Understanding Level 2 and Level 3 Credit Card Processing

Blog 2022

For merchants who process credit cards, one of the biggest concerns pertains to the associated fees. We’ve talked about how merchants can participate in programs that pass the surcharging along to their customers through programs like Payroc’s RewardPay. This has proven to be a viable and popular choice among our ISV and merchant clients. However, that approach may not always make sense for heavy B2B merchants.

For these circumstances, there are opportunities to lower business card processing fees. It’s helpful to therefore understand how the different types of cards and how you can take advantage of the potential for savings.

Credit Cards Are Not all the Same

One helpful way to think about the hundreds of types of credit cards is to consider who ultimately pays for the charges.

A consumer’s personal credit card is theirs to use for virtually anything. The consumer is directly responsible for paying those expenses.

In another instance, companies often issue cards to their employees for a variety of business expenses, including travel, dining, entertainment, and supplies. If the card is considered a business card, the payment responsibility is shared by the company and the employee. Corporate cards, meanwhile, don’t require a “personal guarantor” because the expenses are paid by the company.

Lastly, a purchasing card (or P-card) makes purchasing easier for employees who are specifically authorized to buy approved goods or services for a company. P-cards often have spending limits and restrictions on what can be purchased.

All of these card types can be used to make purchases in person or in card-not-present situations, and that’s where it can get tricky.

If a merchant doesn’t know which type of card the customer is going to use to make a purchase, they may be surprised by the associated fees. Those fees are partially determined by the amount (or level) of data captured and passed to the payment processor and payment gateway for each transaction.

Understand Transaction Data Levels

Credit card data processing falls into three levels.

Level 1 card data is typically associated with personal credit cards and has the fewest requirements and highest associated fees. Again, this is where merchants can pass along surcharging to mitigate those costs.

Level 2 and Level 3 card data involves additional information that is required for business, corporate, and purchasing cards. These levels are eligible for lower interchange rates, so it’s to a merchant’s advantage to submit Level 2 and Level 3 card data when possible.

Level 2 Card Data

At a minimum, the fields required for Level 2 are:

  • Customer Reference Number
  • Shipping zip Code
  • Tax Amount

The shipping address may be extended to include the street address, city, and state, but it isn’t required.

Level 3 Card Data

Level 3 data includes all fields included in Level 2 plus additional fields, such as:

  • Commodity Code
  • Product Code
  • Description
  • Quantity
  • Unit Of Measure
  • Unit Price
  • Discount Rate %
  • Tax Rate %
  • Additional Tax Amount
  • Additional Discount Amount
  • Duty Amount
  • Freight Amount

Why Submit Level 2 and Level 3 Data?

Merchants that submit Level 2 and Level 3 data pay significantly lower fees, which can add up to big savings over time. In some cases, the difference in fees can be almost one percentage point. In a time when businesses are looking for ways to cut costs and brace for a potential recession, lower processing fees must be a consideration.

Another benefit of collecting and submitting more detailed data is it helps facilitate better reporting, management and tracking for merchants and their business customers. Merchants can even collect Level 2 and Level 3 data in tandem with surcharging, to ensure that the lowest rate possible is applied to the cards they accept.

The challenge for many merchants is optimizing their payments processing to collect that data.

How Payroc Helps Merchants Optimize Level 2 and Level 3 Processing

Payroc’s Level 2 and Level 3 capabilities allow clients to set up customizable registration pages with full access to transaction data online, in-store, or on a mobile app to submit the elements that satisfy each level of payment data. Most importantly, the solution automatically populates default data in fields where there is no available data, making it possible for merchants to take advantage of the lowest possible processing fees. By delivering this service, merchants are able to accept and process credit cards of any type without any concern about high processing fees.

Is your business receiving the best interchange rate possible? Contact us to learn how Payroc can help turn your payments into profits.