When it comes to B2B payment processing, the interchange and processing costs you pay are determined by how your business is classified by credit card associations. Each association has its specific criteria that merchants must meet to take advantage of the lower rates made available for B2B transactions. This includes the data level you choose and what credit card association oversees your merchant account. Here’s what you should know about Level 2 and Level 3 payment processing.
First Things First, Get Your MCC
If you know you’re going to be conducting B2B transactions, you’ll need the proper Merchant Category Code for your business to be eligible for lower interchange rates. These codes are assigned by credit card associations to classify your business according to the products or services you provide. When seeking this code, you should be aware that each credit card association has its own set of MCCs and different criteria for granting discounted interchange rates. When in doubt, your merchant service provider can help you determine if you’ve been assigned the appropriate MCC.
Understanding Level 2 and Level 3
The credit card associations have designated three levels for payment data that determine whether a transaction is eligible for a discounted processing rate. All accounts will usually automatically default to a Level I, which is suited for individual transactions. Once you’ve received your proper MCC, you can choose to upgrade to a Level II or Level III.
All transactions, regardless if they are B2B require Level 1 data, which includes:
- Merchant DBA name
- Billing zip code
- Transaction amount
Level 2 requires Level 1 data and:
- Sales tax amount
- Customer code
- Merchant zip code
- Merchant tax ID#
Level 3 requires all Level 1 and 2 data, plus:
- Item SKU or ID
- Item description
- Product commodity code
- Price per unit
- Unit of measure
- Extended price
- Line discount
Are B2B Processing Rate Discounts Worth the Extra Effort?
The higher data level you go with your B2B transactions, the more data you will need to provide when you process each payment. This means you'll spend more time processing transactions and will usually need to pay a fee to be eligible for a lower interchange rate with a Level 2 or 3. Because you need to enter in more alphanumeric data with each Level 2 or Level 3 transaction, a standard counter credit card terminal is not practical for these transactions. To speed up the transaction process, you would need additional equipment and/or software.
However, if you conduct numerous B2B transactions, the discounts you receive with interchange rates can make your efforts worthwhile. For example, consider if you have a $1,000 B2B transaction. If you run it as a Level 1 transaction, you could be charged at least $25 for an interchange fee plus the charge from your processor. That same $1,000 run as a Level 3 could be almost $6 cheaper. If you process a large amount of B2B transactions, this could add up to substantial savings each month.