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The Basics of Optimizing Interchange Fees for B2B

Oct 27, 2015 | Articles

Interchange Fees: So much has been debated, discussed, cussed and legislated about these fees. Interchange fees are a schedule of rates set by Visa, Discover, and MasterCard and collected by the issuing bank of a customer’s payment card every time a credit or debit card is used for a single transaction. With almost 1,000 different fees that can be charged by the banks, it not a surprise that some CFO’s, of large companies, have said, “keeping up with interchange fees is above my pay grade.” Since there typically is no higher pay grade than CFO in the finance department, many companies just give up control and hope their merchant processor is doing the right thing by them.

There are some things a company can do to take back control of this process and optimize their interchange fees for business-to-business (B2B) and business-to-government (B2G) transactions. The key is to 1) capture and transmit, on a real-time basis, L2 and L3 data from each transaction; and 2) utilize a rules-based engine to capture the right data and put it into the right fee bucket (out of 800+) on every transaction. Here are the benefits:

  • Money that would otherwise go to the banks goes to your bottom line
  • A streamlined process for payments brings process efficiencies and lowers operating costs
  • Optimized reporting showing detailed expenses can be shared with your B2B and B2G customers

Optimizing Interchange Rates

Getting the best rate for B2B and B2G purchases requires the inclusion of line item detail on each transaction. Because so much data is required, most companies accepting L2 and L3 transactions integrate payment acceptance into their ERP system to eliminate manual entry of line item detail. CDI has certified integration with SAP and JD Edwards, including customers on SAP’s S-4 HANA.

Integration to ERP is Key to Optimization and Efficiency

In the call center or at the check-out counter, if a customer service rep is trying to capture required L2 and L3 data manually for each transaction, it increases the average handling time creating an order. To streamline this process, and save time and money creating orders, you must automate the capture of L2 and L3 data with a payment solution that integrates real-time into your backend ERP system.

This data is then passed to the payment gateway in real-time at the same time an authorization is given for the transaction. Because of this, there is no manual keying of required L2 and L3 line item details. What was once impractical becomes possible with the automation of this key process for interchange optimization.

Rule-Based Engine Optimizes the Interchange Rate

When processing transactions, a rules-based engine should be used to put L2 and L3 data in the right interchange fee buckets. This engine needs to be smart, because there are over 800 buckets to choose from. It also needs to be nimble, because these rules are constantly changing and evolving.

The Banking Industry also has discount programs and assigns different rates and interchange levels to each transaction based on such things as: your special industry conditions, geography, type of market, seasonal programs, and hundreds of other programs. These programs and their rates constantly change.

CDI uses BluePay’s rules-based engine and the right mixture of industry knowledge to maximize the optimization of your interchange rates. We can help ensure the best possible rates because our solutions cover the whole payment process, from order origination to settlement, when the money hits your bank account.

Reporting Benefits of Interchange Optimization

In addition to optimized interchange fees, getting detailed reporting allows you to track transactions from inception to settlement. This also makes it easier for your customers to monitor and track internal spending. It allows your customers to set predefined restrictions on how and when cards are used. Your customers might want to set upper spending limits or monthly buying frequency, etc.

Offering this level of sophistication to your reporting can help attract customers who use Level 3 purchase cards. CDI passes the data, including customized fields for reporting purposes, back to you, which then in turn can be released to your customers, fostering stronger relationships with your buyers

PCI Security and Optimization

It’s also critical that Level 2 & 3 processing offers the same level of PCI security as  standard Level 1 processing. PCI-compliant security solutions need to have point-to-point encryption (P2PE), tokenization, a suite of fraud management tools, secure hosted payment forms and more.  CDI’s secure payment systems are never outsourced to third-party security companies, so our in-house solution keeps your buyers’ sensitive payment data in the right hands.

Interchange Level Comparisons

A more granular level of transactional data is required for each interchange level. It should be noted that MasterCard® and Visa® differ in both rate and required transactional data for each interchange level.

Qualifying for Level 2 & 3 Credit Card Fees

Capturing the optimized rates during transaction processing requires the capture of specific line item data in credit card transactions. The charts below show the transactional data requirements for each Interchange level.

Chart A: Level 1, 2 and 3 Data Requirements

B2B payment integration optimization interchange fee chart
  • Level 1
  • “Level 1” card data is typically associated with consumer transactions and provides limited purchase data back to the cardholder.
  • Level 2
    “Level 2” data adds more information to benefit the corporate/government/industrial buyer, but the number of fields is limited because of the restricted data capture capabilities provided by most hardware-based Point of Sale (POS) terminals.
  • Level 3
    “Level 3” (also known as Level III) line item detail is equivalent to the information found on an itemized invoice.

Chart B: Required Data for Interchange Levels – Comparative Sample

B2B payment integration optimization interchange fee chart

When a large medical supplier decided to use CDI solutions from order creation to settlement, the result was a savings of 90 basis points on $30,000,000 in credit and debit card annual revenue. That’s $270,000 dollars in interchange fees that were going to credit card companies instead of their bottom line! Here is a sample report showing how the bulk of transactions in one period were shifted from a high L1 rate to a much lower L3 rate when the CDI approach was used:

Case Study: 90 Basis points, or $270,000 in savings

B2B payment integration optimization interchange fee chart

Looking at this chart, in the period before, over 150,000+ transactions were put into lines 1 and 3, the DR1 (L1) buckets. In the period after CDI optimization tools were used, over 150,000 transactions were put into DR3 (L3) buckets, lines 3 and 5, for a reduced effective rate of 90 basis points, or, for this short period of 1 week, over $1,000 in fee savings for the same transaction types that were simply captured with the right data and categorized differently.


CDI is the only company in the payments industry to offer a complete solution for payments from order origination to money in the bank. Because of this seamless efficiency from one company, we solve the complex puzzle of PCI Secure transactions with the maximum in optimized interchange rates that other solution providers can only hope to bring you, if the stars and their partners are aligned. Here is a typical process flow from the average payment provider, and why it’s so difficult to manage interchange optimization:

CDI brings all of our solutions together to bring you the maximum in processing efficiency and help ensure you get very best interchange rate. Here’s that same process flow when one company, instead of 2 or more, provides you with all the payment services you need:

B2B payment integration optimization infographic chart

In conclusion, CDI brings cost efficiencies by bringing all payment services under one roof and to one vendor, instead of chasing down 2 to 4 vendors to do the same job. Further, having one vendor, with your best interests in mind, who can provide solutions for the whole payment process, ensures you are maximizing your interchange optimization. Between the process efficiencies and fee optimization, these are savings and revenues that go straight to your bottom line.

About the Author:

Steve Sassi, SAP E-Commerce Specialist at CDI Technology, the leading provider of B2B and B2B online payment solutions for the e-commerce industry. With over 10 years of experience in the software industry, Steve has expertise in web store solutions, payment solutions and mobile solutions.

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