Navigating Card Brand Changes: The Impact of Downgrading

Navigating Card Brand Changes: The Impact of Downgrading

by | Feb 21, 2023

As an Independent Software Vendor (ISV) or Value Added Reseller (VAR) relying on residual income from credit card processing, it’s critical to stay informed of changes made by card brands to their interchange rates and fees. These changes can have a direct impact on the residuals you earn. If a merchant’s processing rate is downgraded due to shifting qualification requirements or fee structures set forth by card brands, this can result in additional fees that negatively impact your residuals. In other words, neglecting to analyze these changes could lead to profit loss.

The major card brands, including Visa, Mastercard, Discover, and American Express, have recently made changes to card qualification rates and fees. These changes are all about making sure merchants are appropriately charged. This happens due to a combination of factors, including intensifying competition among card brands, evolving consumer behavior, and the need to safeguard card transactions from fraud and increase security. 

In this blog, we’re shining a spotlight on the changes that will have the biggest impact on our partners and merchants and showing you how to stay on top of the updates and avoid downgrading. These changes now include the introduction of new merchant category codes (MCC) for e-commerce and card-not-present (CNP) transactions, with different qualified and non-qualified rates. Initially slated for 2020, the changes were postponed due to the Covid-19 pandemic.

How to stay up-to-date

Interchange rates can frequently change, with updates happening every spring and fall, as the major card brands aim to continually optimize their fees and security measures. Staying on top of these updates will ensure you adjust processes accordingly. You can find updates from the major card brands on their respective websites. Check out their news and press release sections for the latest information on changes to their interchange rates and fees. Additionally, we’ll keep you informed and ready for any changes in the world of card payments.

Most significant changes among the card brands 

American Express has introduced an OptBlue Acquirer Assessment and a Transaction Fee of $0.165% + $0.02, effective April 22, 2022, applied to all non-debit card charges submitted under the program for all industries.

Discover, which issues cards directly to consumers and commercial entities, will continue to be paid directly through the merchant’s credit card processor for each transaction. A significant change noticed is the increase in their Commercial Electronic Prepaid Interchange rate from 2.30% + $0.10 to 2.65% + $0.15, a rise of 0.35% + $0.05. Discover has also introduced a new Charity US Consumer Interchange Program (MCC 8398) with card-present and card-not-present transactions eligible for this program with specified rates.

Visa is streamlining its processing with a new name and changes to the interchange rate for downgrade transactions. The new interchange rate will be Non-Qualified, with a rate of 3.15% + $0.10 for Consumer Credit transactions and 3.15% + $0.20 for Small Business credit transactions. This change comes with an increased Non-Qualified Consumer Credit interchange rate, rising from 2.70% + $0.10 to 3.15% + $0.10, an increase of 0.45%. This fee may be applied to retail merchants who key-enter a transaction or fail to batch out at the end of the day. To ensure the best rate, merchants must now meet new requirements, such as using additional data elements like CVV and AVS results to confirm cardholder identity and transaction authenticity. These changes are detailed in the accompanying tables.

Source: “Visa Modifications to Credit Interchange – Effective April 18, 2020” by Brittney Carlisle.

Let’s also examine how Visa’s new interchange rate on non-qualified consumer credit transactions has affected real merchant data. While these merchants had no changes from their processors on fees, their interchange rates significantly increased due to Visa’s updates.

Mastercard’s Standard interchange has increased from 2.95% + $0.10 to 3.15% + $0.10, an increase of 0.20%. This fee is typically applied when the transaction does not match basic qualifications, such as missing AVS data or failing to settle sales daily.

Meanwhile, the Enhanced Standard and World US Standard are also set to increase by the same amount. On the bright side, the High-Value Standard and World Elite Standard will see a decrease, with rates dropping from 3.25% + $0.10 to 3.15% + $0.10, a decrease of 0.10%.

To view the full summary of Fall 2022 Card Brand 7 Debit Network changes, click here.

Upcoming changes to card brand fees

  • Visa: Introducing two new fees. The Estimated Authorization Fee will be 0.02%, and the Incremental Authorization Fee will be 0.02% for any approved Estimated and Incremental Authorizations. These fees will impact merchants processing Visa Credit and Debit transactions and processing estimated or incremental authorizations.
  • American Express: Inbound fees on foreign-issued cards will increase, excluding JCB and foreign-issued debit cards. The AMEX OptBlue Inbound Fee will increase from 0.40% to 0.60% (a difference of 0.20%). This will impact merchants processing AMEX OptBlue transactions.

