What is the interchange?
The interchange represents the fees paid to or collected from the card-issuing banks that provide Visa, MasterCard and Discover cards for merchants.
Visa, MasterCard and Discover each have their own interchange programs.
Combined, there are over 300 levels of interchange (fees).
Read also: What is the Interchange?
Do merchants can avoid paying for interchange fee?
Unfortunately, merchants can’t avoid paying for Interchange fees, but in some cases, they can reduce them by qualifying for the lowest rate possible.
Certain transactions can fall into 5 different categories, with 5 different fees.
The final rate applied will depend on the information sent to the Cards Processing Networks: If data is missing, the rate will be higher.
The Level 2 method applies to Business to Business transactions ONLY: merchants accepting cards from other businesses – commonly called commercial cards, whether frequently or from time to time.
What are the different types of commercial cards?
There are 3 types of commercial cards:
- Business card: A card issued to employees at a small business. Cardholder is usually liable for purchases.
- Corporate card: A card issued to employees at a large company for business-related purchases. Company is usually liable for purchases.
- Purchasing card: Also known as a P-card, this type of card takes the place of a purchase order, which streamlines the process for authorized employees to purchase approved goods for the company. The company is liable and can cap spending and restrict purchases.
What information is collected?
Visa and Mastercard each maintain its own standards for the additional field information that is accepted:
Potential fields include:
- Purchase Order number
- Destination Zip
- Tax Indicator
- Tax Amount
- Requestor Name
- Destination Address
- Destination City
- Destination State
In many cases, merchants probably already collect this information. Including it when processing the transaction can save a considerable amount on processing fees.
In addition to only being used for certain purchases with certain card types, Level 2 data is most often used for card-not-present purchases.
Card present purchases will still benefit from slightly lower interchange fees, but they aren’t as noticeable as card-not-present transactions.
What are the equipment that supports Level 2 transactions?
To process a Level 2 transaction, a business must have a stand-alone credit card terminal or a gateway that is equipped to handle Level 2 transactions.
Some Payment Providers help merchants automatically comply with Level 2 required data, thus reducing bottom line costs.
What are the benefits of Level 2 Processing?
In summary, the benefits of Level 2 processing are:
- Lower processing rates
- Reduces potential fraud and chargebacks
- Makes accounting processes easier to automate