Downgrade Fee Definition

Merchant Account Downgrade Fee Explained:

What is a Downgrade Fee? In the credit card processing industry, a Downgrade Fee is a blanket term used to signify surcharges added to the “Qualified Discount Rate” of the processing fee. In particular, the “Mid-Qualified” and “Non-Qualified” surcharges are the most common Downgrade Fees. However, there is no standard on what a Downgrade Fee must be called, or how it can be applied, and the terminology can vary from provider to provider. Downgrade Fees are often the fees that merchants report as “hidden fees” because they are rarely disclosed before the merchant account activation. Downgrade Fees generally cost merchants an additional 1%-3% per transaction on top of the Qualified processing rate. The fee may be assessed for a variety of reasons including a customer’s card type, issuing bank, how the transaction is entered and other merchant actions. On average, more than 50% of a merchant’s credit card transactions experience Downgrade Fees when set up under the tier/bucket rate pricing model – which is the pricing model that most merchants receive. Downgrade Fees can be eliminated through proper negotiation prior to establishing a merchant account with a provider. To learn how to eliminate them from your processing costs, read Fee Sweep.

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