When most businesses think about how to choose a payment processor, they focus almost entirely on the rate. It’s understandable — the rate is the most visible number in the conversation. But the rate is also the smallest part of what you are actually paying. Understanding where your credit card processing costs really come from is the first step toward making a smart decision about who processes your payments.
The Rate Is Not Where Your Money Goes
Every time you accept a credit card, you pay a fee made up of three parts: interchange, assessments, and your processor’s markup. Most businesses spend all their time trying to negotiate a lower processor rate. Ironically, that’s usually the smallest opportunity.
80–90% of the cost of accepting credit cards comes from interchange — fees set by Visa and Mastercard and paid directly to the card-issuing bank. Negotiating only the processor’s rate means you are negotiating the smallest part of your total cost.
Knowing this is critical when you choose a payment processor — interchange is non-negotiable and the same regardless of which processor you use. What differs is how your transactions qualify at interchange. A transaction that qualifies correctly costs significantly less than one that doesn’t — and that difference has nothing to do with your processor’s rate.
This is why two businesses can have the exact same processor rate and end up with very different effective costs. The business whose transactions are qualifying correctly is paying less — not because they negotiated harder, but because they are set up correctly on the back end.
The Key Insight
You can have a very competitive processor rate and still end up paying significantly more than necessary if your transactions are not processing correctly. Getting the rate right is step one. Making sure your transactions qualify correctly is where the real savings are.
How to Choose a Payment Processor — Start With Pricing Structure
Before anything else, insist on pass-through pricing — also called interchange-plus or cost-plus pricing. This is the pricing model where your processor passes interchange through to you at actual cost and charges a fixed markup on top.
Companies like Target, Home Depot, and most Fortune 500 companies insist on being set up this way. The reason is simple: with pass-through pricing, you can see exactly what interchange is costing you and exactly what your processor is charging on top. There is nothing bundled, nothing hidden.
For example, Revolution Payments prices at interchange plus 10 basis points plus $0.05 per transaction. Our markup is about 10 cents for every $100 you process, plus five cents per transaction. Everything else is simply passed through at actual cost.
Avoid These Pricing Models
Flat rate and tiered pricing models bundle interchange, assessments, and the processor’s markup into one number. This makes it impossible to see what is actually driving your costs — or to benefit when your transactions qualify at lower interchange rates. If a processor won’t put you on pass-through pricing, ask why.
Downgrades — Why Choosing a Payment Processor on Rate Alone Costs You
Even with a competitive processor rate and pass-through pricing, your transactions can still cost more than they should. The reason is downgrades — and this is the part of payment processing that most processors never explain.
A downgrade happens when a transaction does not meet the requirements to qualify at the standard interchange rate for that card type. Instead, it gets reclassified to a higher interchange category. The cost difference can be significant — a single downgrade can add 65 basis points or more to the cost of that transaction, before your processor’s markup is ever considered.
⚠ Real Example
If someone keys in a transaction and skips something as simple as the ZIP code, Visa can downgrade that transaction. That one missing field can cost an additional 65 basis points — on that transaction alone. At meaningful volume, that adds up fast. The good news is that most of these issues can usually be corrected once you identify what’s causing them.
What to Look for on Your Statement
If your transactions are downgrading, it shows up on your processing statement. Most merchants never look for it — but once you know what to look for, it’s not hard to find. These are the terms that indicate a downgraded transaction:
Standard or STND
Transactions that failed to qualify at the intended interchange rate and were reclassified to a higher standard rate. One of the most common downgrade indicators on a statement.
EIRF: Electronic Interchange Reimbursement Fee
A downgrade category that applies when required transaction data is missing or incorrect — often triggered by keyed transactions without a ZIP code or incomplete card-present data.
If you see STND or EIRF appearing on your processing statement, your transactions are downgrading. That means you are paying more than you should — not because of your processor’s rate, but because something at the point of sale is causing those transactions to reclassify to a higher interchange category.
“Most merchants spend all their time negotiating the processor’s rate. But if your transactions are downgrading, you can end up paying one percent more for reasons that have nothing to do with your processor.”
For B2B Merchants — Interchange Optimization on Commercial Cards
If your business accepts commercial credit cards — corporate cards, purchasing cards, government cards — the interchange optimization opportunity is even larger. These card types qualify for significantly lower interchange rates when the right data is submitted with each transaction. When it is not submitted correctly, the cost difference can be 80 to 150 basis points higher — regardless of the processor’s rate.
This is where most B2B processors fall short. When you choose a payment processor for commercial card transactions, make sure they can actually submit Level 3 data automatically. Most processors either cannot do this or do not monitor whether it is actually working correctly.
✓ What Correct Setup Looks Like for B2B
Commercial card transactions automatically submit the required line-item data fields at the time of the transaction — without your staff manually entering anything. Every eligible transaction qualifies at the lowest available interchange rate. And if something changes and transactions start downgrading, you get a call before it costs you money.
What to Look for When You Choose a Payment Processor
Here is what matters — in order of importance:
- Pass-through (interchange-plus) pricing. Non-negotiable. If the processor won’t put you on this pricing model, keep looking.
- No long-term contract with liquidated damages. Understand exactly what it costs to leave before you sign. Month-to-month agreements are available — insist on one if you can.
- No volume-based rate increases. Some processors quote your rate based on projected volume and raise it if you don’t hit the target. Your markup should stay the same whether you have a slow month or a record one.
- Downgrade monitoring. Does your processor actively watch for STND and EIRF charges on your account? Will they reach out if your transactions start downgrading — or will you find out on your own six months later?
- Level 3 capability for commercial cards. If you accept corporate, purchasing, or government cards, make sure your processor can actually submit Level 3 data automatically. Ask specifically — do not assume.
- Experience with your card type. Accepting consumer Visa cards is very different from optimizing commercial card interchange. Make sure the processor has specific experience with the types of transactions your business runs.
What Revolution Payments Does Differently
When businesses choose a payment processor, most don’t realize they should be asking about downgrade monitoring. We process month-to-month. If you ever decide to leave, it should be because we did something wrong — not because you are locked into an agreement. Our markup is fixed regardless of your volume. A slow month does not change what we charge on top of interchange.
We also monitor your account for downgrades. If we see STND or EIRF charges appearing — or transactions not qualifying the way they should — we reach out, figure out what is causing it, and work with you to get it corrected. Most merchants have no idea this is even happening because nobody is looking for it. Most processors do not do this.
For B2B merchants, we automatically submit Level 3 data on eligible commercial card transactions. Commercial card transactions automatically submit the required Level 3 data without your staff manually entering anything — it happens in the background on every transaction — and it can mean the difference between paying 80 to 150 basis points more than necessary and qualifying at the lowest available rate on every commercial card you accept.
If you’re curious whether your transactions are qualifying the way they should, send us a statement. We’ll show you exactly where they’re qualifying correctly, where they’re downgrading, and whether there’s anything worth fixing. If everything looks good, we’ll be the first to tell you. www.revolution-payments.com email info@ revolution-payments.com or call 888 790 3450