What is Level 3 Credit Card Processing, and How Can It Save Your Business?
Level 3 Processing was initially created to prevent excess government spending. Visa and MasterCard created special interchange 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 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.
Key Benefits of Level 3 Processing for B2B and B2G Transactions
- Reduced Interchange Fees: Level 3 transactions often save businesses up to 1.5% in fees.
- Compliance with Government and Large Enterprises: Required for many B2B and B2G transactions.
- Enhanced Reporting and Rebates: Provides improved reporting and potential rebates.
- Large Ticket Savings: When level 3 detail is provided, transactions above certain dollar amounts are eligible for a significant interchange savings.
How Level 3 Data Significantly Reduces Credit Card Processing Fees
When you accept Business-to-Business (B2B) or Business-to-Government (B2G) transactions, interchange rates fall into three categories: Level 1, Level 2, or Level 3. Level 1 has the highest rates, while Level 3 offers the lowest due to additional data included in the transaction. Since interchange fees represent 75-90% of processing costs, capturing Level 3 details has a meaningful impact on savings.
Transactions that qualify for Level 3 rates can save up to 1.5% in fees by reclassifying to this lower-cost tier before processor fees are even applied.
Eligible Cards
Cards eligible for level 3 processing are: purchase cards, corporate, government spending accounts, GSA SmartPay cards, fleet and MasterCard business cards.
How To Capture 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 detail 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 Interchange Rates!
Just sending 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 10 + 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.
The Hidden Costs of Inexperience
Interchange fees are rarely reviewed for accuracy, which means:
- Your business could be overpaying due to incorrect classifications.
- Rate changes (which typically occur in April and October) might not be accounted for.
- Lost revenue opportunities can go unnoticed due to lack of expertise.
Level 3 processing is the key to taking control of these fees, ensuring you pay the lowest possible rates while meeting strict interchange requirements.
Why Level 3 Processing Solves These Challenges
Level 3 processing not only reduces interchange fees but also ensures:
- Accuracy: Proper classification of transactions to avoid costly errors.
- Compliance: Adherence to updated interchange rules.
- Savings: Maximizing reductions in interchange rates, saving you up to 40%.
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