Level 2 vs. Level 3 Payment Processing: How Should Your Business Handle B2B Credit Card Transactions?
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Are you a B2B merchant who wants to save money on processing fees? If so, it’s essential to understand the interchange rate and how it affects your bottom line. One way to reduce these fees is by upgrading your transactions to level 2 or 3 processing. In this blog, we’ll explain the differences between level 2 and level 3 processing and the benefits they offer. We’ll also discuss how these levels of processing can save your business money, give you more control over your transactions, and even benefit your customers. So, let’s dive in and learn more about level 2 and level 3 processing.
Understanding the Interchange Rate
Before we look at the differences between level 2 and level 3 credit card processing, it’s important to outline a key component at the core of B2B payment processing: the interchange rate. The interchange rate is a fee that major card networks (such as Visa or Mastercard) collect from every card transaction and pay to the card-issuing bank. Interchange fees vary greatly based on several factors, including the amount of information passed along with every transaction. The more data and line items you send with each transaction, the more the card networks reward you with a lower tier of fees. This is because the interchange rate is directly tied to security – more verifiable information results in a lower chance of that payment being fraudulent.
Because interchange fees are attached to every credit card transaction, they’re a significant cost for merchants. So significant, in fact, that 75% or more of your processing fees could be interchange fees. It’s crucial that you review your payment ecosystem and rate structure to ensure you’re not overpaying for each transaction with level 1 rates – upgrading your transactions to level 2 or level 3 could save your business 1%-2% annually (we’re talking about your entire bottom line, not just savings related to your merchant account).
What Is Level 2 Payment Processing?
Level 2 processing refers to transactions that include a small amount of additional information beyond what is included in a standard Level 1 transaction. This additional information can include the tax amount, a unique identifier for the transaction, and the shipping address. Level 2 processing is commonly used by businesses that sell taxable goods and services, such as retail stores, gas stations, and online merchants.
What Is Level 3 Payment Processing?
Level 3 processing, on the other hand, is designed for card not present and large commercial transactions and includes a much more extensive amount of information. This information can include the line item details for the transaction, such as item descriptions, quantities, and unit prices. Level 3 processing is typically used by businesses with a high volume of commercial transactions, such as large corporations, wholesalers, and government entities.
One of the main benefits of using Level 2 and Level 3 processing is that it can result in lower transaction fees. This is because the additional information in these transactions makes it easier for the card issuer to approve the transaction, reducing the risk of fraud or chargebacks. Additionally, this increased level of detail can make it easier for businesses to reconcile their transactions and track their sales.
More Control Over Your B2B Transactions
Another benefit of Level 2 and Level 3 processing is that it gives businesses more control over their transactions. Depending on the virtual terminal, it can include the ability to set up custom pricing rules, such as different pricing for different types of customers, and the ability to automate the reconciliation process. This can help businesses save time and money, as well as improve their overall efficiency.
Passes Perks to Your Customers
Level 2 and Level 3 processing is also beneficial for your customers. For example, Level 2 processing can help ensure that the correct tax amount is calculated and added to the transaction, which can prevent overpaying or underpaying taxes. Additionally, Level 3 processing can provide your customers with more detailed receipts, making tracking their purchases and reconciling their statements easier. Passing this information onto your customers will take minimal effort (since the data is already being collected), and will go a long way toward building trust and improving client relationships.
At a Glance: Level 1, Level 2, & Level 3 Processing Levels
Level 1 Processing:
The most basic level of payment processing used for B2C transactions and personal credit cards.
Merchants don’t need to provide any additional information to qualify forLevel 1 processing because the card is present at the transaction.
Data required with each transaction: merchant name, transaction amount, transaction date, and basic cardholder information.
Results in the highest interchange rates among all tiers.
Level 2 Processing:
Designed for B2B and government transactions with more line items of data being passed with each payment.
Level 2 processing requires more effort from the merchant to collect and submit the additional data.
Data required with each transaction: every Level 1 processing line item, plus tax amount, customer code, and invoice number, among others.
Results in lower rates than Level 1, but higher rates than Level 3.
Level 3 Processing:
The most advanced level of payment processing that’s designed for large, high-volume B2B and government transactions.
Level 3 processing takes the most effort from the merchant and often requires specialized software and hardware.
Data required with each transaction: every Level 1 and Level 2 line item, plus detailed product information, freight amount, commodity codes, and more.
Results in the lowest interchange rates available – substantially can be lower than Level 1 rates.
Save Money on B2B Interchange Fees With Level 3 Processing
Elevating your transactions to pass additional data is a pain-free process with the right merchant partner by your side. Evolve Payment has helped our B2B merchants achieve Level 2 and 3 rates across many locations and verticals. If you’re currently processing your B2B transactions at Level 1 rates, you could be throwing away thousands of dollars annually, depending on your processing volume. Learn more about our process and get started in ten minutes or less by visiting our Level 2/Level 3 Processing page and completing the form there. Talking with our experts and receiving your implementation roadmap is a great way to fast-track your transition to Level 3 processing, and it won’t cost you a cent.