NOTE: The changes will be effective from April 17, 2023 (Visa) and April 15, 2023 (AMEX).

What is downgrading?

Downgrading occurs when a transaction is not processed at the qualified rate and is instead processed at the higher, non-qualified rate. Understanding these changes and what downgrading means is crucial for merchants to ensure they are appropriately charged for transactions. This can happen for several reasons, including insufficient information being provided during the transaction or the transaction not meeting the card brand’s security requirements. 

Reasons for downgrades

  • AVS and CVV/CVC results: Transactions that fail the Address Verification Service (AVS) or Card Verification Value/Code (CVV/CVC) check may be more likely to be downgraded.
  • Transaction type: Card-not-present transactions, such as those made online or over the phone, may be more likely to be downgraded as they carry a higher risk of fraud. This is because the card is not physically present during the transaction, and the cardholder’s identity cannot be verified by checking a signature or government-issued ID. Certain types of transactions, such as recurring payments or international commerce, may be downgraded due to their higher risk profile.
  • Settlement status: Transactions that are not settled promptly may be more likely to be downgraded. 
  • Insufficient information: If a merchant does not provide enough information during a transaction, such as a customer’s billing address, the card brand may classify the transaction as non-qualified and subject it to a higher rate.

How to prevent downgrading 

Don’t let downgrading get you down! To avoid it, merchants should ensure that their transactions are correctly processed. There are a number of best practices that merchants can follow:

  • Use Address Verification System (AVS) and Card Verification Value (CVV); AVS and CVV are security measures used to verify the cardholder’s identity. By using these measures, merchants can reduce the risk of fraud and ensure that their transactions are processed at the correct rate.
  • Promptly Settle transactions.
  • Confirm that the Merchant Category Code (MCC) associated with the business accurately reflects the type of goods or services being sold.
  • Ensure that the correct billing and shipping information is provided during the transaction.
  • Adhere to card brand security requirements, such as using a secure connection and implementing proper fraud protection measures. 
  • Regularly review transaction data to identify and resolve any downgraded transactions.

By following these steps, merchants can minimize the risk of downgraded transactions and ensure they are charged the correct rate.

Conclusion

In conclusion, it is imperative to stay informed on the significant modifications made by leading card issuers, which considerably impact our partners and merchants. We have briefly discussed the meaning of downgrading and different methods for downgrading prevention. As an ISV or VAR generating residual income from credit card processing, staying informed of the latest developments will ensure the health of your portfolio. Stay tuned; our next blog is your ultimate guide to success. We’ll cover how to assess your residuals, spot areas for improvement, and uncover the effects of various pricing models.

 

Sources:

Carlisle, Brittney. “Visa Modifications to Credit Interchange – Effective April 18, 2020.” January 20, 2020.

Carlisle, Brittney. “Visa Modifications to Interchange Notice: Effective Dates April 18, 2020, & October 17, 2020.” February 10, 2020.

Rej, Matt. “Most Common Interchange Downgrades.” October 22, 2022.

Miller, Susan. “Spring 2022 Card Brand Changes.” May 13, 2022.

Questions on How to Navigate Card Brand Changes?

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Analyzing Merchant Statements: Let Technology Do the Hard Part

Analyzing Merchant Statements: Let Technology Do the Hard Part

by | Jan 5, 2023

Analyzing merchant processing statements can be a simple process with the right tools. Those who stay ahead of the curve are taking advantage of software that powers the payment processing industry. We recognize that statement analysis is essential, and we want our partners to use technology to accelerate their business. If you need to incorporate statement analysis in your sales approach, we encourage asking merchants for current processing statements. However, understanding statements and time spent analyzing them can be frustrating and time-consuming. To maximize profit and efficiency, we rolled out a new statement analysis tool for all our partners.

How it Works

BOLD’s Statement Analyzer Tool is designed to take the grunt work out of statement analysis, freeing our partners to do what they do best; prospecting and sales. A closer look at statements will reveal information about current payment processing fees and identify growth opportunities.

