educational webinar series
TRANSCRIPT
EDUCATIONAL
WEBINAR SERIES
Upgrading your Downgrades: Considerations for Optimizing Interchange Qualification
March 10th, 2021 | 12:00pm-1:00pm CST
WEBINAR
EDUCATIONAL WEBINAR SERIES
Upgrading your Downgrades: Considerations for Optimizing Interchange Qualification
Liz Braun
Director, Client Relations
Katie McSparron
Sr. Leader, Enterprise Relationship Management
EDUCATIONAL WEBINAR SERIES
Interchange Factors
MCCCard
Product
Entry
ModeData
Authorization
& Timeliness
Controllable FactorsStatic Factors
EDUCATIONAL WEBINAR SERIES
Common Causes of Downgrades
Key EntryNo
AuthorizationLate
Settlement
Mismatched Data
Missing Data Uncontrollable
EDUCATIONAL WEBINAR SERIES
Key Entered Transactions
Business Scenario:
Key entry is used as a fall back entry mode if cards cannot be chip read or mag stripe read
Best Practices:
➢ Eliminate key entry as an option in card present environments -Merchants are no longer required to key enter transactions!
➢ Limit key entry transactions to manager override or customer service desk
➢ Validate AVS on Visa key entered transactions to reduce downgrade expense
Reminders:
• Transactions that originate from a card
on file account/wallet at the store are
identified as card not present (CNP) and
will incur CNP rates
• Effective April 2021, all Visa key entered
transactions will qualify at CNP rates
EDUCATIONAL WEBINAR SERIES
No Authorization
Business Scenario:
Merchants are taking advantage of in store inventory and shipping items from multiple locations resulting in the need to manage authorization timeframes for multiple shipments in order to avoid no authorization downgrades and integrity fees when items from one order ship separately.
Best Practices:
➢ Support incremental authorization to allow for additions to the cart after the initial authorization
➢ Support multi shipment indicators in order to utilize a single authorization for multiple settlements
➢ Utilize a reauthorization service to obtain a new authorization before settling
Business Scenario:
Merchants may accept transactions when stores can’t
connect with their acquirer for authorization or when
there are excessive timeout denials due to processing
issue.
Best Practices:
➢When stores can reconnect or when timeouts cease,
submit transactions for authorization at that time
versus force settling the transaction
EDUCATIONAL WEBINAR SERIES
Late Settlement
Business Scenario:
Merchants that manage settlement initiation themselves must manage authorization
timeframes to avoid late settlement downgrades and integrity fees. Transactions
should be settled within 2 days of the authorization date or ship date (Saturday and
Sunday count as one day combined). The ship date can be within 7 days of the
authorization date.
Best Practices:
➢ For store processing and recurring transactions, consider moving to a “host data capture” environment
where the settlement is initiated by acquirer if the transaction was approved and not reversed that same
day.
➢ For CNP transactions where items are shipped, consider using a $0 verification transaction with AVS and
CVV2 when the order is placed if item is known to be on back order. Complete the authorization when the
item is available for shipping.
➢ Utilize reauthorization to obtain a new authorization and if available, allow your acquirer to settle those
items on your behalf after receiving an approved reauthorization.
EDUCATIONAL WEBINAR SERIES
Mismatched/Missing Data
Business Scenario:
Specific data elements provided within the authorization and/or authorization response, must also be
passed to the network in the settlement records to achieve optimal interchange qualification. In addition,
some card types can qualify for better rates if additional data is provided. Examples of this include but are
not limited to:
Best Practices:
➢ Utilize Host Data Capture to minimize your requirement to replicate auth data in settlement files
➢ Submit Level II and III data on all eligible commercial card transactions
• Transaction ID/Banknet Reference number
• Terminal capability/Entry mode/MCC/Auth code
• Missing auth amount/Transaction amount differs
between auth/settlement
• Driver ID/Odometer reading
• ACI indicator
• Transaction Integrity Indicator
• Level II/III data on commercial cards
EDUCATIONAL WEBINAR SERIES
Uncontrollable Downgrades
Business Scenarios:
There are scenarios where the merchant has no control over which interchange category a transactions will quality for. Typically this has to do with the card product type being presented and the type of terminal used to accept the transaction.
