What occurs during a "downgrade" in a transaction process?

During a "downgrade" in a transaction process, the issue typically lies with the transaction not meeting specific criteria required for the best interchange rate. This means that the processing of the transaction may result in higher fees due to the failure to qualify for more favorable terms. Factors that could lead to a downgraded status include missing data elements, incorrect transaction information, or processing errors that prevent the transaction from adhering to the optimal conditions set by the card networks.

Achieving the best interchange rate often depends on specific criteria such as transaction type, merchant category, and additional data requirements. When a transaction cannot meet these criteria, it is classified as a downgrade. Understanding this concept is crucial for merchants and payment processors, as downgrades can significantly impact overall transaction costs and profitability.