educational webinar series

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


Interchange Factors

MCCCard

Product

Entry

ModeData

Authorization

& Timeliness

Controllable FactorsStatic Factors


Common Causes of Downgrades

Key EntryNo

AuthorizationLate

Settlement

Mismatched Data

Missing Data Uncontrollable


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


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


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.


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


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


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


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!


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


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


Acquirer Responsibilities

Proactive Communication

Fee Change Analysis

Business Reviews

Release Changes/Updates

Reporting/Research Tools


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


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


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.


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


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


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


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


Please submit questions for the presenters in the Questions dropdown of the GoToWebinar control panel

QUESTION AND ANSWER


Next Webinar:

THANK YOU!

2021.1 Spring Brand Release Impacting Merchants

Wednesday, March 31st, 2021 | 12:00pm – 1:00pm CST

educational webinar series

Documents