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Level 3 Processing

What is Level 3 processing?

Level 3 Processing was initially created to prevent excess government spending. Visa and MasterCard created special rates to support Purchase Card programs reducing the merchant transaction costs (Interchange) if Level-3 line item detail information is transmitted with the card payment file

Level 3 credit card processing is designed for Business-2-Business (B2B) and Business-2-Government (B2G)  transactions and requires the capture of specific line item data that defines “what” is being purchased, “’how” the sales takes place, “who” is involved in the transaction, and “when” it takes place, combines this information with the basic payment data and delivers it electronically to the issuer.

Line item detail can equate to more than 11 data fields and includes; description of the product, quantity, PO#, unit-of-measure, and sales tax information when applicable.

Level 3 Processing is vital for the lowest interchange rates.

Visa and MasterCard use “interchange rates” to determine how much you pay to accept a particular type of card.  The Interchange rates collected are actually paid to the card-issuing bank, not your processor.

Interchange fees make up 75%-90% of credit card processing fees and why level 3 processing is so vital if you accept commercial transactions.

For Business-to-business (B2B) and business-to-government (B2G) purchases, interchange rates fall into 1 of 3 interchange categories — Level 1, Level 2, or Level 3. Level 1 has the highest rates. Level 3 has the lowest rates.

The different tiers depend on whether level 3 detail is entered, if not, the transactions clears at a different interchange rate (level 1) and can vary in interchange by 80 basis points to 1.5%

This all happens before a processor adds their fee.

Reclassifying your transactions to level 3 interchange (it can), no kidding literally adds 1%-1.5%, to your bottom line, because of these special interchange rates.

Eligible Cards

Cards eligible for level 3 processing are: purchase cards, corporate, government spending accounts, GSA SmartPay cards, fleet and MasterCard business cards.

Data Element Level-1 Level-2 Level-3
Merchant Name
Transaction Amount
Transaction Date
Customer Code
Ship From Postal Code
Destination Postal Code
invoice Number
Order Number
Freight Amount
Line Item Detail of Purchase

How To Process Level 3 Detail?

Qualifying for level 3 interchange rates requires a more sophisticated technology platform to capture what Visa and MasterCard refer to as level 3 processing (line item detail).

You need to adopt a virtual terminal capable of the additional line item requires Visa and MC require. Credit card terminals won’t cut it.  They do not support the additional detail required to receive level 3 interchange rates.

Many companies are using equipment that is outdated along with  bad practices when accepting commercial credit cards. Statistics show us that at least 3 out of 5 businesses are not set up to accept P-cards correctly, meaning they are not set up to process level 3-line item detail.

This unknowingly results in paying unnecessary high (interchange) processing fees. With greater and greater utilization of purchase, corporate, or government cards, it is now of even greater importance to properly manage your account and make sure your company is processing in the most economical manner.

Why You May Not Receive level 3 Pricing!

Just because you process level 3 line item detail, does not mean you automatically receive level 3 interchange rates. Aside from your processor setting you with cost plus pricing and the 11 + additional line item fields, both Visa and MasterCard have rules based on how a card is processed.

Violating these, not only makes the transaction ineligible for level 3 interchange rates, but may cause the transaction to downgrade to standard, costing you 65 basis points more.

The 2 biggest culprits, Preauthorizing and settling a transaction above the original authorization, not settling a transaction within 48 hours and 3rd. Skipping the zip code field.

You may have a great rate and your processor may honestly be trying to do a great job for you however, accepting commercial or government cards without level 3 detail, and your losing roughly 1% of revenue for reasons non-related to your processors rate.

Visa and MasterCard apply higher interchange rates for transactions that do not include level 3 payment detail.

Lower your interchange cost of accepting (B2B) Business-2-Business & (B2G) Business-2-Government credit card transactions by as much as 1%-1.5% with Level 3 processing.

How Much Will Level 3 Processing Save You?