Practical Ecommerce

B2B Merchants Often Overpay for Card Processing

Business-to-business merchants often overpay for credit card processing. There are many reasons for this, but one of the main ones is they choose a merchant account provider that doesn’t have B2B expertise.

For example, say two merchant account providers offer a B2B merchant “interchange plus” pricing with the same rates and fees. (I’ve addressed interchange-plus pricing many times, most recently at “Merchants Using Interchange-Plus Pricing Continue to Overpay.”) What could possibly be the maximum difference in annual cost between provider A and B if the rates and fees are the same?

Well, I recently worked with a B2B merchant that was paying $30,000 more per year because it chose the wrong processor. The merchant didn’t realize it because the higher processing cost had nothing to do with a provider’s rates and fees. It had everything to do with the salesperson not understanding the B2B marketplace and not being willing to put forth some effort to educate and set up the merchant correctly.

Well, I recently worked with a B2B merchant that was paying $30,000 more per year because it chose the wrong processor.

Providers, Salespeople Not All Equal

Credit card processing is similar to a commodity. However, industry knowledge and good service is never a commodity. A brick-and-mortar retail merchant recently asked my help to find the right provider, with a salesperson who would truly service the merchant’s vast needs. I matched the merchant’s needs with the right provider and salesperson; the merchant will likely never switch providers again.

But I would never invite that same salesperson to bid for a B2B client. The salesperson is one of the most honest and hard-working in the industry. He genuinely cares about his merchants. However, he doesn’t have the expertise for the B2B marketplace. B2B merchants are not the best fit for the salesperson and the provider he works for.

There absolutely is a difference when it comes to providers and salespeople. Some providers and salespeople are bottom feeders. These are the ones that seek out uninformed merchants, and tell them, for example, that their terminal is illegal because it cannot process an EMV chip card. They then lease the merchant a $250 terminal at, say, $99 a month for 4 years because it’s “EMV capable,” which doesn’t mean it can actually process an EMV transaction. These same providers and salespeople would never pass up an opportunity to bid for B2B business — even though it is definitely not their expertise.

Some merchant account providers are honest and try to provide the appropriate service. However, their expertise may be limited in certain industries. Also, the size of the provider isn’t the determining factor. The previously mentioned merchant that was overpaying by more than $30,000 per year had chosen a publicly traded provider.

Lack of B2B Expertise

Why was the B2B merchant overpaying by $30,000 per year?

The provider and the salesperson that sold the service did not understand B2B. They didn’t work with the merchant to ensure that certain information accompanied each transaction in order to receive the appropriate B2B interchange rate. It’s known in the industry as “Level II” and “Level III” data.

Level II requires the tax and customer code information to be passed along with the transaction. It applies to credit cards from certain businesses, including corporate and purchasing cards.

Level III information is more commonly used for orders involving purchasing cards. Level III information includes Level II information plus line item detail, such as the purchase order number, product code, and description.

A B2B merchant receives reduced interchange rates if Level II or Level III is set up correctly. Level III interchange can be as low as 1.85 percent + 10 cents and Level II as low as 2.05 percent + 10 cents. However, if not set up correctly, the interchange can be as high as 2.95 percent + 10 cents, which was the case with the vast majority of transactions processed by the above-mentioned merchant.

As a result, the merchant was charged interchange rates that were far higher than it should have been. Even worse, once the provider was informed of the issue, it really didn’t care.

Reality of Interchange Plus

If you have read my articles over the last few years, you know that I am a proponent of interchange-plus pricing. However, interchange-plus pricing doesn’t automatically mean that you are priced fairly or you are paying the appropriate amount. It simply means the merchant has the potential to be priced fairly and pay the correct amount.

Interchange-plus pricing means that the interchange rates and pass-through fees — i.e., the wholesale rates and fees charged to the provider by the credit card associations — are simply passed through to the merchant. The provider then adds its markup — for example, 0.10 percent + 10 cents — over these wholesale rates and fees. This is how the provider makes money in addition to any ancillary fees it charges. However, a provider will make its markup no matter if the merchant is being charged correctly or not.

Confirm B2B Interchange Rates

B2B merchants overpay for more reasons than mentioned in this article. B2B merchants need to make sure they are receiving Level II or Level III interchange rates where appropriate. The salesperson should explain to the B2B merchant the steps needed to qualify for these rates, and what the provider is willing to do to ensure the merchant will be charged appropriately.

The provider also needs to show existing merchants statements with Level II and III interchange rates prior to the merchant choosing it, to help prove that it understands B2B and has existing B2B customers properly set up.

Phil Hinke

Phil Hinke

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  1. John Carston May 9, 2016 Reply

    I’d like to lessen my losses and expenditures in my b2b merchant services, so I’ll need to use the tips I’ve found on this site. I appreciate the advice you gave and the details for each way preventing overpay. Thanks for the great b2b merchant tips.