In payment processing, Level 1, Level 2, and Level 3 processing refer to the types of data collected and transmitted with a credit card transaction. These levels indicate the depth of detail provided in a transaction, including data about the buyer, such as whether they are a small- or medium-sized business (SMB), a large business, or a government entity.
Businesses that accept credit card payments often face high interchange fees that cut into their profits and make it difficult to remain competitive. However, many companies — particularly those in the business-to-business (B2B) and business-to-government (B2G) sectors — may be paying more than necessary without even realizing it.
By enabling your merchants to provide additional transaction data, you can help them unlock lower interchange rates and significant savings. This is where Level 2 and Level 3 payment processing comes into play.
Understanding the differences between these levels and how they can benefit your business and your merchants is crucial for optimizing payment processing and maximizing the bottom line. In this article, we’ll define Level 2 and Level 3 data and explore how they can transform payment processing for your merchants.
What Are Level 2 and Level 3 Payment Data in Credit Card Processing?
Each of the levels of payment processing refer to the amount of data collected and passed to the payment processor during a transaction. Level 1 data is the standard for most business credit card transactions, particularly when dealing with corporate or purchasing cards, and captures essential information only like the transaction amount and merchant details. Consumer credit card transactions typically have lower interchange rates and don’t require additional data fields. Level 2 and Level 3 processing are used for B2B and B2G transactions, which often involve larger amounts of money and more complex purchasing needs.
By providing more detailed data, businesses can qualify for lower interchange rates. Below is a breakdown of what each level entails.
Save on Interchange Fees Unlock the potential for cost savings with our guide on interchange fees. Read the full guide here.
Level 2 Data
Level 2 includes additional customer and tax information beyond the standard Level 1 data. This typically consists of:
- Customer reference number
- Shipping zip code
- Tax amount
Some card brands may also require an extended shipping address — including street, city and state — but that is not always necessary.
Level 3 Data
Level 3 takes things a step further by including line-item details for each transaction in addition to the Level 1 and Level 2 data. This comprehensive data set often includes:
- Commodity codes
- Product codes
- Descriptions
- Quantities
- Unit of measure
- Unit prices
- Discount rates and amounts
- Tax rates and amounts
- Duty and freight amounts
By providing this granular data, your merchants demonstrate a higher level of transparency and security. Card brands reward with reduced interchange fees.
Discover how automatic Level III processing simplifies complex transactions in this blog post.
The Benefits of Using Level 2 and Level 3 Payment Processing
Embracing Level 2 and Level 3 payment processing offers businesses notable financial advantages. A critical benefit includes access to preferential interchange rates by supplying detailed transaction data. This is particularly valuable for businesses handling numerous high-value transactions, where even incremental fee reductions can result in significant financial savings over time.
Unlock the Potential of Level 2 & 3 Processing Discover why businesses are turning to Level 2 and Level 3 payment processing to maximize efficiency and savings. Dive deeper with our Insights on Merchant Optimization.
Beyond cost efficiency, the enriched data captured through Level 2 and Level 3 processing enhances transaction visibility and operational insight. Businesses can leverage this data to better understand spending patterns and cash flow dynamics. That allows them to make more informed strategic decisions. Enhanced data management also supports thorough reconciliation processes and compliance with complex reporting requirements, strengthening financial governance.
For a deeper understanding of how Level 2 and Level 3 data impact interchange rates and how to leverage them for your business, download our whitepaper Understanding Level 2 & 3 Interchange Rates: An Essential Guide.
- Level 1 processing is the standard for basic business credit card transactions that are often used for straightforward purchases without requiring extensive data. This level captures essential information like the transaction amount and merchant details. While consumer credit card transactions generally have lower interchange rates and don’t require extra data, business card transactions at Level 1 may incur higher interchange fees compared to Level 2 and Level 3 processing due to the limited data provided. Although it is efficient for quick consumer interactions, it lacks the nuanced data collection required for more complex financial needs
- Level 2 processing was designed with business transactions in mind. It introduces enhanced data fields that are essential for optimizing transaction costs. It includes specific information such as customer identifiers and shipping details, along with tax data. This additional information not only secures better rates but also enhances the ability to manage and reconcile transactions more effectively. Organizations that frequently engage in corporate dealings can use Level 2 processing to benefit from reduced fees and improved data insights, making it a strategic choice for business efficiency
- Level 3 processing takes data collection to an advanced level, integrating detailed line-item information for each transaction. This involves comprehensive details like itemized product codes, quantities, and unit prices, along with logistics costs. Such extensive transactional data is invaluable for businesses involved in substantial B2B and B2G engagements, where precise tracking and compliance are critical. The rich data set provided by Level 3 allows businesses to refine their financial strategies and streamline operations, offering a significant advantage in managing intricate transaction flows
Partnering With a Payments Provider That Supports Level 2 and Level 3 Processing
Identifying a payments partner that is equipped to handle Level 2 and Level 3 processing is essential for you to offer these benefits to your merchants. While payment processors generally support Level 2 and Level 3 data, not all payment gateways are equipped to capture and transmit the detailed information required for these transaction levels. Choosing a gateway that supports advanced data submission is essential for leveraging the benefits of Level 2 and Level 3 processing. Therefore, you should seek partners with proven capabilities in advanced data management, ensuring you can meet the demands of detailed transaction reporting.
An effective payments partner should provide solutions that extend beyond basic processing functions. They should offer tools that simplify the integration of complex data. This includes features like customizable interfaces and systems capable of automatically populating essential data fields. Such capabilities reduce the likelihood of manual entry errors, ensuring that transactions consistently adhere to the data criteria needed to secure favorable interchange rates.
When evaluating potential payment processors, consider their experience in managing sophisticated B2B and B2G transaction environments. Look for partners who provide systems that not only handle comprehensive data requirements but also offer innovative solutions to streamline the entire transaction process. By selecting a partner dedicated to precision and regulatory alignment, you can effectively navigate the complexities of payment processing and position yourself advantageously within a competitive financial landscape.
Enhance Your Payment Solutions With NMI
By embracing Level 2 and Level 3 payment processing, you can unlock a world of financial advantages and operational efficiencies for both your business and your merchants. As you navigate the complexities of advanced transaction management, it is crucial that you have a trusted payments partner by your side.
At NMI, we specialize in empowering Software-as-a-Service (SaaS) providers, independent sales operators (ISOs), payment facilitators (PayFacs), and banks to offer sophisticated payment solutions to their merchants. Our platform supports Level 2 and Level 3 processing, providing the tools and infrastructure you need to optimize transactions and drive your business forward.
Stay Ahead in Payment Innovation For insights into the future of payment processing and how NMI is at the forefront of industry innovation, listen to our CEO Vijay Sondhi on Episode 18 of NMI's Payment Playbook Podcast.
Ready to take your payment solutions to the next level? Explore how NMI supports sophisticated processing with our Comprehensive Guide and get in touch with us today to discover how NMI can help you optimize your transactions and drive your business forward.
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