In the world of B2B transactions, where margins are tight and competition is fierce, every penny counts. For businesses that rely heavily on credit card payments, the interchange rates—the fees charged by card networks—can quickly add up. Fortunately, there’s a way to significantly lower these costs: level 2 and level 3 credit card processing.
What Are Level 2 and Level 3 Credit Card Processing?
Credit card transactions are categorized into different levels—level 1, level 2, and level 3—based on the amount and type of data provided during the transaction. Most consumer transactions fall under level 1, where minimal information is collected. Level 2 and level 3 transactions, however, are designed for B2B and B2G (business-to-government) payments and require more detailed data. Here’s what distinguishes them:
- Level 2 Transactions: These require additional details like the customer code, sales tax amount, and purchase order number. This extra data demonstrates a higher level of transaction transparency and reduces risk, leading to lower interchange rates.
- Level 3 Transactions: These go even further, requiring line-item details such as product descriptions, quantities, and unit costs. The granularity of this information makes level 3 transactions the most secure and lowest-risk, resulting in the best interchange rates.
How Much Can You Save?
By moving from level 1 to level 2 or 3 processing, B2B businesses can unlock significant savings. Here’s a breakdown of potential savings:
- Standard Interchange Rates (Level 1): Typically range from 2.5% to 3.5% of the transaction amount for commercial cards.
- Level 2 Rates: By providing extra data, businesses can reduce these fees by 0.5% to 1%, with rates often falling between 2% and 2.5%.
- Level 3 Rates: With detailed line-item data, interchange rates can drop by an additional 0.75% to 1.5%, resulting in effective rates as low as 1.5% to 2%.
For example, if your business processes $100,000 monthly in B2B credit card transactions, moving from level 1 to level 3 could save you up to $2,000 per month—that’s $24,000 annually!
Why Do Level 2 and 3 Processing Lower Rates?
Card networks and issuing banks offer reduced rates for level 2 and 3 transactions because these payments are:
- Lower Risk: The detailed data reduces fraud risk and disputes.
- Easier to Track: Detailed reporting aligns with compliance and auditing requirements.
- Business-Focused: B2B and B2G payments typically involve larger amounts, incentivizing card networks to offer competitive rates for this market segment.
How to Implement Level 2 and 3 Processing
Transitioning to level 2 or 3 processing isn’t automatic. Here’s how to get started:
- Work with a Compatible Processor: Not all payment processors support level 2 and 3 transactions. Ensure your provider can collect and transmit the required data.
- Integrate Compatible Software: Your point-of-sale or ERP system should be capable of capturing the additional data fields required for level 2 and 3 compliance.
- Train Your Team: Ensure employees responsible for handling payments understand how to input the necessary data to qualify for lower rates.
- Consult an Expert: Many B2B payment consultants and providers specialize in optimizing interchange costs. Partnering with one can help you maximize your savings.
The Bottom Line
For B2B businesses, adopting level 2 and level 3 credit card processing isn’t just a nice-to-have—it’s a strategic advantage. By lowering interchange rates, you can improve cash flow, reduce operating expenses, and stay competitive in your industry. If you’re still processing at level 1, it’s time to unlock the savings that come with greater transaction transparency. Your bottom line will thank you.
