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Credit card processing is a complicated world fraught with confusing terms like ‘level 3 data’ or ‘negative-option billing.’ Even with extensive research, you may be coming up empty as you try to understand B2B payment processing. While annoying, you are not alone in your confusion. In fact, studies show many Americans are confused with payment processing jargon, especially with credit scores! So where does this leave you on your quest for information? If you’re looking for additional ways to save money and protect your business from fraud, it’s likely you’ve stumbled over level 3 processing in your search. But what is level 3 data? Most importantly, how much money can level 3 processing save you (i.e., is it worth the effort)? If you’re looking to accept credit card payments, stay tuned as we explore level 3 credit card processing and answer your questions and more in this article.
What is Level 3 Processing?
In a nutshell, level 3 credit card processing allows B2B and B2G (B2G: Business to Government) companies to save money on their credit card processing fees in exchange for additional data about the transaction. However, in reality, there’s a lot more to it than that.
The first thing to note is when we say “level 3 data” and mention the associated savings available, these savings are coming from interchange rates. Interchange rates are the portion of your monthly credit card processing fees that are charged directly by the card-issuing bank. To quickly explain, your customer’s card is connected to a bank. That bank charges you, the merchant accepting that card, a set rate for the convenience (anywhere from 0.05% and $0.22 for the transaction to 3.50% and $0.10 for the transaction cost, depending on the type of card and transaction).
Your customer’s card may fall under several different categories, but if you’re B2B or B2G, your customers will most often use corporate and/or government cards to pay for goods at your store. Additionally, your business may support B2B payment processing. These types of payments are eligible for level 2 and level 3 credit card processing interchange rates.
Other Data Processing Levels
There are 3 levels of data that can apply to any eligible transaction, level 1, 2, and 3. Each level has a set of requirements a transaction needs to meet in order to qualify. The higher the level, the more details are required, but the lower the transaction risk and cost.
It’s important to note only Visa, MasterCard, and American Express have higher-level interchange options, and American Express only goes to level 2. The qualification requirements vary by card type.
Level 1 is the default and most basic level. If you aren’t going out of your way to add data to a transaction, this is the option you’re most likely qualifying for already (cards that are eligible for level 2 and level 3 interchange qualify as level 1 by default).
Level 3 Processing Requirements
Processing requirements build on each other as the levels increase. To understand level 3 processing requirements, we must first look at levels 1 and 2.
Level 1 Requirements
- Merchant Name
- Billing Zip Code
- Purchase Amount
- Purchase Date
Level 2 Processing Requirements
- Everything from Level I
- Sales Tax Indicator and Amount
- Merchant Tax ID
- Merchant Zip Code (optional)
- Invoice Number
- Order Number
- Customer Code (Government/purchasing cards only)
Level 3 Data Processing Requirements
- Everything from Levels I and II
- Product/SKU Description
- Product Code
- Unit Price and Unit of Measure
- Unit Quantity
- Discounts Applied and Line Item Total (Price before & after discount)
- Debit/credit indicator
- Freight/shipping cost
- Duty/import taxes assessed
- VAT tax and tax rates (optional)
- Destination zip code (optional)
How to Qualify for Level 3 Credit Card Processing
Qualifying for level 3 credit card processing can be a cumbersome endeavor, but once it’s been set up, it can save a significant portion of your interchange fees.
As we mentioned, commercial and government cards are eligible to receive level 2 or level 3 interchange. In order to do so, you’ll need a few things.
To get beyond level 1 processing (to either level 2 or 3), you’ll first need to have the proper back-end setup. Your credit card processor should be able to work through the details with you.
This includes ensuring your physical equipment is set up to ask for and accept the additional information, as well as ensuring the processor is set up to carry/pass that information along to the bank. This is because not all credit card processors are capable of transmitting level 3 data (even if they can set up the physical device to ask for it), so be sure to ask.
Once you have the back-end setup, you’ll need to train your staff on the best practices for accepting and entering the increased data. You’ll want to ensure they understand how and why the added data entry is necessary and worth their time to complete.
Unfortunately, your Point-of-Sale device can’t tell the difference between a prompt that is skipped or ignored and a prompt that is incomplete. This is because that data isn’t applicable. For example, sales tax may not have been charged on a transaction because that specific customer was tax-exempt. In these cases, it’s best to enter “0” instead of skipping the prompt entirely. This is to ensure the POS system knows this skip was intentional and the prompt was not ignored.
As mentioned before, qualifying for higher-level interchange is based on the card brand (Visa, American Express, and MasterCard) and the requirements vary by brand. The easiest way to ensure you’re qualifying for the best possible rate is to meet the highest standard on every transaction.
Level 3 Credit Card Processing Rates
To get an idea of the savings I’ve mentioned, let’s go through the level 3 credit card processing rates in detail with the most common card type, Visa. As a reminder, your credit card rates are negotiated with your processor and can be found in your merchant agreement.
Visa Commercial [Large Business/Corporation] Card Interchange Category (Interchange Rate):
- Level 3 (1.90% + $0.10)
- Level 2 (2.50% + $0.10)
- Card Present (2.50% + $0.10)
- Card Not Present (2.70% + $0.10)
- Standard Interchange Reimbursement Fee (2.95% + $0.10)
Standard Level 1 costs 1.05% more than commercial level 3. This means on a large ($10,000) commercial transaction, you’ll save up to $105 in fees on that transaction alone. For a typical level 1 transaction, you’ll save 0.60% or $60 on the same size transaction. Over the course of the month, your savings could be in the thousands.
Visa Business (Small Business) Card Interchange Category (Interchange Rate)
- Level 2 (2.05% + $0.10)
- B2B (2.10% + $0.10)
- Retail (2.20% + $0.10)
- Card Not Present (2.25% + $0.10)
- Standard Interchange Reimbursement Fee (2.95% + $0.20)
While accepting a small business card has a smaller gap between the highest and lowest rates (and there is no level 3 data level), you’ll still save significant amounts of money over time. Why throw away any percentage of revenue you don’t have to?
Is Level 3 Processing Right for You?
You probably already know that business and commercial cards cost more than consumer debit and credit cards. What you may not realize is why.
Corporate cards usually have several levels of hierarchy behind them. A purchase made by someone at a company is more likely to be disputed due to a lack of approval. This approval must come from the cardholder, who may not be the one making the purchase. There’s also a higher chance that someone may not recognize the transaction made at your store (someone other than the person who made the purchase) and dispute it as fraudulent. This is why these cards are more expensive to accept (higher risk leads to higher cost). With additional data in each transaction, you’re reducing the risk of that transaction, which reduces the cost you’ll pay in fees.
Level 3 processing is right for you if you are a B2B or B2G business that accepts corporate and business cards from your customers. Again, why throw away revenue and accept higher risk transactions if you don’t have to? Consider your options and where you see your business going in the future.