favorable than the qualified. That rate is called a mid-qualified rate.
- Non-qualified Rate. When a transaction is processed in accordance with the rules established in the Payment Processing Agreement, signed by the merchant and his or her processor, but does not meet the highest standards for payment acceptance and/or complies with some applicable security requirements, but not enough in order to be classified as either qualified or mid-qualified, it is charged a discount rate that is less favorable than the mid-qualified. That rate is called a non-qualified rate.
Whenever a transaction is classified as either mid-qualified or non-qualified, it will be billed at a higher rate. This is known as a downgrade. Most likely, your merchant account service provider will report downgrades as non-qualified transactions. But many payment processors simply put all of the downgrades together and report them as a miscellaneous fee.
You should closely monitor your mid- and non-qualified transactions. Generally, if your downgrade levels exceed 10%, you have a problem.
To protect the integrity of their system, Visa and MasterCard do not publish their rules and regulations or the payment processing standards required to get the lowest interchange rate. It's up to credit card processing companies to know and implement them to their merchants' benefit. A high downgrade rate may indicate that your processor does not know the standards, or may be reluctant to implement best practices or new rules changes.
Please be advised that high downgrade levels may arise from the way you process your orders, and may have little to do with your merchant account service provider. Yet, even if the cause originates within your business practices, your credit card processing service partner should be reviewing your merchant service and suggesting ways to reduce these downgrades.
Credit Card Processing Service
Source: http://ezinearticles.com/
Added: July 3, 2008
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