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Level 3 Credit Card Processing Explained

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Ryleigh Stangness | July 4, 2022

“Learn how credit card brands use your transaction details to give businesses like yours a break on larger transaction amounts.”
4 min read

    You're on the phone when the top sales rep dances into the office, waving a contract like it's worth a million bucks. They saunter up to your office door with the biggest grin and knock gently - almost sarcastically - on your door frame. You bid them to enter with a nod as you hang up the phone. This has got to be good!

    They slide the contract across your desk, face down, while trying to control their silly grin. You meet their eyes, then flip the contract over to see just that - a contract for a million bucks!

    Your company bid on that project as a matter of course, not really expecting to win the RFP. But win, you did, and now you have to figure out how to process some huge Level 3 transactions. You know that means probably setting up Level 3 Credit Card Processing because right now, you're working at Level 2.

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    Level 3 Processing "“ Why Bother

    The first question to answer is, "Why even bother setting up level 3 credit card processing, anyway?" There's work involved, which means taking time out of someone's busy day. And time is money, so there has to be a reason to make it worth your while. In fact, there are a couple of pretty good reasons now that you have this million-dollar contract.

    To get paid "“ The first reason to bother setting your company up to accept a Level 3 purchase is that some government departments and some big companies use Level 3 Credit Cards. Yes, Level 3 data is different enough that a Level 3 Mastercard or Visa won't work if you don't set up your system to accept the purchase. So, your big contract could be worth nothing if you can't get paid.

    To lower expenses "“ The second reason is to save on the processing fees. There are other ways to make large B2B and B2G payments, so the credit card companies offer an incentive by lowering rates. Your company could save about 1% of the face value of the transaction by processing it at Level 3 instead of Level 2. Level 3 processing rates are lower simply to incentivize you to take the credit card for the payment. Of course, it all depends on how you facilitate the transactions, the data processing level your company qualifies for, and the credit card network. But whatever the lower Level 3 processing rates, it makes it worthwhile to bother.

    What is Level 3 Data?

    When you sell B2B or B2G, you can use Level 3 data. Your clients use their corporate or government credit cards to purchase business supplies, like inventory, parts, or raw materials. Or you might offer services to other companies or government departments, like marketing, legal services, or SaaS.

    Level 1 Transactions

    Level 1 transactions are how you use your regular credit card to buy consumer products online or in-person. The merchant inputs their DBA name and zip code, and the amount of you purchase. The bank adds the date and time, and additional cardholder details.

    Level 2 Transactions

    Level 2 transactions have all the same information as level 1 transactions, but adds the sales tax and merchant tax ID, merchant state, minority, and zip codes, and a customer reference number. Any advanced point of payment system can add these automatically.

    Level 3 Transactions

    A level 3 transaction requires the most information. To all the info for levels 1 and 2, add the invoice and order numbers, product and commodity codes, item description and quantity with the unit of measure, the extended amount, and both freight and duty.

    To make a Level 3 purchase, more data changes hands than at the lower levels. The same initial information as Level 1 and 2 transactions starts the process. Then, the credit card network requests the rest of the data at the time of purchase. You can choose one of two ways to manage this additional data.

    1) Manually input all the additional information. Your regular payment processing terminal doesn't have a keyboard to manage filling out the fields. Level 3 purchases need details like a product description that you just can't do with numbers. (Well, you could, if you were an expert at texting in the "˜90s and know how to spell your name on a "dumb" phone "“ but let's not go there.) Probably more importantly, your regular terminal just doesn't have the software and firmware it needs to handle the Level 3 data fields.

    2) Let your payment processor do it almost automatically. You don't need to know how because it is one part magic and two parts fairy dust. But your payment gateway partner simply takes the additional information from a touchscreen-enabled text input with some auto-pop features to complete the Level 3 data fields. So, quickly and easily, you upgrade the transaction to Level 3 with skills similar to searching YouTube on your smartphone.

    Requirements for Level 3 Transactions

    So, you've accepted the fact that the credit card company and the purchaser want the valuable data in the Level 3 transactions. Plus, you're happy the credit card company will reduce your interchange and processing rates on the transaction. So, what are the requirements for Level 3 data transactions?

    Go over the minimum transaction amount "“ Level 3 transactions incentivize companies and government departments using a credit card for large purchases. Check the minimum, which is likely $20k. Also, check for a better discount with larger amounts.

    Complete all fields "“ The most crucial requirement to process a Level 3 transaction is to fill in all the boxes with the initial transaction. No do-overs. See the list above to make sure you have all the information at hand.

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    In Conclusion

    It's time to step up. Level 3 processing rates are lower simply by giving more information about the transaction to the credit card companies. Your clients will appreciate the extra data so they can follow credit card payments more closely, too. Say congrats to your sales rep for a job well done!

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