What happens during a "downgrade" in transaction processing?

During a downgrade in transaction processing, it refers to a situation where a specific transaction does not meet the necessary criteria set by the card networks or card companies to qualify for the best available interchange rate. Interchange rates can vary based on various factors, such as the type of card used (credit or debit), the merchant category, and the way the transaction is processed. When a transaction is downgraded, it usually results in a higher interchange fee than what would be charged if the transaction qualified for those preferred rates.

This condition typically arises when transaction submission details lack key information needed for optimal processing, leading to higher costs for merchants. Understanding this aspect is vital for professionals in the payments industry as it directly influences the overall cost of accepting card payments.