Product Features:

  • Fast Turnaround Times (Avg under 20 minutes)
  • Accurate Analysis (Data Entry / Categorization issues are detected and fixed by an expert)
  • Interchange Padding Detection
  • Level 2 and Level 3 Optimization Potential
  • Custom Pricing Templates
  • Proposal Templates with Custom Branding 
  • Residual Calculation & Margin Control
  • Full Feature API

Benefits of Using Our ISO Quote Tool

Identifying various aspects of a statement takes time, some can take up to a couple of hours. For example, assessing price models, processing fees, and chargebacks may be strenuous. With all of these different factors, it is easy to miss hidden fees. We certainly don’t want our partners to waste their time with complex statements. BOLD’s Statement Analyzer Tool allows you to manually generate an analysis without a statement in case your merchant is unable to obtain theirs. An estimated savings proposal will pique their interest if that’s the case. 

Here is an example of a proposal template!

Click here to register for a LIVE demo on 01/17/2023 presented by BOLD! 

Current partners can gain access to BOLDs Statement Analyzer Tool today. Simply contact the Partner Experience Team @ prm@boldpay.io for user credentials and training. You’ll be analyzing in no time!

Not a BOLD Partner and want to learn more? Fill out the form below!

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Sealing the Deal: Setting Merchant Expectations to Keep Up with Industry Trends

Sealing the Deal: Setting Merchant Expectations to Keep Up with Industry Trends

by | Oct 20, 2022

The Payment Industry has new advancements in technology that frequently alter merchant expectations. As they continue to experience increased products and services to help grow their business, the market grows even more competitive. What are you doing that’s part of the trend, and how can you adjust your strategy to stand out from the crowd?

Expand from Merchant Processing 

Today’s merchants get incessant offers and calls to switch their processing. The same pitch is heard over and over again, promising lower rates. You may find yourself spending an unreasonable amount of time trying to obtain a statement from your prospect. When you finally create a proposal and show your prospect the amazing savings promised, they sometimes end up ghosting you. Well, what can you do now? The key is to have multiple selling points apart from guaranteeing lower rates.

Have Open and Honest Conversations with Prospects

Once you put in all the effort and the merchant decides to take your hard work back to their current processor it becomes laborious to peak their interest again. Having open and honest conversations with prospects help identify their needs before you exhaust resources. They may value payment security or operational efficiency more than a huge savings on fees.  What can you provide that their current processor can’t? Many merchants are looking for more than just payment acceptance. 

Managing Expectations Day One

Make an effort to manage expectations from the start of the relationship.  Pinpoint different product offerings that specifically resolve an issue the merchant may be experiencing. Openly discuss areas where you can add value and ease to their day to day operations. Keep in mind the end consumer and how their wants impact the merchant. Offering a better quality of service overall will help seal the deal. 

Are you ready to speak with a Payment Industry expert?

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Pass-through vs. Flat Rate Pricing: Presenting the Best Options to Your Merchants

Pass-through vs. Flat Rate Pricing: Presenting the Best Options to Your Merchants

by | Sep 19, 2022

“Why is my effective rate different this month versus last month?” 

This is one of the most common concerns we hear from new merchants after their first few months of processing. Explaining the fundamentals of interchange to a merchant is no easy feat. When selling based on the effective rate, the pricing model used to pass the cost to the merchant is important. The two most common pricing models sold are pass-through pricing and flat rate pricing. How do these pricing models impact the effective rate, and how do you determine which pricing model works best for your merchant?

Pass-through vs. Flat Rate Pricing

Pass-through pricing

Pass-through pricing allows the true cost of processing to be passed on to the merchant. The benefit of pass-through pricing is transparency and lower costs. On a pass-through pricing model, merchant fees fluctuate monthly based on interchange and card brand fees. Interchange is determined based on card types, the merchant industry, transaction size, and other factors, such as reward cards that give you cash back and miles towards a consumer’s next vacation.

Common examples of factors that drive interchange costs are:

  • Rewards Cards – Interchange costs are higher to offset the cost of the rewards programs to the cardholder. 
  • Keyed and e-commerce transactions – Without having the swiped and chipped data, the risk that the transaction could be fraudulent is greater and therefore, a higher risk. Address verification (AVS) helps mitigate the risk. 
  • Debit Cards – Have the lowest interchange costs due to the lower risk. Debit transactions are funded directly from the cardholder’s bank account. 
  • Average Ticket – Merchants with a lower average ticket qualify for interchange rates with reduced transaction fees, which lower costs. 
  • Industry Types – Schools, government entities, utilities, etc., have special interchange pricing that can lower costs.

