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Interchange Optimization

Prerequisites

Before optimizing interchange, understand:

TL;DR
  • Interchange varies wildly - Same $100 purchase can cost $1.50 or $3.50 in fees depending on card type and how you process it
  • Downgrades hurt - Missing data fields (AVS, CVV, Level 2/3) pushes you to higher rates
  • Level 2/3 data saves 0.5-0.8% on B2B transactions - worth $3-4K per $500K processed
  • Large ticket programs offer 1-1.5% rates on $8K+ corporate transactions

The Interchange Puzzle​

Interchange rates aren't uniform. They vary by:

Card Type​

Card TypeTypical Interchange
Regulated debit (large banks)0.05% + $0.21 (capped by Durbin Amendment)
Unregulated debit (small banks)0.80% + $0.15
Standard credit1.65% + $0.10
Rewards credit1.80% + $0.10
Premium/Signature credit2.10% + $0.10
Corporate/Business cards2.50% + $0.10
International cards1.80-2.40%

Merchant Category (MCC)​

  • Grocery stores: Lower interchange (thin margins, high volume)
  • Gas stations: Lower interchange (competitive market)
  • Utilities: Lower interchange (essential services)
  • Restaurants: Medium interchange
  • Retail: Medium interchange
  • Jewelry/Electronics: Higher interchange (higher fraud risk)
  • Online/CNP: Higher interchange (highest fraud risk)

Transaction Method​

  • Chip card (EMV): Lowest (most secure)
  • Contactless (NFC): Low (secure, fast)
  • Swiped (mag stripe): Medium (less secure)
  • Keyed/manual entry: Higher (least secure)
  • Card-not-present: Highest (no physical card verification)

This means a $100 purchase might cost you $1.50 in fees (regulated debit at a grocery store) or $3.50 (rewards credit card, keyed manually at a jewelry store).

Interchange Downgrades​

Transactions can "downgrade" to higher interchange rates if you don't process them correctly:

Downgrade ReasonImpact
Missing AVS data for CNP transactions+0.50% or more
Late settlement (captured after auth window)Loses preferred rate
Missing Level 2/3 data for B2BMisses lower corporate rates
Incorrect MCCWrong interchange category
Missing CVV for e-commerceHigher rate

This is why proper transaction handling matters. Sloppy processing costs you money on every transaction.

Level 2 and Level 3 Data​

Here's something most merchants don't know: you can dramatically reduce interchange on B2B and B2G (business-to-government) transactions by including additional data fields.

Card networks created Level 2 and Level 3 data categories to facilitate more descriptive, secure payments. In exchange for this extra data, merchants get lower interchange rates, sometimes saving 0.5% to 0.8% per transaction.

Data Requirements by Level​

Level 1 (Standard): Basic cardholder info like card number, expiration, transaction amount, date, merchant name, and MCC. This is the minimum for authorization. These transactions pay the highest interchange rates.

Level 2: All Level 1 data plus:

  • Sales tax indicator and amount
  • Merchant tax ID
  • Merchant postal code
  • Invoice number
  • Order number
  • Customer code (for government/purchasing cards)

Level 3: All Level 1 and Level 2 data plus detailed line-item information:

  • Product descriptions and codes
  • Unit prices, quantities, and totals
  • Freight and shipping costs
  • Duty and import taxes
  • Destination ZIP code
  • Discounts applied

Who Qualifies​

  • Level 2/3 data primarily applies to commercial, corporate, and purchasing cards
  • Visa: Level 2/3 applies only to commercial credit cards
  • Mastercard: Applies to commercial credit, debit, and prepaid cards
  • American Express: Broadly aligns to Level 2 enhanced data; Level 3-style line-item programs exist but are more limited

The Savings Are Real​

Card TypeStandard CNP RateWith Level 2With Level 3
Visa Business2.65% + $0.101.90-2.25% + $0.101.90% + $0.10
Visa Corporate/Purchasing2.70% + $0.102.50% + $0.101.90% + $0.10
Mastercard CommercialSimilar rates~0.75% savings~0.80% savings

For a business processing $500,000/year in B2B transactions, the difference between Level 1 and Level 3 rates could be $3,000-$4,000 annually.

Large Ticket Programs​

Both Visa and Mastercard offer large-ticket programs where high-value corporate transactions (typically over $8,000-$10,000) can price around 1-1.5% plus a fixed amount like $35. Exact thresholds and rates change frequently; check current interchange tables for precise pricing.

Implementation​

If you're not submitting Level 2/3 data and you process significant B2B volume, you're leaving money on the table in every settlement. Check with your processor. Many can help you capture and submit this data automatically.

Quick Wins for Interchange Optimization​

For All Merchants​

  1. Always submit AVS and CVV for CNP transactions
  2. Settle within 24 hours of authorization
  3. Use chip/contactless for card-present transactions
  4. Verify your MCC is correct for your business

For B2B Merchants​

  1. Ask your processor about Level 2/3 data capabilities
  2. Identify commercial card volume - which customers pay with corporate cards?
  3. Calculate potential savings - 0.5-0.8% on that volume
  4. Update your checkout/invoicing to capture required fields

For High-Volume Merchants​

  1. Audit your downgrade rate - what percentage of transactions miss optimal interchange?
  2. Identify patterns - which transaction types downgrade most?
  3. Fix the root causes - missing data, late settlement, incorrect MCCs
  4. Renegotiate processor markup - interchange savings shouldn't just go to your processor

Next Steps​

Understanding interchange basics?

  1. Review rate factors - Card type, MCC, method
  2. Learn downgrade causes - Missing data = higher rates
  3. Calculate potential savings - Level 2/3 impact

Optimizing for B2B?

  1. Understand Level 2/3 data - What data is required
  2. Check processor capabilities - Can they submit this data?
  3. Explore large ticket programs - $8K+ transactions

Quick wins for all merchants?

  1. Submit AVS and CVV always - Avoid downgrades
  2. Settle within 24 hours - Don't miss windows
  3. Verify your MCC - Correct category

See Also​