What Is Level 3 Credit Card Processing?

Credit card processing enables businesses to accept card payments, moving funds from a cardholder’s bank to the merchant’s bank. This process involves issuing banks, acquiring banks, and card networks, which authorize and settle transactions. Businesses use payment processors and gateways to manage these operations. Transactions are categorized into different levels, each requiring varying amounts of data.

Understanding Credit Card Processing Levels

Credit card transactions are categorized into different levels of data reporting. These levels—Level 1, Level 2, and Level 3—determine the depth of data transmitted to card networks and issuing banks. The amount of data provided correlates with the transaction type and can influence processing fees.

Level 1 processing is the most fundamental, commonly used for consumer-to-business (B2C) purchases. It requires minimal data, such as the merchant name, total transaction amount, and purchase date. This level is frequent in retail or e-commerce settings.

Level 2 processing involves additional data points beyond Level 1. This intermediary level applies to small business-to-business (B2B) or business-to-government (B2G) transactions. It includes data like a customer code and sales tax amount, offering more transparency.

Level 3 processing is the most comprehensive, demanding a significantly larger set of data points. This detailed reporting is reserved for specific transaction types, providing an exhaustive view of the purchase. These increasing data requirements reflect a progression from simple consumer sales to complex commercial transactions.

What Level 3 Processing Entails

Level 3 processing is designed for large business-to-business (B2B) and business-to-government (B2G) payments. This level provides detailed transaction data to card networks like Visa and Mastercard. Its purpose is to offer a granular view of the transaction, which helps reduce the risk of fraud and chargebacks.

Businesses using Level 3 processing aim for lower interchange rates, which are fees charged by card networks and issuing banks. By supplying a comprehensive dataset, merchants demonstrate higher transparency and legitimacy. This reduced risk profile can lead to cost savings on processing fees.

Level 3 processing is relevant for transactions made with corporate purchasing cards (P-cards) or government-issued credit cards. These cards often require detailed reporting for internal accounting, auditing, and expense management. Providing extensive information streamlines the reconciliation process for the purchasing entity.

This data submission provides an itemized breakdown of the purchase, going beyond transaction totals. It includes specifics about each product or service. This approach aids in risk assessment and enhances transaction security and transparency.

For businesses handling large commercial or governmental orders, optimizing for Level 3 compliance offers financial benefits. It encourages detailed record-keeping, which can also improve internal financial management.

Required Data for Level 3 Transactions

To qualify a transaction for Level 3 processing, businesses must collect and transmit a specific set of detailed information. This granular data provides card networks and issuing banks with a comprehensive understanding of the purchase, enabling a more accurate risk assessment. Providing these details is essential for benefiting from the associated lower processing rates.

Key data points required for Level 3 transactions include:
Sales tax amount: This provides clarity on the tax component of the transaction.
Customer reference number or purchase order (PO) number: Allows the purchasing organization to link the transaction to their internal procurement records.
Invoice number: Facilitates seamless reconciliation for both parties.
Item product code or SKU: Uniquely identifies each product or service purchased.
Item description: Clarifies what was bought, supporting internal tracking and auditing.
Quantity of each item: Provides a precise breakdown of the transaction’s value.
Unit cost of each item: Essential for accurate financial reporting.
Discount amount applied: Ensures correct calculation of the final price.
Freight or shipping amount: Delineates transportation costs associated with the order.
Tax ID: Required for certain transactions, especially those involving government entities.
Destination zip code: Provides geographical context for the delivery of goods or services.

Collectively, these detailed data fields create a robust picture of the transaction, which helps card networks assess risk more accurately and efficiently.

Implementing Level 3 Processing

Implementing Level 3 processing requires integrating a business’s internal systems with payment processing infrastructure. The first step is selecting a payment processor or gateway that supports Level 3 data transmission. Not all processors offer this capability.

Businesses must integrate their accounting software or Enterprise Resource Planning (ERP) systems with the payment solution. This integration automatically captures and transmits the required Level 3 data, preventing inefficient manual entry and errors.

Many modern payment solutions offer Application Programming Interfaces (APIs) or pre-built integrations. These tools allow systems to communicate directly with the payment gateway, ensuring correct data population. This automation helps maintain Level 3 compliance.

After data transmission, the payment processor validates the information against Level 3 requirements before sending it to card networks. Missing or incorrect data can downgrade the transaction, negating benefits. Therefore, data accuracy is paramount.

Once set up, Level 3 data transmission becomes largely automated, reducing manual effort. Businesses should periodically review system configurations and data mapping for accuracy and optimal performance. Maintaining these integrations is key to consistently qualifying for favorable Level 3 interchange rates.