I bet the further your armor level is from your class level, in either direction, the slower the "materia conversion rate" becomes until it eventually stops. So for those of you saying this'll endorse people wearing armor not appropriate for their rank just so they can convert it to materia, it probably wont play into their favor both from an efficient point of view (as they wont perform well in battle) and the materia point of view.
Yeah you're right mack, great idea, i bet SE is probably smart enough to think of that themselves.