2.  Agreeing to Tiered Discount Rates and Downgrades

Bundled rate agreements seldom involve a single contracted rate.  Merchants should be aware that these types of arrangements usually make provisions for downgrades, i.e., transactions that for one reason or another did not qualify for the optimal discount rate.  Like the primary contracted rate, downgrades are bundled discount rates loosely based on Interchange rates;  But, because downgrades are generally not reported in terms of actual Interchange, it is often impossible to determine why these transactions were downgraded in the first place.

Our example above illustrated a “Qualified” transaction, but merchants will likely also experience downgraded transactions.  In many cases, merchants find that the quantity of downgraded transactions exceed those falling under the lower, primary rate.  While most processors will report these downgrades, they are frequently described in proprietary terms, with little indication as to the cause of the downgrade.  Downgrades are often reported using terms such as “Unqualified” and “Mid-qualified” as illustrated in the following table

Figure 2. Tiered Discount Rates and Downgrades

If you are fortunate, you may also receive a separate Interchange qualification report. This, however, is not always the case.  If you do receive an Interchange report, check to see that it balances with your qualification report.