A Guide to Level 2 and Level 3 Data In Credit Card Processing

Introduction

Most businesses use credit cards these days, but did you know that credit card processing involves different levels determining the type and amount of data captured during a transaction?

Each level impacts the fees and security of transactions, making it crucial for businesses to understand the distinctions. From basic retail purchases to complex corporate transactions, processing levels dictate how much information is required and the potential savings in processing costs.

Understanding these levels can help your business optimize its operations, save on fees, and maintain security. With that in mind, let’s explore what level 2 and level 3 data are in credit card processing.

What Are Credit Card Processing Levels?

Credit card processing is classified into three main levels: Level 1, Level 2, and Level 3. Each level represents an increasing amount of transaction data that needs to be provided to the card networks. The level of processing depends on the type of transaction and the nature of the business. 

While Level 1 covers the most basic transactions, Levels 2 and 3 require more detailed data, offering potential benefits for businesses, such as lower interchange rates.

What Is Level 1 Processing?  

Level 1 credit card processing is the standard level used for most consumer transactions, especially in retail and e-commerce environments. It requires only the most basic transaction data, such as the card number, expiration date, and total purchase amount. 

While Level 1 processing is simple and convenient, it often comes with higher interchange rates than L2 or L3 processing due to the minimal data provided. For businesses dealing mostly with consumer credit cards, Level 1 is typically sufficient.

What Is Level 2 Processing? 

Level 2 processing is designed for business and government transactions that require additional data. This level involves collecting more detailed information beyond the basics of Level 1, such as the customer’s tax ID, purchase order numbers, and specific sales tax information. 

Level 2 transactions often qualify for lower interchange rates because the additional data helps reduce  fraud risk and improve transaction transparency.  Businesses working with corporate clients or government contracts often find Level 2 processing to be more cost-effective.

What Is Level 3 Processing?

Level 3 processing is the highest and most complex level of credit card transaction processing, typically reserved for large corporations and government entities. In addition to all the data captured in L1 and L2, L 3 processing requires an itemized breakdown of each product or service involved in the transaction. 

This includes information such as product descriptions, quantities, unit prices, and shipping costs. By providing this level of detailed information, businesses can further reduce their interchange rates and improve the overall security and transparency of their transactions.

To ensure smooth operations, Level 2 and Level 3 processing come with specific requirements that Level 1 does not. Let’s explore the key requirements needed for higher-tier processing to meet compliance and optimize transaction workflows.

What Are the Requirements for Level 2 Processing?

For  Level 2 processing, merchants are required to provide certain key data points that enhance the security and transparency of transactions, helping to qualify for lower interchange fees. Below is an elaboration on these specific data points required for Level 2 processing:

1. Merchant name and location: This includes the merchant’s legal name and physical location, which helps verify the business’s identity. Providing accurate location details builds trust in the transaction and is critical for establishing the legitimacy of the purchase.
   
2. Customer code or reference number: This is a unique identifier assigned to the customer making the transaction. It can be a customer ID, account number, or reference number. By including this, the merchant can track and validate the customer, adding another layer of verification to the payment process.
   
3. Tax amount: Level 2 transactions require a breakdown of the specific tax applied to the sale. This helps create a clear record of the taxes paid, making it easier for businesses and issuers to audit transactions. The transparency provided by reporting exact tax amounts contributes to more accurate accounting and lower fees.
   
4. Invoice number or purchase order number: The invoice or PO number is included to link the transaction to a specific sale or order. This detail is especially important for businesses handling B2B payments, as it helps in reconciling transactions and ensuring accurate record-keeping.
   
5. Total sale amount and specific tax breakdowns: While Level 1 only requires the total transaction amount, Level 2 processing mandates a more detailed breakdown of the total amount, including specific taxes applied to the transaction. This detailed reporting helps card issuers better understand the transaction and reward the merchant with lower fees.

By meeting these requirements, businesses can benefit from reduced interchange fees while providing greater transparency and security for their B2B transactions.

With HighRadius’ Level 2 Processing Tool, businesses can easily automate the transmission of these required data points, ensuring that all transactions meet Level 2 processing standards. By automating this process, companies reduce errors, streamline reporting, and consistently benefit from up to 0.75% lower interchange fees. This solution is ideal for businesses looking to optimize their B2B payment processes and reduce operational costs.

By capturing this additional information, businesses can access lower interchange fees and offer enhanced transaction security to their customers.

What Are the Requirements for Level 3 Processing?

Level 3 processing is the most detailed level of transaction data reporting, typically used by businesses that handle large B2B transactions or government contracts. This level of processing requires a significant amount of transaction detail to be provided to the card issuer, which helps reduce the risk of fraud and, in return, lowers processing fees. Some of the specific data that must be included for Level 3 processing include:

1. Item descriptions and product codes: For each item purchased, a clear description and a unique product code must be provided. This transparency ensures both the buyer and issuer have a full record of what was purchased.
   
