Interchange Plus

There have been a few recent changes that affect the way a business can process b2b transactions that could drastically cut b2b payment processing fees. First, if your business hasn’t looked into level 3 data rates, it might be time to start.

Earlier last year, Visa introduced a program that allows Corporate Cards to qualify for Level 3 Interchange rates. Lets take a look at Visa’s Interchange rates for cards that apply:

• Commercial Level III 1.95% + $0.10
• Commercial Level II 2.05% + $0.10
• Commercial Business-to-Business 2.40% + $0.10
• Commercial Card Not Present 2.65% + $0.10

Businesses using an interchange plus program could potentially save 45 to 70 basis points by qualifying their cards for Level 3 interchange rates. Businesses processing b2b payments on a tiered structure could save even more. This could easily eliminate any non-qualified surcharges for accepting Corporate Cards as well as lower the overall processing fee.

Businesses looking to take advantage of these savings by switching to level 3 data should make sure they have the proper processing software. If your business is set up with a business-to-consumer portal for processing b2b transactions, it’ll be time to upgrade. Luckily, there are level 3 payment portals that make processing level 3 transactions easier than ever. Although level 3 data requires more information, there’s software that will walk you through it, and even alerts you if information is missing. Having the proper software will ensure that all eligible transactions will be processed as level 3.

Master Card has also introduced a new interchange plan for small businesses called the Small Business Spend Processing (SBSP). This plan is based around the annual monetary amount a business processes. Here’s how it breaks down:

• $25,000-49,999 = Business level 2
• $50,000-99,999 = Business level 3
• $100,000+ = Business level 4

Note that Business Level 2 and 3 are not the same as Data Level 2 and 3. In this plan, the interchange rate is determined based on what Business Level a business fits into. Using the MasterCard Elite Worldcard under business level 3 as an example below:

• Business level 3, World Elite Data Rate I, 2.86%
• Business level 3, World Elite Data Rate II, 2.16%
• Business level 3, World Data Elite Rate III, 1.96%

We can see that if a business is processing between $50,000-99,999 per year, the level of data that’s captured really makes a difference. If a business is processing level 1 data, switching to level 2 could cut their b2b processing fee by 70 basis points. Switching to level 3 data could cut their b2b processing fee by 90 basis points. Moreover, any business still in a tiered structure could potentially save the most. Just like the Visa example earlier, this could eliminate any non-qualified surcharges as well as lower the overall b2b processing fee.

It bears repeating, if any business looking to make the switch to accepting level 3 or even level 2 data, there needs to be proper payment technology in place. Making the transition can be easy, but it’s good to have some help. Make sure that your Merchant Service Provider gives your business the correct tools in order to process level 2 and 3 data and cut b2b processing fees.

Whether your business is brand new to processing credit cards or has been doing so for years, there’s a few tips and tricks to lowering your interchange processing fee. Before we get into these, you should first understand how interchange works so you are better prepared to negotiate with your Merchant Service Provider.

How Interchange Works

Interchange is the process in which acquirers, card issuers, and the processors manage the fees associated in processing credit and debit cards. Interchange is often referred as the ‘true cost’ of the card, or in other words what it costs the acquiring bank to process transactions. The acquiring bank then charges a fee above interchange to the issuing bank, this fee is often called a ‘discount rate’ and that rate is passed along to the merchant.

So ultimately, the merchant is paying ‘interchange plus’ which is the interchange plus the discount rate that the issuing bank charges. It’s more important to understand that the discount rate will vary depending on what card is accepted and what Merchant Service Provider you choose.

For example, the discount rate for a debit card is usually lower than it is for a corporate credit card. Likewise, one merchant service provider might charge a much higher discount rate than another. Knowing this ahead of time will give you an advantage when negotiating a better contract.

Use a Payment Consultant or Shop Around

If you are already processing credit cards your best option is to use a consulting firm that will do the work for you. Send them your last three months worth of processing statements so they can do one of two things. They can point you to the best service provider based on your situation. Don’t worry if you’re in a contract, many providers will cover the cost of your cancellation fee.

Even better they can renegotiate your fees with your current provider so that you don’t have to go through the painful process of switching vendors yet still benefit from the savings. Their fees are normally tied to your monthly savings so the more money they save you the more money they make.

If you are new to credit card processing you can still shop around and use different quotes as leverage against other vendors. While it might not be a dramatic change, you will still get a good idea of what the average discount rate is and have a better understanding of how interchange plus works.

Ask Questions

Usually, the discount rate a merchant service provider originally quotes will not be the lowest they can go. Simply ask, “can you do any better?” Smart business people won’t give you anymore than you ask for. You’ll be surprised how much a simple question might be able to save you. Most providers have a ‘target discount rate’ and a ‘rock-bottom discount rate’ that they will use in order to win your business.

If you don’t ask they will never bring it up. As mentioned earlier, the discount rate will differ from card to card so also be sure to ask which card(s) the rate applies to. If your customers typically pay you with their company or purchasing card, that enticing discount rate you were quoted will not even apply.

Make sure to ask what the total discount rate is for the cards you’ll be accepting the most, and don’t be fooled with a discount rate for a card that’s not applicable for your business. This is key to saving money when accepting B2B payments. You can even take your savings to a deeper level by learning about level 2 and level 3 data.