Payment Processing

How Level 2 & 3 Processing Can Lower Interchange Rates for B2B Merchants

Gigi Beyene
SVP, US Partners

Businesses are charged variable fees for credit and debit card payments. These costs can be lowered by enabling level 2 and level 3 payment processing, if your customers include government entities and businesses. This protects you and your customers and improves your bottom line.

If you do any business that requires revenue, you have to take credit and debit card payments. The fees you pay on each payment vary, so this can create a cost line that only becomes clear after the fact. Still, if your customers include government entities and businesses, you can lower those costs by enabling level 2 and level 3 payment processing. This protects you and your customers and improves your bottom line.

What Is the Interchange Rate?

Every credit card charges you as the merchant for transactions you complete. This is called an interchange rate. While most merchants try to build that cost into the prices they charge, the rate varies by card brand and card type. That makes it hard for you to track or control this as you go. A flurry of customers using a more expensive brand of card in a given month can throw off your profit margins before you have an opportunity to recognize it and adjust.

Some businesses control this by restricting the payment cards they accept. This does reduce the variation in fees you may be charged, but it also reduces the number of customers with whom you can do business. Unless your company can afford to refuse customers, this becomes a self-defeating solution to the problem.

Level 2 and Level 3 Processing

Even if you can't fully control card processing fees, you can reduce them by planning for your business and government customers. Card processing defaults to level 1, which collects only the card number and expiration date, the zip code, and the billing address. This is all individual customers' cards provide and will be processed with higher interchange rates.

Level 2 and level 3 processing collects more data from every card transaction. You have to work with your processor to enable these levels of data collection, but the rewards for your business are significant. The more information you collect in a card transaction, the more easily you can track deliveries and avoid fraud. Interchange rates, because they are largely a function of the risk assessment the banks run, decrease as a result.

Building Your Profit Margins

This cost reduction can add up quickly. Business and government purchases, on average, constitute larger transactions for your company. This means that when you reduce the interchange rates on those purchases, the difference can lift your entire bottom line. You can afford to set lower prices and compete more effectively, and still build in a better profit margin for every purchase.

If you work with business and government customers, opting for level 2 and level 3 processing is almost a no-brainer. Contact your processing provider to build those capabilities in and enhance your profitability.

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Gigi Beyene
SVP, US Partners
With Nuvei since 2007, as an expert in strategic channel development and partnership management, Gigi’s collaborative techniques and leadership have helped ISOs both launch and grow successful merchant portfolios.

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