All forms of payment carry acceptance costs, whether you are securing cash, handling paper checks, obtaining an authorization for a bank draft, extending trade credit or taking a card payment. Setting payment acceptance policies, steering payment choice and managing processing costs are all important considerations.
Industry studies continue to show that B2B purchasing is continuing to move online. The growth of B2B e-commerce has in turn led to a greater use of business, corporate, purchasing and GSA purchasing cards as the preferred payment method when completing online sales.
With merchants in the B2B sector increasingly seeing value investing in an e-commerce strategy, they are also discovering the need to better manage the fees associated with accepting commercial card payments online.
What to know about card Interchange
Interchange rates and fees are the largest component of the cost to process card payments. These fees are paid by merchant-acquiring banks to cardholder-issuing banks to convert a card charge to a cash deposit in a merchant’s business checking account.
Interchange rates vary depending on a number of factors, from the method by which the card is accepted to the type of card being presented. When it comes to commercial cards, Interchange rate qualification incorporates the data submitted with the transaction at settlement. Different levels of Interchange exist, with different data requirements.
Level 1 card data is the basic information needed to complete the transaction, such as the card number, the expiration date and the transaction amount. Level 2 card data includes this base Level 1 transaction data, in addition to information such as an invoice number, billing zip and sales tax amount. Level 3 card data adds to the Level 1 and Level 2 data elements both enhanced and line item invoice level data, providing extensive detail about each purchased item.
Failing to qualify card payments becoming costlier for B2B merchants
Merchants who follow best practices and submit the required information can qualify for the lowest Interchange rates. Today, it’s becoming increasingly important to do so. The gap between qualifying for the lowest possible Level 3 Interchange rate and the next best rates are widening.
This month, Visa will implement Interchange rate changes in the United States that will impact credit card purchase transactions for Visa Corporate and Visa Purchasing commercial card products. Ultimately, this will make Level 3 processing even more valuable.
The difference between Visa’s Level 3 and B2B Interchange categories will balloon to 0.70 percent, meaning merchants who process $1,000 in sales with Level 3 data will save $7.00 compared to B2B rates.
This isn’t happening in a vacuum. This past April, MasterCard made similar changes to its Data Rate 3 Interchange category (its name for Level 3) for its commercial card products. The difference between accepting MasterCard at Data Rate 2 instead of the better Data Rate 3 Interchange is also 0.70 percent. For every million in Visa and MasterCard commercial card transactions your company accepts, moving to Level 3 could produce a savings of $7,000 a year.
We fully expect these trends to continue as both MasterCard and Visa strive to grow acceptance in the emerging B2B market. The increasing gaps between the best and next best Interchange rates is intended to incentivize adhering the data qualification standards as well as to encourage card acceptance through lower available interchange fees.
With annual purchase card spending projected to increase to $290 billion within the next two years, failing to qualify card payments at the best available Interchange rates will certainly cut into an organizations profits.
Managing Interchange starts with obtaining the right B2B payment solutions. While your B2B e-commerce site might function like its B2C precursor, your payment solution should not. Implementing technology and setting payment policies to achieve Level 3 Interchange compliance and keeping sensitive data from compromise will deliver a strong return on investment.