Mark Dunn
January 26, 2023
min read

When we think of a merchant we often picture a restaurant or retail store.  But merchant processing goes far beyond just the retail and restaurant business types.  Many business opportunities exist with companies that sell only to other businesses.  We call this sector business-to-business or B2B.

Here are some examples of B2B:  1) a tool and die company that manufactures molds used in injection molding  2) an aviation parts supplier and 3) an industrial painting contractor.

Most B2B companies specialize in supplying expert or precision products or services, which often require a special vocabulary to describe.  They typically do not locate their business in commercial retail space, but choose industrial parks or manufacturing areas.  They may deal with a very well-defined set of business customers.  

Another large group of potential merchant services customers are those that sell to the Federal, state, county or municipal governments or agencies.  We call this market B2G for business-to-government.

As the card brands have put more credit cards in the hands of purchasing agents and business owners, the B2B and B2G usage of credit cards for business purchases has expanded.  The card brands have defined two additional levels of interchange rates that lower the cost of processing provided B2B or B2G transactions supply all the required data.  These two interchange levels are called Level II and Level III and specific types of cards require this data to qualify for lower interchange rates.  

The advent of payment gateways has facilitated the integration of B2B payments.  The gateways allow businesses to enter the specialized data that is needed for Level II and Level III data.

Level II

For a transaction to qualify as Level II it must contain such items as the merchant name, the transaction amount and tax amount, the purchase order number or customer code, the merchant zip code and the transaction date.

Level III

Qualifying for Level III is considerably more difficult because the data set needs to be much larger.  For some transactions this means more than two dozen data fields must be filled in.  Most companies selling goods or services don’t have the time, patience or detail to fill in all the data fields required.  Yet supplying the Level III data has the potential to lower the interchange by as much as one full percentage point.  As many B2B or B2G transactions can be quite large, saving half to one full point on interchange can mean saving hundreds of dollars per transaction.

Some payments vendors enable their merchant clients to qualify for level III interchange by plugging data to fill in all the required fields.  This is based on the little-known fact that the data supplied in all fields does not have to be entirely meaningful in order for the transaction to qualify for the lower interchange level.  In some cases, some data just has to be present in all of the fields to qualify.

One of the Biggest Opportunities in Payments

B2B sales is one of the largest opportunities available to merchant services sales agents.  There are several reasons for this.  First, very few sales agents know how to sell B2B merchant accounts properly.  Second, B2B merchant processing is an enormous market that is only lightly penetrated.  Third, B2B processing volumes can reach into the millions of dollars per month for just one business.  Thus, the residual opportunity is relatively high.  

The Problem Is…

The problem is that virtually every ISO that says they have a growing B2B market is selling with the same inadequate approach.  These ISOs think that because they have a gateway and that they enable their business clients to qualify for Level II and Level III interchange, they have a complete B2B solution.  They believe that by saving the business a half a percentage point, they are enabling the B2B solution.  But their results tell another story.  These ISOs are not booking enough B2B accounts to even approach their full potential for B2B sales.

Why is that?  Well, most businesses don’t want to take on the roughly 2.5% cost of a credit card payment transaction even with Level II or Level III qualification.  It just doesn’t stack up to the cost of other payment alternatives.

In order to truly reach the full potential of B2B sales, an ISO has to re-orient their understanding of how non-retail businesses approach their cost of receiving payments.  The ISO needs to get an understanding of the comparative costs of credit, debit, ACH, EFT and wire transfers and how businesses use these to pay suppliers and partners.

Specialized knowledge and training is required if you’re going to succeed at B2B sales.  Although a lot of ISOs claim to be succeeding in the B2B market, our experience is that few ISOs have the training and experience to realize their full potential in this market.  At FieldGuide we can get you the training, experience and coaching you need to be fully successful at B2B sales.

For further information or to begin setup of a B2B merchant, please contact us at FieldGuide.  

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