Can I Reduce Interchange Rates If I Don’t Charge Tax To Customers?

One of the biggest types of expenses that businesses often need to reduce are credit card processing fees. They may be eating into your profits or preventing you from charging competitive prices. Processing fees can add up, but a requirement that causes a headache for merchants is providing a tax value at the time of the transaction. In order to qualify for the lowest rate, you not only must submit a tax value but it must be greater than zero dollars. 

Interchange Fees

Every time you make a transaction, whether as a consumer or as a business, the merchant has to pay a fee to the credit card company for taking the risk of that transaction. This is called your interchange fee, and each credit card sets their own rate. For example, one of Visa’s retail credit card interchange rate is 1.510% plus $.10. Consumer transactions tend to be a lot smaller than business-to-business (B2B) or business-to-government (B2G) transactions, and the Interchange rates for B2B and B2G transactions can be much higher. However, the savings a company can see when doing business with another business or public entity are significant if they qualify for Level II or Level III rates. 

In order to reduce the amount of risk, those credit card companies want more data in exchange for lower rates on your interchange fees, but that data is often automatically provided when they use their accounts. At Interchange Pros, we help you get the lowest possible rate on your transactions by lowering your interchange fees for business to business or business to government purchases that you accept. 

What do the different levels mean?

Depending on what level you are processing transactions at (Level I, Level II, and Level III), you can save money on the interchange fee you are charged by the credit card company. An example can illustrate this easily. When you go to a gas station with your credit card, you insert it, type in your ZIP Code, and carry on with your transaction. The keypad at the pump does not allow you to type in anything more than numbers and “yes” or “no.” During a card-not-present transaction, such as when you order something online from a vendor who submits your card data without you being in the store, you typically type in your billing zip code, expiration, and Card Verification Value (CVV). Because limited information is being provided to the credit card company, these qualify as Level 1 transactions. 

Because there are more threats to security with B2B transactions, there are higher protocols. Not to mention that the types and amounts of purchases between businesses are a lot more than the few dollars or even hundreds of dollars that a consumer spends on goods. 2.5% of $20 is nowhere near as much money as 2% of $100,000.

Level II Processing

However, with Level II transactions you can achieve greater interchange reduction and save your company money. In order to qualify, the transaction needs more information for Level II such as:

• Tax amount
• Tax indicator
• Tax ID
• Customer code for purchasing cards only

Interchange Pros can help you configure your system so that your payment gateways or credit card terminals are able to pass the data needed through for you so that you can qualify for Level II rates or higher. 

For Visa, a business card processed at the Level II data rate is processed at 2.05% plus $.10 of the overall transaction. If it was processed with Level I data, it may be as high as 2.95%. But you can save even more if you provide enough data to qualify for Level III rates. Because a lot more data is being submitted, the transaction is more secure, and the credit card companies provide a bigger discount to merchants who give more information at the time of the transaction.

Level III Processing

In order to qualify for Level III processing, and enjoy the most savings, you need to pass through all of the required information for Level II as well as additional information. 

Can I still qualify for lower interchange rates if I don’t charge tax to my customers?

Yes. At Interchange Pros we can still help your business submit Level III data without submitting a tax value so that you can access lower B2B interchange rates. In general, if you submit nothing in the tax field and you are also not submitting sufficient Level III data, then you will not qualify for any interchange rate discounts. We ensure that you are submitting all of the data required by the major credit cards (MasterCard, Visa, Discover, and American Express). Call Interchange Pros now to find out how to save.