What are the penalties or fees associated with downgraded Visa and MasterCard transactions?
Downgrade fees, or surcharges, for credit card transactions are relative to your type of merchant account plan. Merchants may process under various plan types – Tiered / Bucketed or Interchange Plus / Passthrough – depending on how the provider sold the merchant on the account. For this article, we’ll assume an Interchange Plus or Passthrough type of account, as that is the favorable plan type for most merchants.
Under the Interchange Plus or Passthrough merchant account, the merchant pays the interchange rates and card assessment fees at cost. This merchant account plan type is described further here, but as a quick summary, as a merchant processing with an interchange plan, you get the benefit of seeing all Visa and MasterCard wholesale interchange rates with full transparency. It is harder, but not impossible, for a merchant service provider to hide additional fees or malicious markups, which are often seen under common tiered or bucketed rate plans.
There are two common downgrades, or interchange classifications, that are harmful to merchants when failing to process credit card transactions following proper Visa / MasterCard procedures. They are the EIRF (Electronic Interchange Reimbursement Fee) for Visa, and the innocuously named Standard Electronic Interchange Reimbursement Fee (Standard), for both Visa and MasterCard.
Electronic Interchange Reimbursement Fee (Visa only)
There is several criteria that may cause the EIRF downgrade, including:
Not settling transactions within 48 hours. If you have a batch of transaction that were all correctly authorized, but not properly settled in time, all the sales would default to EIRF.
The EIRF downgrade would also occur if you use the same authorization code after the 48 hour window.
Mismatch between the authorized sale amount and the “settled” amount – this is only allowed for certain merchants, based on industry.
The EIRF downgrade could increase the credit card transaction fee by 80 basis points (bps) or 0.80% – that’s a considerable amount when you’re processing a large volume of credit card transactions.
Standard Electronic Interchange Reimbursement Fee (Visa and MasterCard)
Unlike the EIRF, which only applies to Visa, the Standard Electronic Interchange Reimbursement Fee (Standard) applies to both Visa and MasterCard. The Standard interchange is even worse than EIRF and, on average, causes a credit card transaction to process at around 3 percent.
The Standard is similar to the EIRF in that it is a penalty for transactions that do not meet Visa and MasterCard requirements.
The Standard fee is triggered for MasterCard on transactions that do not settle within 48 hours, where there is a mismatch between the authorized transaction amount and the settled amount, or missing certain required information on particular card types that are key-entered transactions. This most often occurs with business credit cards. Business cards require certain information to qualify for the lowest rate and if that card information is not captured, Standard fees come into play.
For Visa credit card transactions, Standard downgrade fees will apply if the transaction was not settled after 72 hours, or 48 hours for business cards.
The key to avoiding downgrades and surcharges in payment processing is awareness of the causes for downgrades, and having a plan to optimize your processing. At VeriProcess, our focus is to make your credit card processing activities simple, efficient and economical. We educate merchants on payment processing fees and deliver solutions to reduce this cost through ongoing analysis, processing strategies designed to improve the percentage of qualified transactions, and competitive processing rates.
Contact VeriProcess to find out how we can reduce your payment processing fees.