B2B Payment Processing 101

Business to business transactions are nothing new, but the rise of credit card use by businesses has made these transactions increasingly more complicated. If you’re considering how your business can lower its credit card processing costs, but are getting caught up in complicated terminology, we’re here to help. Read on to get our 101 on all things B2B processing.

What is interchange?

Interchange is a fee charged by card issuers that goes towards operating and maintaining the card network, providing the funding for rewards and rebates, and operating margin for the banks. Interchange is the largest component of merchant fees and ranges from about 1.55 percent to over 3 percent depending on the card type. All merchants pay interchange as well as other fees, like assessments, which are fees levied by the associations. Also included in merchant fees is the markup charge by their acquirer to provide and maintain their merchant account.

How are interchange rates determined?

All card brands set fees for their products. MasterCard and Visa interchange is set by the issuers and then published by the brands. There are categories for card type including regular consumer, consumer rewards, business, corporate purchase, etc. The type and size of merchant affects interchange. For example, there are special rates for large grocers and utilities.

Can Sellers lower their interchange rates?

Merchants can’t lower interchange rates, but they can take advantage of incentive rates that lower their effective rate. For example, Address Verification, an anti-fraud measure, provides a discount for both MasterCard and Visa. It also allows merchants to access further discounts like Level-2 and Level-3 incentive rates on business and purchasing cards.

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What is Level-2 payment processing?

There are three data levels associated with credit card processing. Level-1, or consumer level data, is common to all cards and includes PCI sensitive information, such as PAN and CVV, as well as name on card, billing address, billing zip, and expiration date.

Level-2 data is transaction level data, including customer reference number, invoice number, order number, sales tax, freight, and duty. There is an incentive (discounted) rate for Level-2 data which requires sending sales tax and customer reference value. Level-2 data can be sent by standard POS terminals and is shown on cardholders regular mailed statements.

What is Level-3 processing?

Level-3 data allows for line item detail similar to that shown on a standard invoice, and includes quantity, part number, description, unit and extended price, unit of measure, commodity code, and a Visa required date element that indicates the industrial classification of the item. Including Level-3 data on a purchase or corporate card transaction allows for larger incentive rates (discounts) amounting to $10.50 per thousand processed. Due to the amount of data involved, Level-3 processing requires an application—typically hosted as a gateway service for PCI compliance reasons. The invoice data is shown only on issuer based electronic statement systems used by corporate and institutional purchasers. There are also large ticket rates—that kick in as transactions increase in size—that require including both Level-2 and Level-3 data.

What is special about a Purchase Card?

Purchase cards, or procurement cards, are special types of credit cards used by corporate and government buyers. The issuers of these cards are typically larger banks and provide card management systems, so the program manager at the buying organization can order plastic cards for employees, set spend limits, control the merchant classification for each card, and in some cases, have virtual cards issued for specific invoice payments. These card management tools display the Level-2 and Level-3 data sent into the processing network by the merchant.

How can you improve your interchange management?

Interchange management is a technique merchants can use to control costs by following the best practice of including the appropriate data on the transaction. Beyond can help by providing a variety of tools to help manage interchange. The appropriate tool is recommended after an analysis of current card processing statements to determine which types of cards are being accepted. If you’re accepting cards from a government purchaser or a large corporate purchaser, it’s a good bet that you can qualify transactions for the Level-3 rates, saving you $10.50 per thousand processed. To learn more about how your business can save money and stay compliant, talk to a B2B expert today.

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