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What is level 2 and level 3 data in credit card processing?

What is level 2 and level 3 data in credit card processing?

May 11, 2023
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Level 2 and level 3 credit card processing levels are deployed during large business-to-business (B2B) or business-to-government (B2G) transactions in the US.

Levels 2 and 3 require much more data than the basic level of processing and were introduced by credit card companies in part to incentivize the use of cards over other types of payment in exchange for discounted processing fees.

The main differences between the levels are the amount of data that businesses need to provide in order to qualify. However, there are also differences in eligibility and which card networks offer them.

On this page, we’ll explain the different credit card processing levels, the requirements for each one, and give the benefits of using level 2 and level 3 processing.

What are the credit card processing levels?

There are three main credit card processing levels, all requiring a certain level of data in order to be completed. They are:

Level 1

Level 1 is the most basic and most common. At this level, only standard cardholder information is required to complete a transaction, such as the amount and date of the transaction, and the merchant’s doing-business-as (DBA) name.

Level 2

As well as the data needed for level one processing, level 2 transactions require more information, including taxes, customer details, and the merchant ZIP. In exchange for this data, businesses get to access lower interchange fees, which are charged by issuing banks to cover handling, risk, and potential fraud.  

Level 3

For a level 3 transaction, all the above information is required, as well as a host of other data, including ship-from ZIP/postal code, ship-to/destination ZIP code, invoice number, order number, item codes and description, freight amount, and duty amount. Level 3 processing rates are the lowest available to businesses.

What is Level 2 data?

Level 2 data is additional information that needs to be provided to card networks like Visa, MasterCard, or American Express for higher level credit card payment processing.

Level 2 processing allows you to take advantage of lower interchange rates, and is generally best for merchants that do business with small or medium-sized businesses.

Data requirements can vary between card networks, but generally, to qualify for level 2, you’ll need to provide the:

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

As with data requirements, qualification for level 2 processing differs from network to network. Here are the qualification requirements for each:

  • Mastercard and Visa: more than one million but fewer than or equal to six million transactions annually. Visa also requires businesses to complete an Annual Self-Assessment Questionnaire (SAQ), an Annual Attestation of Compliance (AOC), and a Quarterly Network Scan by an Approved Scan Vendor (ASV)
  • American Express: businesses must be pre-approved for level 2 processing. This means they have to submit Level 2 Merchant's Validation Documentation, which should include summaries of the Quarterly Network Scan and a PCI Self-Assessment Questionnaire

In terms of savings, level 2 processing fees for commercial cards are 2.50% + $10 and 2.05% + $0.10. Given that the standard fee is 2.95%, you stand to save between 0.45% and 0.90% on each transaction.

Read more: What is a merchant ID number?

What is Level 3 data?

Level 3 data is required for the highest tier of credit card processing and is generally for large companies and government agencies that use corporate or government cards. You’ll need to provide the following data:

  • All data from Level 1 and Level 2
  • Product description
  • Product code
  • Unit price, unit of measure, unit quantity
  • Discounts applied and line item total
  • Debit/credit indicator
  • Freight and/or shipping cost
  • Duty and/or import taxes assessed
  • VAT tax and tax rates (optional)
  • Destination zip code (optional)

Requirements for Level 3 data

To qualify for level 3 credit card processing, you need to meet the following criteria:

  • Mastercard and Visa: between 20,000 and one million transactions annually, as well as, for Visa, completion of the same forms required for level 2
  • American Express: does not offer level 3 credit card processing

Savings from interchange rates for level 3 are, of course, the most significant. For level 3 processing, Visa’s commercial card interchange rates are 1.90% + $0.10. That means you’ll save over 1% on every transaction, which can add up to a considerable reduction in fees over time.  

In addition to the restrictions, each card scheme excludes specific merchant category codes (MCC) from Level 2/Level 3 eligibility you can find in our document about how to submit level 2 or level 3 data.

Benefits of using Level 2 and Level 3 card processing

The main benefit to businesses is that, by providing credit companies with a wealth of valuable data, they can save on processing fees in return. The percentages might seem insignificant on their own, but discounts of up to 1% can really add up over time, potentially saving you hundreds of dollars a month.

In addition to savings, level 3 data is usually processed much more quickly than level 1 or level 2, helping you to improve your cash flow. Level 3 also gives you access to large government agencies or corporations who often only do business at the highest level of credit card processing.  

How Checkout.com can help you reduce your processing costs

Checkout.com provides merchants with a host of essential services, including online payment gateway services, payment processing, domestic and international acquiring, and powerful fraud detection capabilities. As well as lower interchange fees and access to larger clients, this can help with easier reconciliation and tax reporting.

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May 11, 2023 12:30
May 11, 2023 12:32