What You Need To Know About Level 2 And Level 3 Credit Card Processing

Every small business owner is always on the lookout for additional ways to save money and protect their business from fraud. One common strategy that can help you do that is to lower your credit card processing fees by utilizing level 2 and level 3 processing. If you’re not sure what these terms describe, read on to learn more about why they’re worth the effort.

Credit Card Processing Levels

All credit card processing methods fit into three separate levels: level 1, level 2, and level 3. The levels are defined by the amount of information required to complete a payment. Level 1 (also known as the default level) has the lowest requirements, but potentially the highest costs.

Level 2 and level 3 processing involves entering a set of additional information during a credit card transaction. And since level 2 and level 3 card data provide more information about the cardholder, transactions submitted with that data often come with lower interchange rates. As such, it’s in the merchant’s interest to use level 2 and level 3 data whenever possible.

Data Requirements

In general, most business-to-customer (B2C) businesses fall into the first level of card processing. For completing these transactions, the only required fields are the merchant’s name, billing zip code, purchase date, and purchase amount.

Once you move on to level 2 processing, you’ll get additional fields to fill. These include everything from level 1, as well as the following:

  • Sales tax indicator and amount
  • Invoice number
  • Order number
  • Merchant tax identification number (TIN)
  • Merchant ZIP code (optional)
  • Customer code (for purchasing/government cards)

Level 3 processing requirements include everything from level 1 and level 2, as well as:

  • Product code
  • Product/SKU description
  • Unit quantity
  • Unit price and unit of measure
  • Debit/credit indicator
  • Freight and shipping cost
  • Applied discounts
  • Import or duty taxes assessed
  • Destination ZIP code (optional)
  • VAT tax and tax rates (optional)

Processing Rates

To figure out whether level 2 and level 3 processing are worth it for your business, it’s best to look at the processing rates. Here’s an example of the Visa Commercial interchange rates:

Level 2 processing: 2.50% + $0.10
Level 3 processing: 1.90% + $0.10
Card-present transactions: 2.50% + $0.10
Card-not-present (CNP) transactions: 2.70% + $0.10
Interchange reimbursement fee: 2.95% + $0.10

On average, level 1 processing will set you back 1.05% more than level 3 processing. For example, on a single commercial transaction of $10,000, using level 3 data would save you $105 in fees alone. Over a month, your savings could be in the thousands.

For another example, let’s look at the Visa Business interchange rates:

Level 2 processing: 2.05% + $0.10
Retail transactions: 2.20% + $0.10
B2B transactions: 2.10% + $0.10
CNP transactions: 2.25% + $0.10
Interchange reimbursement fee: 2.95% + $0.10

As you can see, the gap between the lowest and highest savings is smaller. On top of that, the Visa Business doesn’t support level 3 processing. Over a longer period, though, it still allows you to save significant amounts of money.

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