Level 2 and Level 3 Processing

Because Level-II and Level 3 Data is not widely used this is an oft-misunderstood part of the interchange guidelines.We know that all transactions qualify into a certain interchange category. A certain transaction may qualify at an interchange category with a lower rate if additional data are sent through with the authorization record.

For level 2 If four items (magnetic stripe data, card present indicator, one unique authorization and a signature) are required to qualify a transaction into the Commercial Standard category, for example, then adding additional data in the authorization record will cause that same transaction to qualify in a different category, a category with more stringent data transfer requirements. This is essentially Level-II Data.

Adding Level-II Data to a merchant’s processing solution enables that merchant to process business card transactions that otherwise would have qualified at Commercial Standard or Commercial Electronic in an interchange category of Business Level II, Corporate Level II or Corporate Data Rate II, for example.

What is required for Level-II Data to be effective? Instead of transmitting only the four items of transaction data shown above in the authorization record, a merchant would also transmit the tax amount and customer code. The processor would transfer the tax ID number and merchant type through the authorization record.

The result would be a corporate/business card sale qualifying at a different (ideally lower) interchange category. Imagine interchange as a system of increasingly better pricing. As the amount of data transferred increase, the more data exported with an authorization record result in a better (and more accurate) interchange category at which a transaction will qualify.

To achieve level 3 processing rates line item detail is required on the transaction, below is a snapshot of the required data to qualify for level 3 rates.

Level 3

“Level-3”  also known as Level III line item detail, is equivalent to the information found on an itemized invoice, requires greater system capability.

Comparative Example*