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Level 2 and Level 3 Credit Card Processing Explained

Level 2 and Level 3 Credit Card Processing

Businesses today conduct transactions in numerous ways. Most businesses can accept cash, check, credit or debit from their customers. Unfortunately, all transactions are not treated the same. Learn how to avoid unnecessary credit card fees by processing level 2 and level 3 transactions appropriately.

Credit Card Transactions Fall into 1 of 3 Categories

Level 1: Your basic B2C Transaction which includes narrow purchase data

Level 2: B2B Transactions that include sales tax, invoice number and postal code. A terminal is required for this type of processing. Eligible for lower interchange fees.

Level 3: Includes line-item detail. Requires an enhanced virtual payment gateway and is eligible for lower interchange fees.

Qualified Transaction: A qualified transaction meets the data criteria required for purchase card level I and II processing. Purchase card qualifying transactions result in lowering transaction interchange fees and the overall cost of payment acceptance.


Why does the Processing Level Matter?

With each level of transaction, credit card issuers add interchange fees.

Credit card companies such as Visa, Mastercard, American Express, and Discover all set their own interchange rates.

By incorporating the correct processing level for your transaction you can avoid costly interchange fees. Each processing level requires additional information on the transaction. This information – when provided – helps you avoid unnecessary interchange fees.

These requirements determine if the transaction is a qualified transaction. A qualified transaction will ensure that the business gets the lowest qualified processing rate that they are signed up with. If the criteria for being qualified are not met, the transaction downgrades. When a transaction downgrades, additional processing and/or transaction fee are also assessed on the transaction.

What are the different requirements for each Processing Level?

  • Merchant Name
  • Transaction Amount
  • Transaction Date


  • All Level 1 Requirements
  • Merchant Name
  • Transaction amount
  • Tax Amount
  • Transaction Date
  • Customer Code or PO Number
  • Merchant Zip Code
  • 1 to 6 million transactions per year
  • Annual Self Assessment Questionnaire
  • An Attestation of Compliance must be completed


  • All the above +
  • “Ship from” Postal code
  • “Destination” Postal Code
  • invoice Number
  • Order Number
  • Freight Amount
  • Line Item Detail of Purchase
  • 20,000 to 2 million transactions annually
  • Self Assessment Questionnaire (SAQ) each year
  • Quarterly Network Scan by Approved Scan Vendor (ASV)


Level 2 Processing Explained

Level 2 transactions are normally related to corporate cards issued from an American Bank. These cards are set up for employees to use for business expenses relating to their job duties.


  • Merchant Tax
  • Identification Number (TIN)
  • Merchant Postal Code (Zip code)
  • Customer Code
  • Sales Tax Amount
  • Invoice Number
  • Order Number


Level 2 Processing is for B2B merchants who process 1 to 6 million transactions per year. Usually these merchants are dealing with large orders and can see significant benefits from even a minor reduction on processing fees.


Level 2 data processing saves Merchants from unnecessary processing costs. These Savings come from lowering the interchange rates that are applied by credit card companies such as MasterCard, Visa, American Express, and Discover. Common reductions are around 0.50 percent lower than typical sales, but this rate can vary depending on which credit card company is involved.


Level 2 credit card processing is also more safe and secure than Level 1, as it reduces any potential fraud or chargebacks to your business.


Level 3 Processing Explained

Level 3 Processing is usually reserved for Business to Government transactions. As of now, it’s also important to note that American Express and Discover do not offer level 3 data processing.


  • All the above +
  • Ship from Postal code
  • Destination Postal Code
  • invoice Number
  • Order Number
  • Freight Amount
  • Line-Item Detail of Purchase


Level 3 processing is for Merchants who process 20,000 to 2 million transactions annually. Normally, it only applies to B2B Or B2G (Business to Government) transactions.


Level 3 processing can save Merchants a substantial amount on processing fees because so much extra information is provided with the transaction. This information reduces the risk of fraud and enables more transparency on the transaction. All of which translates to lower interchange and processing fees. 


Tip: Level 3 Transactions were created originally for B2G transactions to ensure proper government spending and enable proper government auditing on transactions

How Do I Accept Level 2 & 3 Transactions?

If your Payment Processing gateway doesn’t have these requirements already implemented, you need to consider switching to a different provider. With Instant Accept you can easily accept Level 2 and Level 3 transactions without any extra legwork.

Simply contact us for a no-cost analysis to see if your current transaction volume meets the requirements for Level 2 and Level 3 transactions. If you’re qualified, our team can help you start saving money by reducing your interchange rates by providing top-notch software and hardware solutions.

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