Flat Rate Pricing

Flat rate pricing is not designed to be competitive; it is meant to be easy to understand. A flat rate pricing model gives merchants a fixed percentage that is not impacted by the cost of interchange or card brand fees. Regardless of the types of cards accepted or any of the other factors that influence interchange costs, the merchant’s effective rate never changes. It is essential to remember since the merchant’s rate is fixed, flat rate pricing should be priced high enough to cover the cost of fluctuations in interchange rates. Recommended flat rates are currently ranging from 2.75% – 2.99%. The varying costs of interchange will affect the overall residuals earned on a monthly basis. 

 

 Pass-through Pricing   Flat Rate Pricing
Merchant cost is dependent on the interchange qualification.  Merchant cost is a fixed percentage.
Merchant effective rate fluctuates based on interchange qualification month over month.  Merchant effective rate remains the same regardless of interchange costs.
Partner earns a fixed residual percentage regardless of the underlying interchange.  Partner earnings fluctuate depending on interchange qualification.

 

So, what is the right choice?

Choosing between flat rate pricing and pass-through pricing isn’t always an easy decision; 

However, with so many variables it can be comforting for merchants to know their processing fees will not change. As long as the sales and average ticket don’t fluctuate significantly month to month, the cost will remain relatively constant and predictable.For these reasons, when it comes to selling merchant’s on the effective rate, we have found the best pricing model to use is flat rate pricing.

Looking to learn more about Pass-through vs. Flat Rate Pricing 

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Three Tips to Grow Your Payments Portfolio

Three Tips to Grow Your Payments Portfolio

by | Aug 23, 2022

Advantages of a BOLD portfolio

Building a portfolio with BOLD is a unique experience that many may struggle to find elsewhere. Whether you are building off of an existing book of business or starting from scratch, BOLD has the resources to assist with your company’s growth. Unlike what most find in our industry, BOLD has complete transparency and a network of diverse team members. One of BOLDs top benefits is the lion’s share of the revenue. Providing full control over your portfolio the BOLD team works to curate a personal experience that best suits every partners’ needs.

Working with the Partner Relationship team can help meet goals and maximize return on investment. It is important to understand the benefits of residual income and ways it can drastically help your business. I have partnered with BOLDs Senior Partner Success Manager Ciara Watson to bring you her top three tips on growing a portfolio. Ciara has twenty years of industry experience under her belt and as a previous business owner herself, she understands the needs of merchants.

Tip #1 Keep an Open Mind

When you first start building your book of business it is a good approach to stay focused on a specific target market. As your portfolio continues to grow, having an open mind to other markets will allow you to be a part of endless opportunities. Branching out into new markets may bring up some unexpected obstacles. Becoming educated and staying informed on new avenues can be the key to overcoming any hindrance and generating a great deal of revenue.

You may try new pricing structures or different product offerings depending on a merchant’s needs. For example, some ISVs and VARs are hesitant to dive into Dual Pricing. Dual Pricing has proven to be successful with many of our partners as it allows merchants to save considerably on processing fees. Given proper education on the subject many merchants find themselves open to potential savings. While your customers continue to be approached by salesmen looking for their business, give them a reason to stay. Additionally, having accessibility to a variety of product offerings may also improve merchant retention.

Tip #2 Have Confidence in Your Skillset

Understanding your strengths and knowledge within this industry will help build a profitable strategy. Networking and attending different trade shows can help develop known weaknesses. The BOLD team finds that people are eager to educate others when given the chance. Don’t be afraid to ask for referrals and have an open line of communication with merchants. Reach out to software companies directly if you are unfamiliar with their product. All it takes is one new software or product to master, and a new target market can be acquired. Continue to build your existing skills and portfolio expansion will follow.

