Where your processing cost actually goes

A blended rate is a single number that hides three different fees with three different owners, only some of which respond to anything you do. Merchants negotiating the wrong component spend a quarter arguing over the part that was never movable while the movable part drifts.

The three layers

Interchange is usually the largest of the three and the one merchants assume is fixed. The rate for a given card and transaction type is fixed. Which rate applies is not.

Downgrades: paying a higher rate for a fixable reason

Interchange tables have qualification criteria. Miss one and the transaction falls to a more expensive category — a downgrade. The common causes are mundane and mostly in your control:

• Settling outside the qualification window, so an authorization ages into a worse rate.
• Missing Level 2 or Level 3 data on commercial cards — tax amount, customer code, line items.
• Missing or mismatched AVS data where the category requires it.
• Authorization and settlement amounts that differ beyond tolerance, common with tips and partial shipments.
• Card-not-present treatment applied to a transaction that qualified for a better category.

Scheme fees you trigger yourself

Beyond the per-transaction assessment there is a long tail of behavioural fees: cross-border and currency-conversion charges, authorization fees separate from settlement, fees for excessive retries against a declined transaction, misuse-of-authorization fees when an approval is never settled or is settled late, and integrity fees for missing data elements.

Individually small, they compound at volume, and they are the fees most directly caused by how the integration behaves rather than by what you sell. Retry logic, in particular, converts a code change into a line item that appears months later.

What routing can and cannot do

Routing moves cost where an alternative path attracts a different interchange category or avoids a cross-border assessment — most visibly by using local acquiring in the cardholder's market. It does not change the base rate for a given card.

The important caveat: the cheapest route is not the cheapest outcome if it approves less often. A route that saves eight basis points and approves two points lower is a bad trade at almost any margin. Cost and approval have to be optimised together, which means both have to be measured on the same transactions.

Getting visibility

If you are on blended pricing, none of the above is observable — that is what blended means. Interchange++ makes the three layers separable, which is a precondition for finding downgrades. Moving to it costs negotiating leverage in some relationships and is not free, but the alternative is optimising a number you cannot decompose.