One common question that most of the payment processing service providers tend to receive from the subsequent merchants is, “What is the different between Level 1, Level 2, and Level 3 processing?”
As a merchant, when you tend to select the right processing level for the respective business, it would require getting an understanding of how much data you are capable of providing about the given transactions. The more data you will be providing to Visa & MasterCard, the more you can be assured of higher savings. When you tend to offer more data, it is known to result into added protection as well as security from frauds. At the same time, it is also known to lead to reduced transaction fees for the credit cards. Amongst all the given levels, level 3 or level III processing is known to deliver the best-ever security while requiring the most volumes of data.
Level 2 and Level 3 are regarded for B2B (Business to Business), and not B2C (Business to Consumer) transactions. A business that is qualified to switch to level 3 can look forward to saving significant amounts of money on an annual basis. Moreover, it is also important to note that not all card networks or credit card processors are offering the overall ease of level 3 processing.
For realizing the overall savings, it is recommended that merchants should consider seeking out services from the advanced level 3 processor. For instance, there are specific level 3 processors as well as gateways that aim at seamlessly integrating with multiple ERP systems & ecommerce solutions. Visa & MasterCard are two vital card networks offering Level 3. However, it is important to note that not all networks are doing the same.
Level 1, Level 2, and Level 3 Processing
Here are the differences between the three levels…
Level 1 Processing
Level 1 processing is known to be a common phenomenon for B2C or Business to Consumer business model. In this business model, the merchant is selling to the consumers. With the given level, you are only processing standard credit cards including the personal credit or debit cards. The transactions that are carried out with the given types of cards tend to be a “card present” sale in the typical brick-and-mortar store.
There is the limitation of some basic data or information that can be transmitted with the help of the credit card processor. The given level of processing is not known to apply to the respective B2B sales carried out with commercial cards.
Data Collected During Level 1: Level 1 is known to require the most standard data for collection while having the highest rate. Level 1 processing is known to collect the following data:
- Credit card number
- Total sale price
- Expiration date of the credit card
Pros of level 1 processing: Using this level, the credit card transactions turn out to be fast and simple. At the same time, there is no requirement of too much data.
Cons of level 1 processing: Level 1 processing is known to feature the highest rates for the respective B2B cards qualifying for level 2 & level 3 processing. Businesses are not penalized when they do not provide data.
Level 2 Processing
Level 2 processing is for the scenarios of B2B transactions. In the given scenario, the users are making use of the respective credit cards for ensuring purchases in the form of organizational buyer. In the given scenario, the issuer would provide the interchange rates that have been discounted for ensuring additional data for level 2 processing. Credit cards that are utilized are purchasing cards, corporate cards, and business cards.
At level 2 processing, there are typically two uses –either the employees are making use of the credit card for entertainment or travel expenses or for purchasing corporate supplies or services. In comparison to level 1 processing, slightly more information is needed for supporting level 2 processing.
Level 2 Processing Collection of Data: The data that gets supplied in this stage remains the same as that of level 1. Some of the additional information that is included are:
- Shipping amount
- Tax amount
- Customer code or PO number
Pros: The provision of extra data is known to impart additional security against all types of frauds. The delivery of additional security also helps in securing the overall lower rates in comparison to level 1.
Cons: Not all types of cards are known to accept the data for level 2 processing. At the same time, cards related to B2C payments are also not accepted. Level 2 processing is only known to accept B2B transactions carried out through corporate cards.
Level 3 Processing
The given level of processing is regarded as ideal for B2B as well as B2G transactions. The standard B2C payment cards are not known to qualify for the discounted rates offered through level 2 processing. Only purchase cards or corporate cards are given acceptance for the respective transactions related to level 2 processing. To be qualified for level 3 processing, it requires the presence of the most comprehensive forms of data.
Collection of data for level 3 processing: Level 3 processing is known to include the same amount of data that gets captured with the help of level 1 & level 2 processing.
Pros: There are several benefits offered by level 3 processing. Some are:
- Reduction in the overall fees –it is believed that an average small-scale or mid-sized business is capable of saving around $18,000 annually on the respective fees for merchant accounts
- Getting better reporting
- Getting more control over employee purchases
- Increasing the overall profits
- Additional security from frauds
- Detailed reporting regarding monitoring and tracking internal spending
Cons: Most organizations out there are not known to leverage the overall benefits of level 3 processing. Moreover, not every card network is capable of providing level 2 or level 3 processing. However, major card networks like MasterCard & Visa support the same. Most of the credit card processors are also not known to offer integrated support for level 2 & level 3 processing.