Tip #3 Analyze Your Current Book of Business

When analyzing your current book of business, growth can be measured in a number of ways. With BOLD you have full control over your portfolio. Growth may be tracked by revenue earned, merchant accounts boarded, monthly volume, or customer satisfaction. Reviewing current accounts is a good place to start forming a strategy for growth. Can you identify businesses that are not producing? You may find valuable resources are being misplaced. Ciara likes to refer to the 80/20 rule also known as The Pareto Principle. It is important to exert the right amount of effort to achieve desired results.

Conclusion

Applying Ciara’s tips and suggestions to your business will help revenue grow at an accelerated pace. Remember to always have an open mind when selecting a target market and be willing to explore new strategies. Have confidence in your current skills and determine areas of improvement. Continue to build on existing skills by analyzing your current book of business. Asking the right questions is essential and can help you properly allocate valuable resources. At BOLD we strive to meet our core values and exceed partner expectations.

Coming Soon

With all these things in mind, we look forward to bringing you part two of this series where Ciara’s tips will be implemented on a partner portfolio and real results will be presented.

 

Looking to learn more about Portfolio growth with BOLD?

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Covering the Upcoming Regulations to Cash Discounting

Covering the Upcoming Regulations to Cash Discounting

by | May 25, 2022

The industry and what we consider “cash discounting” is changing. As regulations from the card brands begin to mount, many merchant processors are looking to offer a variety of compliant fee-based programs for their merchants. As BOLD continues to uncover details, the direction of the card brands is becoming apparent. To understand where we might be headed, it is important to understand where it all began.

History of Cash Discounting

“Cash Discounting” found its niche in liquor stores and gas stations in the early 2000s as business owners looked for cost-cutting measures. Before card brand regulations in 2011, companies were charging card paying customers excessive fees in order to cover the cost of merchant processing, and then some. However, since the introduction of the Durbin Amendment Act, rules were put in place to protect card-paying customers and business owners while opening the doors for businesses to run a “compliant” Cash Discounting program. 

In § 920 Section 4 of the Durbin Amendment (Reasonable Fees and Rules for Payment Card Transactions), the term “discount” is defined and makes abundantly clear that any program adding a fee to the regular price is not a “cash discount” as defined by the Durbin Amendment.  This is the rationale for using terms such as “non-cash adjustment” rather than “cash discount” and is a large reason as to why we are in the current situation.

Current State of Cash Discounting

In terms of Cash Discounting, perhaps the biggest takeaway from the Durbin Amendment is that business owners MUST treat their program as a DISCOUNT on their regular price rather than a FEE. Many merchants began promoting their regular pricing to include a non-cash adjustment allowing customers who pay with cash to avoid the NCA (non-cash adjustment). “Cash Discounting” programs were quickly branded as in-kind incentives and or non-cash adjustments with this pricing model in place.

However, card brands have recently faced difficulties regulating merchants running these types of programs. Cardholder complaints have drastically increased over excessive and inconspicuous fees as merchants implemented unregulated programs which were NOT forthcoming in the difference in pricing (violating  § 920 Section 3).

Looking to talk to a Feeless Payments Expert? Let’s Talk…

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Possible Future of Cash Discounting/Fee-Based Programs

The Card Brands (Visa, Mastercard, Amex, Discover) regulation on terminology and how the program is presented has ignited software vendors and merchant processors to make changes to their software and practices in order to adopt the current updates. 

Terminologies such as “in-kind incentive” and  “non-cash adjustment” are being phased out and replaced with a “Dual-Pricing” structure. As of the day this blog was originally posted, Dual Pricing is the safest method of running a fee-based program without the need to register with the card brands. Dual Pricing will vary from state to state based on state and local laws but here are some of the high level bullet points of this type of program :

    • The credit card receipt will no longer contain a separate line item informing the customer that they will be charged for using a credit card (i.e.- non-cash adjustment). 
    • Cash pricing and credit card pricing will more than likely need to be displayed separately on menus, shelves, and promotions.
    • All cardholders must be notified of the charges of the final total BEFORE running the credit card. (more than likely the terminal/POS system will need to be able to distinguish and provide a cash receipt and a credit card receipt)
    • Signage will still need to be highly visible throughout the establishment informing the card holders of the varying prices.

BOLD will continue to monitor and update this blog as changes arise. In the meantime, should you have questions, please contact us by filling out the form below or emailing us at info@boldpay.io.

Disclaimer- The information provided does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only.

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