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.

About The Author

Phillip Parker

Phillip Parker is an independent digital payment consultant specializing U.S. and Canadian point-of-sale, ecommerce, and mobile payment acceptance. He has nearly two decades of experience in card payment services, both as a former merchant services sales representative and as a professional journalist covering the payments industry. Phillip created this website and has written over 1,000 articles regarding all things payments. He has also researched and published reviews about nearly every payment services provider and processor. In addition his contributions here, Phillip has also been quoted in several major publications such as The Los Angeles Times, INC Magazine, Miami Herald, Computer World, and numerous others.

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