Comparison of B2B Transactions: Level 2 vs Level 3 Credit Card Processing

Get Recommendations for the Best Merchant Account

    Small business owners have to make many crucial decisions that impact the success of their business. This covers areas such as choosing an efficient payment solution or minimizing fees for a credit card transaction. Due to the increasingly digital nature of today's payment systems, we can expect to see more changes up ahead.

    According to Juniper Research, business-to-business (B2B) card usage is expected to grow at a rate of over 90% in the next few years, exceeding $1.6 trillion by 2022. Also, B2B virtual cards will comprise close to 80% of virtual card transactions, based on a value which will double in the coming five years.

    Given the importance of virtual and credit card transactions for B2B merchants, it has become all the more necessary to find the best deals, processors, and the like to ensure that you get what you are due and continue to run your operations smoothly.


    How Credit Card Processing Works

    Every time a payment is made, cardholders or customers present their card or card details to a merchant. These days, this is done any number of ways, from using a credit card terminal or a point of sale system in a physical store to a payment gateway on a business website, among others.

    Merchants will then request for authorization from their payment processors, who will pass on the transaction to the card association or issuing bank. This latter body approves or declines the transaction, sending back this information in reverse until it reaches the merchant once again.

    Why Interchange Matters

    Merchants who make many B2B transactions know that one of the most frustrating aspects of processing is the cost of interchange fees. Interchange rates are the additional costs merchants have to pay card-issuing banks for transactions with these cards.

    When a customer uses credit or debit cards to make transactions, the merchant will be charged an interchange rate by the bank. These processing fees are said to cover everything from handling fees to managing risks that may come with approving a transaction. Fees are typically higher for credit cards.

    Credit card companies set these interchange rates and although they vary per company, they may also differ according to the type and nature of the transaction. Credit card companies revise these rates semiannually or annually depending on the issuer.

    It may be important to note that different kinds of cards may have different fees, even if they are from the same company. Rates may also differ depending on the manner a transaction is made, whether by swiping a card or typing in your card information.

    The Difference Between Card Processing Levels

    Business owners may understand that processing fees and interchange rates from transactions can add up and take away from their company funds—but there is a solution for this particular dilemma. Level 2 and level 3 processing can help merchants lower their rates and save money in the long-run.

    With a B2B credit card transaction, costs for interchange fees may be higher due to the use of corporate cards. Transactions may also be deemed riskier with B2Bs, causing interchange rates to shoot up as well.

    The default practice is to process at level 1, with companies gathering a customer's card number, expiration date, and billing address with every transaction. This is usually for B2C transactions. However, B2B businesses can act on these skyrocketing fees by asking for more information from their customers upon a transaction.

    As the data level increases, more information, requirements, and fields will have to be filled out.

    Level II

    Level 2 processing is ideal for B2B and business-to-government (B2G) transactions. Aside from possibly saving up to 1.15% with level 2 and 3 processing, they may also help businesses with monitoring their corporate spending.

    Moreover, the additional data fields to fill out can enhance your customer service and user experience, as clients will be able to have more detailed and accurate transaction reports.

    In addition to the information required at level I, the following fields may have to be filled out as well:

    • Name of merchant
    • Postal code of the merchant
    • Purchase ID and order number
    • Purchase ID format
    • Transaction amount and date
    • Customer code
    • Tax amount
    • Tax identification
    • Name of requestor
    • Merchant state code and minority code
    • Destination address, city, and state

    Level III

    For even bigger transactions, level 3 processing for payments may be advised. While the amount of information required on data fields may increase here, it is well worth it if it means lowering your processing fees.

    Here are some of the possible requirements at data level 3 processing:

    • Data required at level 1 and level 2
    • Date of order
    • Commodity and product code(s)
    • Item quantity and item unit
    • Unit cost/price and number sold
    • Item description
    • Shipping and courier charges
    • Country code of the destination
    • Discount amount and details
    • Sending and delivery zip code
    • VAT details (tax rate, tax amount, invoice number)

    Processing solutions at the B2B level can boost your credibility, encourage big transactions with businesses and even government agencies, and ultimately strengthen client relationships.

    Additionally, due to the numerous data fields required for level 2 and level 3 processing, businesses may be able to more effectively monitor employee spending, and thus, conduct proper budgeting and reporting.

    Merchants may be able to get in touch with processing companies directly in order to simplify and streamline the means by which these types of transactions are made. A transaction made on a site, for example, may have virtual terminals with auto-fill options for inputting data.

    Additional Resources


    PYMNTS.com covers the latest trends in the finance industry as well as payment news. B2B merchants may find this a helpful resource as it is rich in insights by global thought leaders.

    Now that virtual B2B transactions are looking to be the norm in the coming years, merchants must take to finding ways they can streamline their payment solutions while saving money as well. Qualifying for level 2 and level 3 processing and having the willingness to provide a greater amount of information can save you a significant amount of money as time progresses.

    For more information about B2B transactions, you can check out our article 'Credit Card Processor - Processing Services For Cards.' Contact us at Processing Card today for personalized recommendations on merchant accounts!