First it important to understand the different levels of credit card payment processing. There are three levels, Level I, II, and III, which correlate to the different amount of data that is collected and therefore impacts the amount of fraudulent risk.
Level I payment processing requirements consist of: credit card number, expiration date, billing address, and zip code. Level I is typically used for basic transactions when the card owner is physically providing the card at the location of the transaction, such as at a retail store or restaurant. While the amount of risk is lower, simply because the card owner must have the card present and oftentimes needs to enter the pin, the amount of information collected in relation to the payment processing is low, as compared to Level II and III.
Level II payment processing requirements consist of: Level I information plus invoice number/P.O. Code and sales tax amount. For example, Level II is typically used for phone orders when the caller must provide the credit card information to the business in order to complete the transaction.
Level III payment processing requirements consist of: Level I and Level II information plus approximately 26 additional data fields (freight amount, duty amount, product/service ID, product/service description, quantity, item amount, unit of measure, etc.). Level III collects the most information during payment processing, therefore, counteracting the risk associated with processing payment completely online. Online transactions, which most B2B businesses rely on, are inherently at more risk for fraudulent activity because it does not require the physical presence of either the card or cardholder.
Therefore in regards to the B2B companies, if the business is processing payments at Level I or Level II, they are putting themselves at risk since they are not collecting the sufficient amount of information necessary to negate that risk, and are often experiencing much higher rates because of it.
In terms of M&A and VC firms looking for the best way to improve their investments, one of the most simple and straightforward methods is to review and analyze the business’ merchant processing.
Click here to learn more about why using the correct payment processing is important for B2B companies.