Different Data Levels Of Credit Card Processing

Merchants are required to pay a fee called an interchange rate for every credit and debit card transaction. Interchange rates, also known as swipe fees, are fees charged by a cardholder’s bank to a merchant in return for accepting the risks involved in credit card purchases and its associated costs. 

Interchange Fees

Banks charge merchants interchange fees per use of a debit or credit card. Financial companies lay bare to the credit risks of consumers borrowing money to make purchases so they use the interchange fee as a financial offset to that risk. Interchange rates, usually higher for credit cards due to the inherent risks, are a small percentage plus a set cost per transaction of the transaction total. 

The interchange rate is calculated based on credit and fraudulent losses, bank costs, and authorization costs. Visa, Mastercard, Discover, and American express set the interchange rate, and Visa and Mastercard usually reset many rates twice a year in April and October.  Rates vary depending upon the types of cards and how the transaction is being made. 

Credit Card Processing Levels

Some credit card types including Purchasing Cards, Corporate Cards, Business Cards and Fleet Cards can be processed to qualify at one of three Interchange categories. Level 1 generally has the highest rates, and Level 3 has the lowest. Each data level requires certain transaction data details that are sent through the processing system with each use. 

Level 1 Processing

Customer to Business (B2C) transactions are processed through data Level 1. Consumers routinely use their cards to make transactions and the data required is very limited including the merchant’s name, date, merchant category code, and transaction amount. 

Level 2 Processing

Level 2 processing was designed to support Business to Business (B2B) transactions and requires more details. Level 2 processing could be ideal for small to mid-sized businesses because these businesses could reap rewards and benefits that benefit the business.  B2B processing is for end-users that require specific payment methods. Level 2 processing allows businesses the ability to monitor and control corporate spending, simplifies transactions, improves customer service, and provides the following information for accurate transaction reporting:

  • Date
  • Merchant name
  • Merchant postal code
  • Merchant minority code
  • Merchant state code
  • Transaction amount
  • Customer code
  • Invoice number
  • Order number
  • Sales tax amount
  • Tax indicator

Level 3 Processing

Processing at Level 3 requires the most detailed information and transactions are normally made between corporations or government entities. Similar to Level 2, Level 3 processing is used to give businesses more control over their spending and processing requires all of the data required for Level 2 in addition to the following:

  • Item descriptions
  • Item product codes
  • Item tax rate
  • Shipping postal code
  • Destination postal and country code
  • Quantities
  • Freight amount
  • Duty amount

Level 3 processing can be beneficial because more corporations are starting to require Level 3 processing for transactions, and the more data obtained in the transaction, the lower the interchange rate. The additional data helps ensure against fraud, and also assists in accounting and tracking for both the merchant and the cardholder.

Innterchange Pros can help you set up a payment gateway, or virtual terminal, that streamlines Level 3 data entry, reduces training time for new employees and saves you money because your payments are less likely to be downgraded to Level 1 due to lack of data. 

Your commercial card purchase can be downgraded to standard level 1 processing if you fail to provide sufficient data, or if your business doesn’t settle the transactions within a given time frame. 

Level 3 Providers

Visa and Mastercard both handle data processing a bit differently, American Express and Discover don’t process Level 3 transactions currently. It could be in your business’s best interest to speak with an interchange rate professional about the benefits of processing your transactions with a specific provider. 

Benefits of Level 3 Processing

Lower interchange costs saves your business money, and all of the data needed to process a Level 3 transaction could save your business time collecting payment data but there are other benefits as well. Level 3 transactions allow your business to monitor the size of purchases being made, how often purchases can be made, and by whom. 

Through Interchange Pros, Level 3 payments will be processed faster because all of the necessary data needed for the transaction is entered automatically.  This reduces the amount of time entering transactions, eliminates errors, and ensures Level 3 Interchange Qualification.  Credit card providers can also flag and notify you of suspicious-looking or fraudulent purchases.