• Transactions >$15 at Unattended terminals are not eligible for CPS qualification
• Specific card types that will always fall to less than optimal rates
• Tax Exempt commercial card transactions cannot qualify for Level II rates
• Amount variance
Best Practices:
➢ Understand what types of circumstances result in uncontrollable downgrades in order to focus your efforts on areas you can impact
EDUCATIONAL WEBINAR SERIES
Interchange and Returns
• The Card Brands publish specific rates for return transactions based on card product type – in several cases there is no interchange refunded on returns (i.e. rate = 0.00% + $0.00)
• The amount of interchange rebated on a return transaction will not be the exact same amount as the interchange paid on the sale transaction
➢ Purchase transactions that downgrade will result in a higher amount of interchange paid than what will be refunded if the merchandise is returned
• Effective April 2021:
o Mastercard is reducing their interchange rates for consumer credit refunds
o Discover is reducing their interchange rates for debit and prepaid refunds
EDUCATIONAL WEBINAR SERIES
Network Fee Impacts
Zero Floor Limit
• Visa Fee ($0.20) assessed when a transaction was not authorized
• Effective July 2021 - will also apply to return transactions not authorized
Misuse Fee
• Visa Fee ($0.09) assessed when a transaction is authorized but not settled or reversed within established timeframes
• Effective April 2021 - will also apply to AFD transactions
• Effective July 2021 - will also apply to return transactions
Integrity Fees
• Visa Fee ($0.10) assessed to transactions that don’t meet CPS qualification
• Effective April 2021, Discover will introduce a new Program Integrity Fee ($0.05) assessed on transactions that qualify for Mid-Submission Level or Base Submission Level interchange programs
➢ Reminder: Integrity Fees do apply to Debit Regulated transactions. Just because a transaction qualifies
for an optimal interchange rate doesn’t always mean they are exempt from additional fees!
EDUCATIONAL WEBINAR SERIES
Downgrades and Chargebacks
Transactions that downgrade
also increase your risk of losing
the sale if the transaction is
disputed by the cardholder
No Representment Rights
Late
No Auth
Key Entry
EDUCATIONAL WEBINAR SERIES
What else can you do?
• Prompt for PIN and Support PINless Debit
• Lower cost of acceptance for most merchants
• No interchange downgrades
• No integrity fees
• Routing Choice
• Consider ACH Payment Options
• Lower cost of acceptance
• No penalty fees or downgrades
EDUCATIONAL WEBINAR SERIES
Acquirer Responsibilities
Proactive Communication
Fee Change Analysis
Business Reviews
Release Changes/Updates
Reporting/Research Tools
EDUCATIONAL WEBINAR SERIES
Reporting & Resources
Data Files
• Raw Data Activity Files
Reporting
• Daily/Monthly Interchange Fee Reports
• Interchange Downgrade Reports
• Billing Summary Reports
Research Tools
• Location totals
• Transaction level details
EDUCATIONAL WEBINAR SERIES
Upcoming Changes to Visa Downgrade Rates
Former Interchange Program Effective July 18, 2020Effective
April 17, 2021
EIRF
Non-Qualified Consumer
Credit2.70% + $0.10 3.15% + $0.10
Standard
Signature Preferred Standard
Infinite Standard
Business Standard Tier 1-5Non-Qualified Business
Credit2.95% + $0.10 3.15% + $0.20
• Effective July 2020, Visa eliminated the consumer credit EIRF and Standard and the Business
Standard interchange programs
• Transactions that do not meet CPS criteria now qualify for the Non-Qualified programs
• Rates are increasing with the April 2021 release:
*Fuel transactions under MCCs 5541 & 5542 will still have a cap of $1.10
EDUCATIONAL WEBINAR SERIES
Upcoming Changes to Visa Key Entry Qualifications
• Effective April 2021, Visa key entered transactions that qualified for CPS Key Entry will start to qualify at
the new Product 1 card not present rates including consumer, business, corporate, purchasing and
signature preferred transactions.
