{"id":1533,"date":"2020-08-06T09:47:48","date_gmt":"2020-08-06T09:47:48","guid":{"rendered":"https:\/\/www.paycron.com\/?p=1533"},"modified":"2024-08-05T18:19:42","modified_gmt":"2024-08-05T22:19:42","slug":"lower-credit-card-processing-fees-with-higher-data-levels","status":"publish","type":"post","link":"https:\/\/www.paycron.com\/blog\/lower-credit-card-processing-fees-with-higher-data-levels\/","title":{"rendered":"How To Lower Your Credit Card Processing Costs By Leveraging Data?"},"content":{"rendered":"

As a business owner, you understand that payments and payment processing are not so simple. What looks like a few seconds to the customers is actually a complex process involving verification, calculations, and checkpoints. There are several aspects to debit and credit card processing that lie between the merchant and other players. This goes beyond simple payment processing<\/a>. This involves understanding levels of processing based on data levels and how this affects interchange rates.<\/p>\n

Credit card processing fees are a combination of interchange rates and processing fees. Most clients end up paying high fees for processing due to higher interchange rates. However, there are ways to lower the processing fee by lowering interchange fees. This depends on the brands and type of credit card, the type of business, and chargeback history. If you\u2019re a medium or high-risk business<\/strong> and your chargeback frequency is higher, you will most likely be in level 1 Data and will pay a higher interchange fee.<\/p>\n

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What is interchange?<\/h2>\n

Interchange is a big chunk of the processing costs incurred by the merchants. It is determined and pocketed by card-issuing banks. Every time a transaction takes place, information is exchanged with an interchange category on the basis of criteria. These criteria include card type, brand, input method (dip, swipe, keyed-in, online), amount of transaction, etc. on the basis of rules a transaction is eligible for a particular category. As a business owner, your goal must be to qualify for the interchange category that is lowest. Interchange can be understood as the \u2018wholesale\u2019 fee of processing. Higher levels mean lower wholesale costs and cheaper processing.<\/p>\n

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Pass-through & tiered pricing model:<\/h2>\n

Credit card processing companies offer two models of pricing for companies- Pass through and tiered pricing. In pass-through pricing models, you pay the actual interchange rates and a separate markup applied by the processor. This mode allows you to lower your interchange rates. In a tiered pricing model, your processor benefits if interchange rates are lowered while you are still stuck in your tier or level.<\/p>\n

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What are data levels?<\/h2>\n

Data level (I, II & III) refer to the level\/amount of data\/information that you can collect from a customer during a transaction. It can be understood as control or levels of power over a customer\u2019s data. The interchange cost of the transaction decreases as the amount of data level increases. If a business passes more data in a transaction, it lowers its exchange fee and pays less overall processing fee per transaction. These 3 levels are used as a classification system for businesses to set interchange rates.<\/p>\n

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Processing levels and their requirements:<\/h2>\n

Levels depend upon how much data you collect from customers when you charge them. If you collect more data, you are on higher levels which means lower interchange fees. Here are some details about different data levels.<\/p>\n

Level I:<\/h3>\n

This is the default level for all companies. Every business begins its payment processing journey here. At this level are the basic players who collect only basic fundamental info during a transaction. Ex: card number, expiration date, billing address, zip code, etc. These are mostly low-risk merchants that usually perform \u2018card-present\/in-person\u2019 card transactions and have lower chances of chargebacks.<\/p>\n

Level II:<\/h3>\n

At this level, data exchanged is a more advanced one than the level I. This level is for businesses that deal in a considerable volume of \u2018card not present transactions. Mostly B2B companies, eCommerce websites, and government organizations. Businesses at level II can achieve up to a 0.5% reduction in interchange rates.<\/p>\n

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Data exchange in level 2 transactions include:<\/h2>\n