If you’ve ever looked at your merchant statement and noticed “non-qualified” or “downgraded” transactions with higher fees, you’re not alone. Many business owners don’t realize that how you process a transaction directly affects what you pay in interchange and processing costs. At Beacon Payments, we help merchants understand these hidden factors and set up their systems to minimize costly downgrades. Here’s what you need to know.

What Is a Downgrade?

A downgrade happens when a credit card transaction doesn’t meet the criteria set by the card networks (Visa, Mastercard, etc.) to qualify for the lowest possible interchange rate.

When that happens, the transaction gets “downgraded” to a more expensive rate category—often called mid-qualified or non-qualified.

Common Causes of Downgrades

1. Keyed-In Transactions

When you manually enter card details instead of swiping, dipping, or tapping, the risk of fraud is higher. That extra risk translates to higher fees.

How to Avoid It: Always use chip-enabled or contactless transactions whenever possible.

2. Missing or Incorrect Data

If required information—like AVS (Address Verification Service), zip code, or CVV—isn’t captured during the transaction, the card brands apply a higher interchange rate.

How to Avoid It: Make sure your POS or gateway prompts for full data entry, especially with card-not-present transactions.

3. Delayed Settlement

If you don’t “batch out” or settle your transactions within 24 hours, they can downgrade. Card brands expect prompt settlement to reduce the risk of chargebacks and fraud.

How to Avoid It: Set your POS or payment gateway to auto-batch at the end of each day.

4. Rewards & Corporate Cards

Business, corporate, and rewards cards often carry higher interchange costs by default. While this isn’t always avoidable, it explains why some transactions cost more.

How to Minimize Impact: Ensure enhanced data (like tax amount, invoice number, or customer code) is passed through when processing corporate card payments. This can qualify you for lower interchange rates.

Best Practices to Reduce Downgrades

  • Use EMV-enabled terminals (chip cards) to lower fraud risk.
  • Batch daily to avoid settlement delays.
  • Train staff to capture all cardholder information.
  • Work with a processor that supports Level II and Level III data for corporate cards.
  • Review your statements monthly with a trusted partner to spot downgrade patterns.

Why It Matters

Even a small percentage of transactions downgrading each month can add up to thousands of dollars in unnecessary costs over a year. By tightening up transaction workflows and using the right technology, you can keep more of your revenue.

At Beacon Payments, we specialize in helping merchants eliminate avoidable downgrades through modern POS systems, transparent interchange-plus pricing, and hands-on support.

Final Thoughts

Downgrades don’t have to be a mystery—or a constant drain on your profit margin. By understanding what causes them and making small adjustments in how transactions are handled, you can reduce costs and improve efficiency.

📞 Contact Beacon Payments today for a free statement review, and let us show you how to stop paying unnecessary downgrade fees.