Purchase cards, GSA SmartPay, and Level 3 credit card processing

Level 3 processing is a unique class of credit card processing. The Level 3 classification only applies to specially issued Purchase Cards (p-cards) that are able to accept an enhanced set of data about the goods and services that are being purchased.

Banks started issuing p-cards to federal, state, and local government agencies (GSA SmartPay) and larger corporations to help them streamline the collection of payment from their customers. The U.S. Federal government, spent $26 billion in 2006 using the GSA SmartPay purchase card and has over 3,000,000 cardholders. Businesses spent over $700 billion in 2006 and the growth rate (27% CAGR) is nearly twice that of regular credit cards.

Government agencies and businesses prefer to use P-cards for a number of reasons including cost savings from e-procurement, enhanced reporting on purchases, greater employee purchasing control, and lower negotiated rates with businesses (e.g. airlines) . The Federal government saved over $1 billion in 2006 by using p-cards.

It’s probably fair to assume a similar cost savings were realized by businesses in terms of percentage of spend. Merchants enjoy accepting the purchase cards because payment can be received quicker, invoicing costs are substantially reduced, and government agencies and larger corporations have been known to give preferential treatment to businesses that are able to accept these cards and provide the necessary Level 3 data.

What most businesses do not know is that standard merchant accounts are not typically set up for Level 3 acceptance and not all providers of merchant accounts can offer Level 3 capabilities. If a merchant’s goods or services can be sold to government agencies or larger corporations, they are wise to get setup with a merchant account that can facilitate Level 3 processing. Level 3 processing is exclusively used in business to business and business to government environments.

Merchants should also be aware that when the appropriate information is included in a Level 3 purchase, they are rewarded with lower processing rates which can be as much as 1.00%, depending on the provider. Merchants also score additional points with the accounting departments of these organizations because of the usefulness of the enhanced data reporting. Here are the different information fields that need to be captured in order to qualify for the best processing rates:

Merchant Name Level 1 Level 2 Level 3
Transaction Amount (Total)
Tax Amount
Customer Code (30 Char)
Merchant Postal Code
Tax Identification
Merchant Minority Code
Merchant State Code
Ship from Postal Code
Destination Postal 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

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