Level I, Level II, and Level III Card Processing Comparison

With every credit card transaction comes some amount of data to complete it. The most basic and common type of credit card transaction is a Level I transaction. These are generally transactions between businesses and consumers rather than business-to-business (B2B) transactions or business-to-government (B2G) transactions. Another key difference about B2B and B2G transactions is that they tend to be much, much larger than consumer transactions, so higher data level transactions were demanded by credit card companies in exchange for discounts on B2B and B2G interchange rates.

What are interchange rates?

Every time one of your clients or customers makes a transaction there is a fee that the merchant requires you to pay that is often called an interchange fee, which is charged to you by the processor on behalf of the company that is accepting the credit risk. The fee is generally a small percentage of the transaction amounts, which is different for each of the major credit card companies, such as Visa, MasterCard, Discover, and American Express. Some of these companies set their rates annually while others set them once in April and then again six months later. They calculate the interchange rate they charge based on authorization costs, the average bank costs of funds, and losses due to fraud.

At Interchange Pros, we ensure that your business is set up and ready to handle transactions and to take advantage of Level III rates for the major credit card companies. So if a major credit card company makes a change in October, you’re not finding out in November that you’ve missed on savings. We keep up with the requirements and what software is needed for you to process transactions from your customers with Level III data.

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Are all cards eligible?

There are differences in credit cards that also affect their eligibility to be processed at Level III rates. Consumer cards that are issued to individuals are not eligible, but most business cards are eligible. Corporate and purchasing cards are almost always eligible.

As a general rule though, you want to submit all of the data that is required for a Level III transaction if you accept a lot of corporate and government cards.

Some cards are not Level III eligible but they are Level II eligible. Even if you provide data from Level III for a card that is only Level II eligible, you will still be able to benefit from the lower cost because you provided all of the data. 

Level I Credit Card Processing

Level I processing usually refers to transactions that are done between businesses and consumers rather than B2B payments. When you use your personal credit card or debit card to make purchases on e-commerce websites then you are prompted to provide the card number, the expiration date, your billing address, and the ZIP Code. These are basic transactions that are found in all sorts of retail environments but they don’t allow B2B companies to enjoy lower interchange rates. Level I transactions are basic transactions because they require the least amount of information, they are also the least secure. But they are the easiest because they don’t require a whole lot of data in order to make the transaction. They require:

  • Merchant name
  • Transaction amount
  • The date

Level II Credit Card Processing

Level II processing can help your business reduce your processing costs and provide additional reporting data. Level II data requires the same information required at Level I plus additional data such as customer code, tax amount, tax identification, and invoice number. 

Level III Credit Card Processing

In order to qualify for Level III interchange rates, you must send the most information at the time of the transaction. In addition to all of the fields required for Level I and Level II, you will need to provide the following:

  • Item commodity Code 
  • Item Descriptor
  • Discount amount
  • Unit of measure
  • Ship-From Zip Code
  • Ship-To Zip Code
  • Destination Country
  • Unit of Cost
  • Duty Amount
  • Discount Per Line Item and Line Item Total
  • Freight / Shipping Amount
  • Quantity 
  • Product Code
  • VAT information (tax amount, rate, invoice #)

Mastercard Level III Requirements include:

  • Tax amount
  • Tax indicator
  • Tax ID
  • Customer code
  • Product code
  • Unit of measure
  • Extended Item Amount
  • Product Description
  • Item Quantity
  • Debit or credit indicator

While Level II processing does save you money, you can save a lot more with Level III processing. Give us a call so we can show you how and set up a consultation.