If you work in finance or accounts receivable, you may have encountered a request for your business to accept commercial or virtual card as a form of payment. Immediately, your mind may go to the overall cost associated with accepting card. Here’s what you need to know to make an informed decision.
What are B2B commercial card payments and how does B2B Interchange work?
B2B card payments refers to the process of facilitating financial transactions between businesses; in this case, credit card payments. Typically, this is the transaction flow and ultimately the interchange that will dictate the cost of the payment:
- Transaction Initiation: A buyer initiates a purchase using a credit card (which could be a virtual card, purchasing card, ghost card, or other card instrument) to pay for goods or services from a supplier.
- Authorization Request: The supplier submits the transaction details to their acquiring bank for authorization. This includes information such as the credit card number, transaction amount, and merchant identification.
- Routing to Card Network: The acquiring bank routes the authorization request to the appropriate card network (e.g., Visa, Mastercard, American Express) based on the type of card used by the buyer.
- Authorization Request: The card network sends the authorization request to the issuing bank, which indicates whether the cardholder has sufficient funds or credit to complete the transaction. If approved, the bank sends an authorization code back to the acquiring bank.
- Interchange Rate Determination: Once the transaction is authorized, the acquiring bank pays an interchange rate to the issuing bank. The interchange rate is determined by the card networks and varies depending on the type of card used, the level of data provided, and the risk associated with the transaction.
- Settlement: After the transaction is authorized and the interchange fee is determined, the acquiring bank settles the transaction with the supplier by depositing the funds into the supplier’s bank account.
- Transaction Completion: The transaction is considered complete once the funds have been transferred to the supplier's account.
What are B2B interchange rates and fees?
Interchange fees are charges paid by the acquiring bank to the issuing bank for accepting, processing, and authorizing credit card transactions. Interchange fees are set by the card networks (Visa, Mastercard, American Express, Discover) and differ depending on transaction method, type of business or industry, size of transaction, and level of data being processed. The purpose of interchange is to cover costs associated with the issuing bank lending the cardholder funds for a period of time and systemic risk.
Different Levels of Payment Processing – The Cost of Doing Business Without Data
Each processing level has a specific set of data requirements for a transaction to qualify. Essentially, the amount of transactional data provided at the time of processing can save suppliers money on interchange rates. The exact savings depend on whether the transaction qualifies for Level 1, 2, or Level 3 processing rates. Level 3 interchange, also referred to as large ticket interchange, is the lowest publicly available rate for B2B transactions.
Cost Savings on B2B Interchange with Boost
The next time you receive a request to accept commercial or virtual card, understand that you have options to optimize the cost of acceptance. Boost helps suppliers qualify for level 3 interchange, or large ticket interchange, resulting in huge cost savings when accepting commercial card payments. If your business is currently accepting commercial card, our Head of AR Solutions, David Bork, recommends a B2B payment health check. “Many suppliers set up merchant accounts years ago with little understanding of how the system works. Boost performs B2B health checks for suppliers all the time and we often find that we can help lower the overall cost of acceptance through optimization and automation”.
Interested in customized interchange optimization analysis? Boost Payment Solutions is here to help. Contact us today to get started.
Boost Payment Solutions is the global leader in B2B payments with a technology platform that seamlessly serves the needs of today’s commercial trading partners. Our proprietary technology solutions bridge the needs of buyers and suppliers around the world, eliminating friction and delivering process efficiency, payment security, data insights and revenue optimization.
Boost was founded in 2009 and operates in 180+ countries and territories around the world.