Interchange Management and Level 3 Processing Explained

Merchant Processing is an accounting necessity business owners need to offer their clients as a method for collecting payments. For years, merchant accounts have been seen as the card holder’s way to earn points, manage cash flow, make payments on time, and reduce admin costs for issuing checks to vendors.

The Two Main Types of Business Transactions

Retail Transactions

Retail Transactions happen when the customer is physically present and has the card in hand to either “swipe” or “dip” the credit card holder’s information in order to receive authorization for the payment being made. The type of credit card used for this transaction is issued to the cardholder based off the individual’s personal credit history and credit score. This scenario is considered less risky of a transaction to process because the business owner is able to verify a picture ID with the address and signature on the card. The processing company offers a lower transaction rate to the business owner for assisting in security compliance, which reduces the level of credit card fraud.

Business-to-Business (B2B) and Card-Not-Present (CNP)

Business to Business (B2B) or Card Not Present (CNP) transactions typically happen when the client is calling into a company with their credit card number to make their payment or when a client is making their payments online either through a payment portal or an ecommerce website. These credit cards are primarily issued to the business based off the business’ credit, not an individual’s credit. Because of the risk associated with receiving this kind of a payment, the processing rates are much higher. Without having the opportunity to verify the card holder is indeed legitimate, it is much easier for fraudulent transactions to happen.

Why does the type of business transaction matter?

How a business owner receives their payments makes a tremendous difference on the processing rates they receive. Visa and MasterCard sell their rates for the same amount to all the processors. This process is called “interchange management” and starts with how each account is written. Banks typically establish merchant accounts with retail pricing for their clients regardless of if they are in a true retail environment or processing in a B2B environment. Banks simply do not have access to a true Interchange Management pricing program to offer their merchants a competitive solution that is driven by technology to ensure the accounts are managed correctly and they are getting the best pricing for the transactions. To qualify for the best pricing, there are approximately 26 additional data fields necessary to add to each transaction. Our interchange management programs make this process much easier to process the transaction.

What are the differences between Level 1, Level 2, and Level 3 credit card payment processing?

Level 1 payment processing requirements consist of: credit card number, expiration date, billing address, and zip code. These basic transactions are common for retail transactions.

Level 2 payment processing requirements consist of: Level 1 information plus invoice number / P.O. Code and sales tax amount.

Level 3 payment processing requirements consist of: Level 1 and Level 2 information plus approximately 26 additional data fields (freight amount, duty amount, product/service ID, product/service description, quantity, item amount, unit of measure, etc.).

Who should be aware of Interchange Management Solutions?

Business owners, CFO’s, and Controllers should all be aware of true interchange management solutions. If their merchant accounts are still set up with retail pricing, then they could be paying more than 30-40% (sometimes more) higher rates than their competitors who are taking advantage of interchange management solutions. This savings directly affects their bottom line and in the end affects the entire company’s profitability.

What business owners, CFOs, and Controllers agree on is that accepting credit card payments as a payment method is a necessary expense to help manage cash flow and payments from their customers. The interchange details are messy and extremely difficult to understand and manage. Our “interchange management” process is streamlined. Evolve Payment’s team of consultants focuses attention on the ever-changing market to provide the best advice for business owners. In addition to finding savings opportunities, we learn about processing efficiencies, improvement processes, and then follow up with our 30-day, 60-day, and 90-day review process to ensure we are proving the savings as well as providing outrageous customer service.

Most organizational leaders rely on their bankers and CPAs for financial advice, and often, this confusing industry is ignored because their process is either working, for security reasons can’t be changed, or they use a technology that requires a specific vendor.

Additionally, years ago, the Government started implementing the use of P-cards (purchasing cards) to reduce spending. These P-cards required additional data to be collected and ran with each transaction. By collecting additional data, this not only reduced the spending, but it also enabled higher security with the cards by processing the cards to departments to track expenses and match purchases to budgets. This type of transaction typically requires a high rate to process, and, until now, sellers have lacked assistance for managing this type of transaction. Our team is here to help with this type of card processing and to reduce the expense of the charges.