• Visa key entered transactions that do not meet CPS Key Entry qualifications will downgrade to the Non-
Qualified rates.
EDUCATIONAL WEBINAR SERIES
New Visa Excessive Fallback fee
Effective April 1, 2021, Merchants with chip-enabled terminals that generate excessive magnetic-stripe fallback transactions will be subject to additional transaction fees.
➢ The new excessive fallback fee will be assessed for each fallback transaction occurring at merchant locations with a fallback rate* of 10% or greater.
* The fallback rate is defined as the number of magnetic-stripe fallback authorization transactions per the total
number of electronically read authorizations.
Fee Description Rate
VISA EXCESSIVE FALLBACK $0.10
EDUCATIONAL WEBINAR SERIES
Upcoming Changes to Discover Downgrade Rates
• Effective April 2021, Discover is eliminating their Mid Submission Level program for
consumer credit, debit and prepaid transactions
• Transactions currently qualifying at Mid Submission Level rates will shift to Base
Submission Level rates
*Rates apply to Discover acquired merchants
EDUCATIONAL WEBINAR SERIES
Upcoming Changes to Mastercard Downgrade Rates
Effective April 2021,
Mastercard is increasing
Key Entry, Merit I and
Standard interchange
rates for most card
products:
Interchange Program Current Rate Effective April 2021
Key Entered Core 1.89% + $0.10 1.95% + $0.10
Key Entered Enhanced 2.04% + $0.10 2.10% + $0.10
Key Entered World 2.05% + $0.10 2.20% + $0.10
Key Entered World High Value 2.50% + $0.10 2.60% + $0.10
Key Entered World Elite 2.50% + $0.10 2.60% + $0.10
Merit I Core 1.89% + $0.10 1.95% + $0.10
Merit I Enhanced 2.04% + $0.10 2.10% + $0.10
Merit I World 2.05% + $0.10 2.20% + $0.10
Merit I World High Value 2.50% + $0.10 2.60% + $0.10
Merit I World Elite 2.50% + $0.10 2.60% + $0.10
Standard Core 2.95% + $0.10 3.15% + $0.10
Standard Enhanced 2.95% + $0.10 3.15% + $0.10
Standard World 2.95% + $0.10 3.15% + $0.10
Standard World High Value 3.25% + $0.10 3.15% + $0.10
Standard World Elite 3.25% + $0.10 3.15% + $0.10
EDUCATIONAL WEBINAR SERIES
Summary: How to Avoid Downgrades
• Know the optimal rates your transactions should
qualify for based on your MCC
• Understand how business practices impact
interchange qualifications
• Shifts from in store to online or curbside pickup
• Pre-orders
• Back orders
• Card on File
• Track and monitor your effective rate
• Review interchange qualifications after any POS
changes are implemented
• Work with your acquirer to understand how
your transactions are qualifying today and
opportunities for improvement
• Discuss changes in your business
practices with your acquirer who can
provide best practices to minimize expense
and balance risk vs customer experience
• Utilize data files and reporting from your
acquirer to track interchange fees and
identify issues
• Notify your acquirer about any system
changes so they can proactively monitor
for possible impacts
EDUCATIONAL WEBINAR SERIES
Please submit questions for the presenters in the Questions dropdown of the GoToWebinar control panel
QUESTION AND ANSWER
EDUCATIONAL WEBINAR SERIES
Next Webinar:
THANK YOU!
2021.1 Spring Brand Release Impacting Merchants
Wednesday, March 31st, 2021 | 12:00pm – 1:00pm CST