If you have been accepting payments for your business or if this is a first, to the average user, it looks simple, regardless of how the card was used…eCommerce, tapping, swiping, chip, etc., to make the purchase and collect the funds.
But behind the scenes, credit card processing is extremely complex. It involves several entities and steps to secure funds from the cardholder’s account to the merchant’s account. While the process can take only seconds, it relies on a network of financial institutions, payment processors, and card networks to ensure security and accuracy.
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Level Up for B2B Payments
Even though many of you know this, the difference between a credit card and a charge card is a credit card typically has interest rates assessed by the issuing bank that contributes to their overall profit. You’ll have a higher interchange rate with a charge card because the total amount is owed within thirty (30) days, and no interest is collected. Business Charge cards are more common in a B2B setting. The good news is these cards can be optimized to cost the supplier much less in fees.
B2B or Business-to-Business means businesses that sell goods or services to another business. Visa/ MC have issued specific cards to businesses to buy these goods/ services from their suppliers. What’s important is that these cards are processed correctly because they can cost the supplier significantly more if the correct information isn’t collected at the time of the transaction. That’s where Level 2 and Level 3 processing becomes important.
Unlike typical payments for most purchases, when it comes to B2B payments, they are more sophisticated. But that’s a good thing because it can save you money.
Level 2 and Level 3 credit card processing are specialized transaction types primarily used for business-to-business (B2B) and business-to-government (B2G) transactions. These levels of processing provide more detailed transaction information, which can result in lower processing fees for the merchant.
Level 2 Credit Card Processing:
- Level 2 processing is designed for B2B transactions and requires merchants to provide additional data beyond what’s typically required for standard credit card transactions.
- The critical piece of information is the customer’s sales tax amount. Merchants must include the exact sales tax amount for the transaction to qualify for Level 2 processing.
- By providing this extra data, the transaction qualifies for lower interchange rates, which can result in reduced processing costs for the merchant.
- Level 2 processing is typically used for corporate or purchasing cards and is especially common in industries where B2B transactions are frequent, such as wholesale and business services.
Level 3 Credit Card Processing:
- Level 3 processing is a step further than Level 2 and is primarily intended for high-value B2B and B2G transactions.
- In addition to including the sales tax amount, Level 3 processing requires merchants to provide extensive line-item details for the transaction. This includes item descriptions, quantities, unit prices, and extended amounts for each product or service sold.
- Level 3 processing offers the most detailed transaction reporting, providing the highest level of data visibility for both the merchant and the cardholder.
Like Level 2, Level 3 processing can result in lower interchange rates, significantly reducing processing fees for merchants handling large B2B or B2G transactions. - Level 3 processing is commonly used in industries like government procurement, wholesale, and other sectors where detailed transaction data is essential for tracking and reporting.
Level 2 and Level 3 credit card processing can help reduce your credit card processing costs by qualifying for lower interchange rates. If your business is a B2B company and your goods or services are sold to other businesses by invoicing, you should definitely have a conversation with one of our Payment Professionals.
Want to know more? Contact us today to set up an initial consultation and to discuss why PayNation is the right solution for your business.
Confused about what fees are charged and when?
Credit card processing fees are imposed on businesses by the various parties involved in processing a transaction. These fees are associated with using credit cards for payments and can include several components.
Here’s an explanation of the main types of credit card processing fees:
- Interchange fees are set by the card networks (e.g., Visa, Mastercard, American Express) and are paid by the merchant’s bank (acquiring bank) to the cardholder’s bank (issuing bank).
- These fees are based on various factors, including the type of card used (e.g., rewards card, corporate card) and the nature of the transaction (e.g., in-person, online, B2B).
- Interchange fees comprise a significant portion of credit card processing costs and are typically not negotiable by individual merchants.
- Assessment fees are also set by the card networks and are paid by the acquiring bank to the card network itself.
- These fees are typically a percentage of the transaction amount and are a source of revenue for the card networks.
- Like interchange fees, assessment fees are non-negotiable for merchants.
- Merchant service providers are companies that facilitate credit card processing for merchants. They charge fees for their services.
- MSP fees may include various components, such as a per-transaction fee, a monthly statement fee, and sometimes a setup fee.
- These fees vary widely among service providers.
- A merchant that primarily takes payment where the card isn’t present or operates an online store often uses a payment gateway to process card payments securely. Payment gateway providers charge fees for their services.
- Payment gateway fees may include a per-transaction fee, a monthly fee, and possibly additional charges for advanced features or customization.
- Some MSPs may impose a monthly minimum fee. If a merchant’s processing fees for a particular month do not reach this minimum amount, the merchant must still pay the difference.
- These fees can include chargeback fees (charged when a customer disputes a transaction), retrieval request fees (charged when a customer requests information about a transaction), and other miscellaneous charges.
- Merchants may be subject to additional fees when processing payments from foreign cardholders. These fees are intended to cover currency conversion and international processing costs.
As a merchant, it’s essential to carefully review your merchant agreements and pricing structures to understand the specific fees you will incur. Credit card processing fees can vary significantly depending on the type of business, transaction volume, and the merchant service provider.
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