The Hidden Risks of Payment Processor Downgrades—And How to Avoid Them
Most businesses assume credit card transactions are charged at the lowest possible interchange rate—but in reality, many transactions get downgraded to higher-cost processing categories. This means you could be overpaying on every single sale without even realizing it.
Understanding what causes payment downgrades, how they impact costs, and how to prevent them can help businesses avoid unnecessary fees and improve profitability.
1. What Are Payment Processor Downgrades?
Every transaction is assigned a specific interchange rate by Visa, Mastercard, Amex, or Discover. These rates vary based on:
✔ Card type (debit, credit, rewards, corporate)
✔ Transaction method (chip, tap, keyed-in, online)
✔ Industry (MCC – Merchant Category Code)
However, if a transaction doesn’t meet specific requirements, it gets downgraded to a more expensive interchange category.
💡 The result? Higher processing fees for the merchant—without any warning.
2. What Causes Payment Downgrades?
🚨 Manually Keyed-In Transactions
If a card is manually entered instead of tapped or inserted, it increases fraud risk—leading to higher interchange rates.
🚨 Missing or Incorrect Transaction Data
Ecommerce and B2B transactions require extra details (e.g., billing ZIP, tax amount, invoice number).
If this data is missing, the transaction automatically gets downgraded.
🚨 Batch Settlement Delays
Transactions not settled within 24 hours are often pushed into higher interchange categories.
Some processors automatically downgrade any unsettled transactions.
🚨 High-Risk Card Types
Rewards, commercial, and corporate credit cards have higher interchange rates.
Some processors fail to optimize these transactions, leading to extra fees for merchants.
💡 Most businesses don’t realize they’re losing money on preventable downgrades.
3. How to Prevent Interchange Downgrades & Reduce Processing Costs
✅ Encourage Chip, Tap, or Tokenized Payments
Card-present transactions should always use EMV chip or NFC (tap-to-pay).
Avoid manually entering card details whenever possible.
✅ Ensure All Required Data Is Submitted for Online & B2B Transactions
Use Level 2 & Level 3 processing for business & corporate cards.
Include invoice numbers, tax amounts, and customer ZIP codes.
✅ Settle Batches Daily
Ensure all transactions are batched & settled within 24 hours.
Automate settlement processes to avoid costly delays.
✅ Use a Payment Consultant to Monitor Downgrades & Optimize Transactions
Many businesses don’t realize they’re being downgraded until it’s too late.
A consultant can audit statements, optimize data submission, and negotiate better rates.
💡 By eliminating downgrades, businesses can significantly lower processing costs.
4. How PlutosPay Helps Businesses Reduce Payment Downgrades
At PlutosPay, we help businesses:
🔹 Identify downgrade trends & optimize transaction processing.
🔹 Ensure Level 2 & Level 3 data is correctly submitted for B2B transactions.
🔹 Streamline settlement processes to eliminate unnecessary fees.
🔹 Audit processor statements to uncover hidden downgrade charges.
💡 The result? Lower fees, optimized transactions, and maximum savings.
5. Key Takeaways
✅ Many businesses overpay on processing fees due to preventable downgrades.
✅ Common downgrade triggers include manual entry, missing data, and late settlements.
✅ Optimizing transaction methods & submitting required data prevents unnecessary fees.
✅ PlutosPay helps businesses monitor & eliminate downgrade-related costs.
💰 Want to make sure you're not overpaying? Let’s talk.
Conclusion: Take Control of Your Interchange Costs
Most businesses unknowingly pay higher interchange fees due to avoidable transaction downgrades. By optimizing payment methods, ensuring data accuracy, and settling batches on time, businesses can cut processing costs significantly.
At PlutosPay, we specialize in helping businesses identify downgrade risks, optimize transactions, and ensure every sale is processed at the lowest possible cost.
📩 Contact us today for a free payment processing audit.