If you’ve ever worked in the space of major business-to-business (B2B) or business-to-government (B2G) transactions, you may have heard of level three or level two payment processing.
In the process of researching credit card processing, it’s a good idea to take a few minutes to understand what level one, level two, and level three credit card transactions are.
Credit card transaction data levels
Each level of credit card transaction is associated with a set of data fields. Let's explore each of them below.
Level 1 transaction
The most basic and common type of credit card transaction is the level 1 transaction. The basic data fields required to complete a level 1 credit card transaction are:
- Merchant DBA name
- Billing zip code
- Transaction amount
Additional information, such as the date and time of the transaction and additional cardholder information is automatically recorded by the bank but isn’t explicitly reported by the merchant processing the transaction. These three items are all that make up a level one transaction.
Level 2 transaction
A level 2 transaction includes the same three data fields as the level 1 transaction. Additionally, the following data fields are required to qualify a transaction as level 2:
- Sales tax amount
- Customer reference number/code
- Merchant ZIP/postal code
- Tax ID
- Merchant minority code
- Merchant state code
As you can see, a level 2 transaction requires a considerably larger amount of data than level 1. However, most of this information is easy to generate automatically with an advanced point of payment system, qualifying applicable transactions for level 2 transaction benefits (more on that later).
Level 3 transaction
A level 3 transaction is the highest data level and includes the maximum amount of information about the transaction. In addition to all of the data fields that make up level 1 and level 2 transactions, level 3 transactions require the following data fields:
- Ship-from ZIP/postal code
- Ship-to/destination ZIP code
- Invoice number
- Order number
- Item product code
- Item commodity code
- Item description
- Item quantity
- Item unit of measure
- Item extended amount
- Freight amount
- Duty amount
This is the most extensive credit card transaction level, and its data field requirements are evidence of the type of transaction that level 3 is intended for.
In order for a transaction to be approved by major credit card companies as a level 2 or level 3 transaction, all of the required data fields must be submitted along with the initial transaction.
Benefits of level 2 and level 3 transactions
Level 2 and level 3 transactions provide valuable data to both the credit card company and to the purchasing party. The value of that data allows the credit card company to reduce the wholesale transaction rate, or interchange rate, associated with that transaction.
The exact discount depends on the level of the transaction and, in some cases, the dollar amount of the transaction. However, applying for a level 2 or level 3 transaction discount at the time of purchase is well worthwhile for the merchant, as savings of over 1% can translate to hundreds of dollars for major transactions.
What transactions warrant levels 2 and 3?
Higher data level transactions were introduced as a way for credit card services to offer discounts on large B2B and B2G interchanges that involve large amounts of money. Often in these types of transactions, tiny changes in the interchange rate translate to huge changes in processing fees.
This is, in part, a way for credit card companies to provide an incentive for businesses to make major transactions with credit cards versus other forms of payment.
Accepting level 3 transactions, even with a lower interest rate, is still an important revenue source for credit card services. This combined with the value of higher level transaction data makes the discount well worth offering.
Because the level 2 and level 3 transaction discounts are intended for large transactions, many major credit card services have either a minimum transaction amount to qualify, or a tiered discount structure where the interchange rate discount increases with the size of the transaction.
How to take advantage of level 3 transactions
If you are a merchant or business operator who needs to process any major B2B or B2G payments, chances are you’re probably interested in qualifying for these interchange rate discounts.
With just $100,000 in major credit card transactions in a year, this could save you $1,000 in fees. That’s no small amount!
The tricky part about qualifying for a level 2 or level 3 transaction is the fact that you need to provide the required level 2 or 3 data t the time of purchase. If you’re using a basic credit card payment processing terminal, it probably doesn’t have the technical capacity to request this data at the time of purchase and provide it to the credit card company processing your transaction.
A part of the reason why basic credit card processing terminals cannot perform this function is the fact that many of the data fields in level 3 transactions require text inputs – where many terminals only have a numeric keypad.
Though textual input is possible with a numeric keypad (remember texting with a number pad and T9?), it’s a long a tedious process. A swift point of payment, even for major transactions, is expected from any professional business; taking the time to tap in each character for each of these fields is simply not feasible.
Even with the time and determination to enter textual information with a 12 button number pad, most credit card processing terminals do not have the software to support level 3 data fields; the software, or firmware (software that cannot be changed) on these terminals, is incapable of sending additional data fields to the credit card company.
The modern solution
The solution is a modern credit card processing terminal that can handle level 3 transaction processing. With the touchscreen-enabled text input and automated data field population, qualifying your major transactions with the Smart Terminal is a swift and painless process.
To learn more about how Tidal Commerce can help you save on credit card transaction fees, contact us!