2. Quantity of items purchased: The number of units for each individual product needs to be documented, giving a detailed account of the purchase.
   
3. Unit price of each item: The cost per item must be broken down line by line, showing the price paid for each individual product or service.
   
4. Freight or shipping costs: If there are any additional charges, such as shipping or handling, these must be included separately from the item cost.
   
5. Duty or tax amounts for each item: For full transparency, detailed information regarding the tax or duty applied to each item needs to be included.
   
6. Line-item totals: The sum of each item, including tax and shipping, must be provided to give a complete picture of the transaction.

This detailed data ensures that both the merchant and the card issuer are fully aware of what was purchased, reducing the chance of disputes or fraud. The added transparency of Level 3 processing not only improves security but also leads to significant cost savings, as businesses that provide this level of detail are rewarded with lower interchange fees, typically saving around 1% on processing costs.

For businesses looking to take advantage of these savings, HighRadius’ Level 3 Processing solution allows companies to automatically transmit SKU-level and tax data to the card issuer, ensuring compliance with Level 3 requirements without manual intervention. 

By integrating HighRadius’ solution, your business can easily reduce interchange fees, boost transaction security, and streamline reporting for high-value transactions. Whether you’re dealing with government contracts or high-volume B2B orders, HighRadius’ Level 3 tool ensures your business is always benefiting from the lowest possible processing costs.

Benefits of Level 2 And Level 3 Data In Credit Card Processing

Opting for Level 2 and Level 3 processing has several advantages for businesses, particularly those dealing with B2B or government transactions. 

Some of the key benefits include:

Lower Interchange Rates: Businesses can significantly reduce their processing costs by providing more detailed transaction data, which qualifies them for lower interchange rates.

Improved Transparency: The detailed information required for Level 2 and Level 3 processing adds a layer of transparency to transactions, making it easier for businesses and their clients to track purchases and audit expenses.

Enhanced Security: Providing more data reduces the risk of fraud and errors, giving both merchants and customers greater peace of mind.

Better Reporting: The itemized details captured in Level 3 transactions can help businesses manage their inventory and finances more effectively, providing valuable insights into purchasing patterns.

How Does Highradius Help?

HighRadius’ Interchange Fee Optimizer  efficiently processes transactions by leveraging card details and available transaction data to minimize merchant fees. With Level 2 and Level 3 processing tools, businesses can streamline their operations, ensure compliance with data requirements, and unlock significant cost savings. Whether you need the moderate savings of Level 2 or the deep reductions of Level 3, HighRadius has a solution tailored to your needs.

HighRadius’ Level 2 and Level 3 credit card processing provide businesses with the opportunity to significantly reduce processing costs while increasing transparency and security in transactions. By automating the transmission of detailed data, businesses can qualify for lower interchange fees, enhancing their bottom line. HighRadius’ Interchange Fee Optimizer simplifies the process with advanced features, ensuring seamless compliance with both Level 2 and Level 3 processing requirements. Key benefits include:

• Up to 1% lower interchange fees with automated Level 2 and Level 3 data transmission.
• AI-based e-mail remittance capture to gather item-level and invoice data from your ERP/Accounting systems.
• Auto-fill capabilities to ensure all required data is transmitted, reducing downgrades and improving compliance.
• Comprehensive interchange fee analysis through reports and dashboards to identify cost-saving opportunities at a transactional level.

With support for over 30 payment processors, each with unique data and API requirements, HighRadius ensures that invoice data necessary for optimizing interchange fees is included in every payment transaction request. This customization is tailored by processor, transaction, and card product type, maximizing cost savings for merchants.

FAQS

1. What are the levels of card processing?

There are three levels of card processing: Level 1, Level 2, and Level 3. These levels determine how much detail is provided to the card issuer for the transaction. Detailed data reduces the risk of fraud and leads to lower interchange fees. Level 3 processing requires the most data and is often used in B2B transactions.

2. What is the difference between Level 1, Level 2, and Level 3 processing?

Level 1 processing requires basic transaction details like amount and merchant information. Level 2 adds details such as tax, customer ID, and postal codes, while Level 3 includes line-item data like product codes and quantities. The higher the level, the more detailed the data provided.

3. What are the fees by card processing level?

Fees decrease as the processing level increases, with Level 1 transactions typically having the highest fees. Level 2 offers moderate savings for businesses by providing additional data, and Level 3 provides the lowest interchange fees by supplying detailed transaction data, which is ideal for large B2B transactions.