Visa and MasterCard offer discounted interchange costs to merchants for certain B2B transactions if the merchant includes relevant information with the transaction to qualify for the lower rates. Basically the card networks offer this discount due to the lower perceived risk associated with B2B transactions, especially when specific product and transaction details are included with the card information. Leap Payments can help you qualify for the lowest interchange rates on all of your transactions, and this guide below describes what you need to know to get the lowest possible rates.
First, your account must be setup on Interchange plus pricing, if you pay a fixed or tiered rate on your account you can never qualify for lower Level 2-3 processing rates. Then you have a couple of options:
Option 1 – Enter detailed information with every card transaction to achieve the lowest rates, the information needed is detailed below. You will receive 100% of the discounted costs if you enter all the required information with each qualified transaction. Any of the Leap Payments gateways will allow you to setup required fields so that you ensure you will never miss an important data field.
Option 2 – Allow us to setup your account with automatic Level 2-3 processing and you will qualify for these rates on all eligible transactions. You will receive 50% of the discounted rate vs. the standard rate with the automatic plan.
B2B (business to business) is a defined business strategy that makes it possible for large transaction values to be exchanged between businesses and fuel growth. B2B transactions are usually about one business buying supplies or inventory from another. Often, there are recidivism discounts, wholesale price offerings, special taxation considerations, and more. It also includes payments for services such as contracting, IT service, software as a service, and much more.
These transactions also require different technologies compared to those used in typical B2C retail sales. While the process is similar, there are a number of key distinctions between B2B and B2C payment processing, such as preferred payment methods, rates, order minimums, and much more.
To track all of this complexity, and sometimes to reduce interchange rates, we need higher levels of payment tracking and qualification. These are known as level 2 and level 3.
What is the Difference Between Level 2 and Level 3
Level 2 and 3 payment processing are nothing new, but they are something that merchants are starting to use more and more in order to speed up the payment process and to help ensure security. Of course, there is a natural question that comes to mind for anyone who is introduced to this topic for the first time. It is, “What about level 1 processing?”
The most important difference between 2 and 3 is the amount of information tracked, and types of information tracked, as well as level 2 and level 3 data requirements.
The reason we don’t talk much about level one processing is that the information shared in that level of processing is barely enough to complete any transaction. The only way to need less information than what is shared in level one would be to hand someone cash in person, like buying a hot dog on the streets of New York any time before the early 90s.
The different levels look something like this:
Level 1 Data Requirements
- Merchant Name
- Transaction Amount
This is the basic level of information exchange needed to complete a transaction via any electronic means. After all, you need to make sure the person handing you a credit card is who they say they are and that they have the amount due. With a few exceptions, that’s all you get at this level of qualification processing. The data part of the exchange is just a minimum amount of identifying data and marking for legal and tax purposes.
Level 2 Data Requirements
- Merchant Name
- Transaction Amount
- Tax Amount
- Customer Code (16 Character)
- Merchant Postal Code
- Tax Identification
- Merchant Minority Code
- Merchant State Code
Right off the bat, we are getting a lot more personal with the level 2 processing stage. For a start, the amount to be taxed is included. For most businesses, this is a necessity if you don’t want to be audited. It is also a metric that can be aggregated, making automated reporting possible. The customer code is there for the merchant, the credit card processing service provider, and the IRS to potentially track the buying habits of the B2B customer.
Here is where it starts to get interesting. The merchant identity code is assigned by credit card processors to ease the process of establishing fees, assessing risk, and establishing buying and selling patterns of the companies they serve. The next, and final part of the second stage, is the merchant state code. This is similar to the merchant minority code, but it tracks information regarding the individual merchant as a category of a merchant working in the state where the transaction takes place, or in the state where the home office of the merchant exists.
As you can see, there is a heck of a lot of information exchanged in level 2 processing. At this point, you might be wondering, how much more information could they possibly want? As always, the answer to this question is quite a bit.
Level 3 Data Requirements
As you might expect, level 3 processing is very in-depth. It represents the upper limit when it comes to tracking and storing data about a transaction. It includes and collects all the data categories listed in both levels 1 and 2, and it adds the following;
- Item Product Code: This is the numeric code used to represent the product as part of an inventory.
- Item Description: A simple description of the product itself
- Item Quantity: The number of items sold
- Item Unit of Measure: A measure of weight or proportion
- Item Extended Amount: This is a legal term indicating the price per unit
- Item Net / Gross Indicator: This is the total expressed in either the full total exchanged or the amount received after the exchange takes place.
- Item Tax Amount: This indicates the total taxation on the sale.
- Item Tax Rate: This indicates the formula used to determine how much tax is added to the price.
- Item Tax Identifier: This is a tag marking the item according to any specific tax regulations applied to the product much in the same way that cigarette purchases come with a vice tax.
- Item Discount Indicator: This indicates any tax discounts for the item.
- Ship from Postal Code: This is the address from which the item is shipped out for delivery.
- Freight Amount: This is the cost of shipping.
- Duty Amount: This is taxation for items shipped to or from other countries.
- Destination Postal Code: The destination postal code is usually the 5-digit postal code for a geographical area.
- Destination Country Code: Like a zip code for a country, this is a numerical representation of international destinations.
- Alternate Tax Amount: This is a tax rate determined after checking a number of variables. The system assigns a tax rate/area according to preestablished rules
The item extended amount more or less only means the price of the item/s sold. If you think this is redundant, since the price has already been established in a number of ways, you are right. But each of these information categories is processed in different ways and shared with different parties both inside and outside of your credit card processor and the government. Therefore, some redundancy is necessary.
The item Net / Gross Indicator is a measure of how much is exchanged and how much is actually received. This is useful in cases where the act of packaging or transporting a good or product causes some loss of material as a matter of course. An example might be a quantity of sand, some of which might fall through the conveyor and out of the packaging before it is delivered to the customer. Quantities of compressed air or helium might also be tracked in this way.
Choose Leap Payments for Level 2 & 3 B2B Payment Processing
Here at Leap Payments, we respect the privacy of every company we serve. These additional qualifying metrics help protect your business by tracking loads of information necessary in reporting for regulatory reasons as well as tax reasons.
Our goal is to make these processes easy for you to understand, use, and benefit from. Get in touch today to learn more and set up your merchant account. We are the most merchant-friendly payment processor in the business. Give Leap Payments a call today.