Navigating The Murky Waters Of Level-3 Processing

The complexities facing merchants that process B2B and government procurement transactions are plentiful. But streamlining Level-3 processing may be a good place to start. Sean Jones, President of Revolution Payments Systems, sat down with PYMNTS to discuss how identifying qualifying transactions can lead to big savings for merchants.

PYMNTS: What do businesses accepting commercial and or government transactions need to do to qualify for Level-3 processing?

SJ: Well, that depends, because we focus on two different markets. A lot of our clients are government vendors and are not required to do Level-3 processing. In order to get them to qualify, we default the information based on what their industry is and send that behind the scenes. There are also merchants who are required to send Level-3 data, which is a more in-depth process. Those merchants must manually enter the transaction detail for the particular sale, including the purchase order number, product description and other detailed information. Essentially the solution is to setup qualifying merchants, which are those that sell primarily to any other business or government but are not in the travel and entertainment sectors, since those do not qualify.

A merchant may not have the ability to enter the Level-3 data necessary for an Internet transaction or a manufacturer that is mobile may only be able to process payments via a smartphone in the field; in these cases, pursuing Level-3 processing may be difficult. Whether the transaction takes place on a mobile device, online, is keyed in or even swiped, we can send this information for processing on the back end.

Even for businesses complying with Level-3 processing, there is still a good chance some portion of their transactions may not be receiving the lower interchange level.

PYMNTS: For those businesses able to accept lower interchange rates, what actual savings can be realized?  

SJ: It’s pretty significant. Again, this all takes place before the processors even add their markup, allowing for the interchange rates to be lowered up to 1.5 percent based on not sending the Level-3 data. Even Level-2 processing can save 65 basis points. On a regular corporate data rate Level-1 versus Level-2, 65 basis points on interchange before the processor even has their markup is substantial.

PYMNTS: B2B and government procurement transactions are often very complex and allow for a higher level of transaction detail than traditional business to consumer credit card transactions. What is the impact of these complexities for corporate and government sellers?

SJ: Eliminating complexities by sending that information on behalf of the merchants eases the challenges that come with Level-2 and Level-3 processing. These businesses need to be able to account for all transactions that can and will qualify for the Level-2 or Level-3 interchange rates.

PYMNTS: You have recently launched a payment gateway designed to minimize friction when it comes to the data entry associated with B2B and B2G payments. How does it work?

SJ: Our payment gateway defaults the information associated with a transaction based on the particular industry of the merchant, allowing us to process that information for a variety of transaction types, ranging from swiped to mobile. For Level-2 processing, we are able to calculate the tax amount automatically based on the specific state tax code. Our solution aims to ensure that any transaction that can qualify will receive the interchange rate for Level-3 processing.

PYMNTS: What is next for Revolution Payments Systems? What do you have in the works that you can disclose?

SJ: We are working on implementing EMV capabilities; right now we are doing testing on certification for the magnetic tech readers. At the present time, those in the field will not have an EMV-secured device and now the deadline is about three months out, so that’s our main focus now, is making sure we get those readers EMV- compliant.

Education is also a big focus. Over the years merchants have been conditioned to focus only on rate, but with Level-2 and Level-3 processing they are gaining up to 1.5 percent of revenue that’s got nothing to do with the rate being paid. Education is a big part of what we do by taking on a consultative approach, which is typically not there in a standard processor-merchant relationship, and is another value add that we provide.