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Unlocking Savings with Level 3 Processing: Your Path to Lower Interchange Rates
With our state of the art seamless transition process, rest assured no downtime, no learning curve or need to learn new software. Just pure savings!
Level 3 Processing: The Key to Efficiency and Cost Savings
In the dynamic world of payment processing, Level 3 Processing has emerged as a powerful tool designed to tackle excess spending while delivering tangible benefits to businesses and merchants. Visa and MasterCard, two industry giants, crafted unique interchange rates that support purchase card programs by reducing merchant transaction costs (Interchange). However, these benefits are contingent upon transmitting Level-3 line item detail information within the card payment file.
Demystifying Level 3 Processing
Level 3 processing is a specialized solution for Business-to-Business (B2B) and Business-to-Government (B2G) transactions. It mandates the capture of specific line item data, offering a holistic view of the transaction’s “what,” “how,” “who,” and “when.” This data is seamlessly integrated with the fundamental payment information and electronically transmitted to the card issuer.
Line item detail is integral, encompassing more than 11 data fields. These fields include product descriptions, quantities, purchase order numbers (PO#), unit-of-measure, and, when applicable, sales tax information.
Unlocking the Lowest Interchange Rates
Visa and MasterCard rely on “interchange rates” to determine the fees associated with accepting specific types of cards. Remarkably, these interchange fees make up a substantial portion of credit card processing fees, ranging from 75% to 90%, and this is where the significance of Level 3 processing becomes apparent, especially for those engaged in commercial transactions.
For B2B and B2G purchases, interchange rates are usually classified into three categories: Level 1, Level 2, and Level 3. Level 1 bears the highest rates, whereas Level 3 offers the lowest rates. The tier into which a transaction falls depends on the provision of Level 3 detail. Failing to provide this information results in the transaction clearing at a less favorable interchange rate (Level 1), leading to variances of 80 basis points to 1.5%.
It is important to note that all of this occurs before a processor adds its fees. Thanks to these special interchange rates, reclassifying your transactions to Level 3 interchange has the potential to increase your bottom line by a significant 1% to 1.5%.
Eligible Cards for Level 3 Processing
Purchase cards, corporate cards, government spending accounts, GSA SmartPay cards, fleet cards, and MasterCard business cards are eligible for Level 3 processing.
Capturing Level 3 Details
For a transaction to qualify for Level 3 interchange rates, businesses must use advanced technology platforms capable of capturing the detailed line items referred to as Level 3 processing data by Visa and MasterCard. Traditional credit card terminals are inadequate for this purpose, lacking the necessary capabilities to accommodate the additional detail required for these favorable rates.
Regrettably, many businesses still rely on outdated equipment and outdated practices when dealing with commercial credit cards. It is a stark reality that at least three out of every five companies are not equipped to process Level 3-line item detail correctly. This oversight leads to the payment of unnecessary high interchange processing fees.
Challenges to Receiving Level 3 Interchange Rates
Sending Level 3 line item details is only the first step. Receiving Level 3 interchange rates involves your processor setting you up with cost-plus pricing and adding the necessary 11+ additional line item fields. Moreover, both Visa and MasterCard have specific rules governing how a card transaction is processed. Violating these rules not only disqualifies the transaction from Level 3 interchange rates but can cause it to downgrade to standard rates, incurring an additional cost of 65 basis points.
The two most common pitfalls to avoid are preauthorizing and settling a transaction above the original authorization, failing to settle a transaction within 48 hours, and omitting the zip code field.
Conclusion
Visa and MasterCard apply higher interchange rates for transactions lacking Level 3 payment details. By embracing Level 3 processing, businesses can substantially reduce the interchange costs associated with accepting B2B and B2G credit card transactions, potentially saving as much as 1% to 1.5%. This invaluable tool not only combats excess government spending but also fosters fiscal prudence and profit optimization in the world of payment processing.
Even though it might seem like a very complicated process, rest assured that we have helped countless companies before taking advantage of Level 3 processing seamlessly, with zero downtime. Inquire today and unlock your revenue.