B2B Merchants: Lower Interchange Rates with Level 2 & 3 Processing

B2B merchants know the frustration that comes with costs of card acceptance. Accepting payments in a timely and efficient manner is crucial to the success of any business, yet organizations often struggle to define solutions to improve existing procedures that are cost-effective.

According to a recent survey, nearly three-quarters of finance professionals polled said that keeping payment acceptance costs low is highly important to them. Executives surveyed said that interchange rates and fees are the most challenging issues in accepting B2B commercial card payments, followed by the overhead required to manage, collect, and transmit the additional commercial card transaction data.

To realize Level 2 & Level 3 acceptance rate programs established by Visa and Mastercard, businesses must accept either purchasing cards, corporate cards, business cards or government spending accounts (GSA) issued by Visa or Mastercard.

Fortunately for B2B merchants, there are ways to reduce the cost of processing payments by optimizing the benefits of these types of commercial cards.

What is Level 2 & 3 Processing?

Every time a merchant processes a credit card payment, the business is charged an interchange fee. The interchange fee is what card issuers (like Visa and Mastercard) charge for processing credit cards, and the fee varies depending on the card type. Interchange fees make up between 70% and 90% of the total fees paid by merchants to process credit card transactions.

When a credit card is processed, it is placed into one of three processing categories: Level 1, Level 2, or Level 3. Level 1 has the highest rates and Level 3 has the lowest. With every level, there are more line-item details that must be sent with each transaction.

Here’s how the various levels are defined:

• Level 1 processing requires standard transaction details such as payment amount and date of the payment.
• Level 2 processing adds applicable sales tax and a customer identifier to the transaction.
• Level 3 – To qualify a commercial card payment for Level 3 interchange treatment, more than 20 fields of line-item detail required by the involved card brands, must be captured and sent with every commercial card transaction authorization, including information such as tax ID, shipping ZIP, freight amount, item description, quantity and product code.

How Does Leveling Up Reduce Processing Costs? 

When merchants offer comprehensive levels of transaction detail required by Visa and Mastercard, they are able to benefit from lower rates of interchange. Collecting additional transaction details at the time of payment authorization can help better authenticate the commercial card transaction and provide useful information for the commercial card issuer and the card holder. That means the transaction carries less risk of dispute, which may qualify the eligible commercial card payment for lower acceptance rates established by each card brand and reduce interchange rates by as much as 125 basis points.

How Much Can Merchants Save? 

Under the Visa and Mastercard Level 2 and Level 3 acceptance programs, businesses can achieve significant interchange savings by gathering and passing on Level 2 and 3 data with their commercial card payment acceptance. Typical card-not-present (CNP) interchange rates from Visa for corporate cards range from 2.7% for Level 1 data, 2.5% for corporate card payments including Level 2 data and 1.9% for corporate card payments including Level 3 data. In the case of higher-value transactions above specific thresholds established by the card brands  – considered ‘Level 3 large ticket’ – published commercial card interchange rates drop to 1.45%.

How Do Merchants Get Level 3 Processing? 

Level 3 cannot be achieved by using a physical terminal. To qualify for Level 3 processing rates, all line-item details must be securely passed through a PCI-compliant payment gateway that allows a merchant to send line-item details for each transaction. If the data gets passed correctly and it’s the right type of credit card, then the bank will approve a Level 3 transaction. If a merchant misses just one of these details, they will not qualify for Level 3 processing.

Most accounting systems require businesses to enter line-item details manually, which makes gathering and applying this data a challenging and time-consuming process. But a PCI-compliant payment gateway can make all the difference.

A PCI-compliant payment gateway takes invoice information and line-item details already stored in the system and automatically passes them to the point-of-sale. The gateway then uses these details to qualify cards at reduced interchange rates to achieve the lowest payment processing fees for your business. This takes the burden of additional work off the merchant to qualify for Level 3 rates.

Learn More About Level 3 Processing:

Contact us online or call 1-800-621-8931.

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