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How to Save Tons in Fees with Level 3 Credit Card Processing

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Many business owners understand that Level 3 credit card processing solutions can save them huge amounts in fees. And it’s true! Level 3 payment processing was developed initially to prevent excess government spending by providing additional line-item transaction details. Since then, these solutions have been used in business-to-business (B2B) and business-to-government (B2G) transactions, allowing businesses to better monitor their spending and secure lower interchange rates.

So, what exactly is Level 3 credit card processing, and can your business take advantage of its lower fees? Let’s first define what it is, and then explore who may benefit from this solution.

What is Level 3 Credit Card Processing?

VISA and Mastercard have three interchange categories for credit card transactions (Levels 1, 2, and 3), each requiring different levels of data or transaction details. Level 3 requires more detail than either Levels 1 or 2. When Level 3 line item details are provided with the card payment file, the interchange fees (transaction costs) may be reduced for the merchant.

Below is a breakdown of the data required to qualify for each interchange category:

Level 1: Basic level required in all transactions 

  • Merchant’s name
  • Transaction amount
  • Date of transaction

Level 2: Best for small to mid-sized businesses  

  • Merchant’s name
  • Transaction amount
  • Date of transaction
  • Customer code
  • Total tax amount

Level 3: Ideal for companies doing business with large corporations or government entities

  • Merchant’s name
  • Transaction amount
  • Date of transaction
  • Customer code
  • Total tax amount
  • Shipper’s postal code
  • Receiver’s postal code
  • Invoice #
  • Order #
  • Freight amount
  • Line item details of the purchase (this may include more than 10 data fields, including: product description, quantity, purchase order #, unit of measure, sales tax details)

Who Can Benefit from Level 3 Processing?

Having the ability to accept higher credit card data levels can result in savings to merchants through lower interchange rates. However, Level 3 data processing does require access to and then reporting of a lot more data. If your company does a lot of business with large companies or government agencies, or you aspire to do so, or if you have high average tickets, it will definitely be worth the time and effort to qualify for Level 3 processing.

How Much Can a Business Actually Save With Level 3 Processing Rates?

Generally speaking, businesses will be able to lower their interchange rates between 1% and 1.5% on commercial credit card transactions by having the ability to accept Level 3 credit card processing. As with all payment processing, however, the actual savings will depend on a number of factors, including the technology your business is using to process transactions, the credit card network being used, and more.

Remember, it is Visa and Mastercard that use interchange rates which determine how much a business will pay to accept a particular type of credit card. These rates are paid to the card-issuing bank, NOT to your payment processor. These fees make up a huge portion of credit card processing fees, which is why having the ability to accept Level 3 processing is so important to keeping costs down if you accept commercial transactions.

How to Qualify for the Lowest Interchange Rates

Many companies are using outdated equipment and poor business practices when it comes to accepting commercial credit card payments. In fact, up to 3 out of 5 businesses are not set up to process Level 3 line item details. The result is that they are not qualified for Level 3 interchange rates, and therefore will pay higher fees for Level 1 or Level 2.

To qualify for Level 3 interchange rates, a business may need to upgrade to a more sophisticated technology platform, which your payment processing vendor can help walk you through. This may involve adopting a virtual terminal that has the capability to capture and process the additional line item detail required by the credit card companies. Your payment processor should also inform you about how to avoid violating credit card processing rules that may make you ineligible for Level 3 interchange rates.

Summary

Businesses that have high ticket sales or that do a lot of business with large companies or government agencies, should look into qualifying for Level 3 processing. Discuss solutions with your payment processing company to learn how you can begin saving money on interchange fees today!

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