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level three card processing

Level 3 Credit Card Processing Explained

April 13, 2014

Credit card transactions are complex processes that go far beyond the physical swiping of a card. One important aspect of each card transaction is the manner by which it is processed, and how much data is needed for the transaction to go through.

Credit card processing methods fit into three levels: Level 1, Level 2 and Level 3. Each level is defined by how much information is needed to complete a payment, with Level 1 requiring the least and Level 3 the most. This blog will focus on Level 3 card processing, as it is the most interesting, prevalent and impactful to both the issuer and the acquirer.

What is Level 3 Credit Card Processing?

Level 3 credit card processing enables more detailed transaction information to be conveyed back to buying organizations via their issuing banks. The most significant reason for supplying this more detailed information, at least from the merchant perspective, is that the interchange fees they are charged as part of their total transaction fee are significantly reduced. In addition, a special interchange category called “Large Ticket Interchange” (LTI) requires Level 3 processing. This applies to the large, high-value transactions that are prevalent in the B2B and B2G arenas. And when the dollars get big, so do the merchants’ savings from providing Level 3 line-item detail.

Level 3 payments require the most data out of the three processing levels. For comparison, Level 2 payments require information such as:

  • Transaction amount
  • Customer code
  • Sales tax

Level 3 payments require the same data as Level 2 payments, plus:

  • Quantity
  • Item ID or SKU
  • Item description
  • Unit price
  • Extended price
  • Unit of measure
  • Commodity code
  • Line discount

As can be seen, the difference in payment processing (and interchange savings) is in the details.

Level 3 Processing Obstacles and Challenges

Historically, there have been some obstacles for merchants looking to provide Level 3 processing data. The most obvious challenge is the design of card terminals: they don’t currently prompt for additional data, but if they did, customers would have to enter alphabetic answers using a numeric keypad. Think about the hassle of sending a text message on a flip phone and you’ll get the picture. What this really means is that merchants who want to supply Level 3 data to get the associated fee savings need to input their transaction information into a system that prompts for the required information. Today, these system programs tend to be integrated into companies’ technology resources and sometimes also incorporate new security technologies like tokenization.

So, Why Does My Business Need Level 3 Processing?

Payment processing must strike a balance between saving money, creating efficiency and ensuring security. Level 3 processing reduces processing fees and, as we see above, increases the amount of data obtained per transaction. It might seem that setting up Level 3 processing is time-consuming, but there are ways to streamline the process, such as by saving buyer information for future transactions. Set-up is also eased by the fact that reputable payments organizations have processing solutions that are compatible with all major processing platforms.

Level 3 transactions are also “cheaper” for the merchant than Level 1 and 2 transactions because of the lowered interchange rates they yield. Plus, with all the transaction details required, merchants can better track and monitor purchases, increasing efficiency and reporting power.

Real World Level 3 Savings

So, how much can a merchant save by supplying Level 3 data? Here are some examples from the MasterCard interchange schedule:

  • Commercial standard interchange is 2.95% plus 10 cents
  • The rate drops as the transaction amount grows. As the chart below shows, the higher the transaction amount, the greater the savings over the standard interchange category.
  • The delta represents the specific amount in dollars that a merchant might realize, and an equivalent amount that is reduced to the issuing bank. You can note, below, that this gets serious in a hurry.


Transaction Amount Standard Level 3 Savings
$5,000 $147.60 $90.10 $57.50
$10,000 $295 $165 $130
$30,000 $885 $420 $465
$50,000 $1,475.10 $660.00 $815.10
$100,000 $2,950 $1,230 $1,720


So, is the attention to transaction detail in Level 3 transactions worth it to your organization? It should be. Conveying Level 3 information provides a significant financial opportunity for merchants accepting corporate or purchase cards from their commercial customers. Even just one large purchasing card transaction justifies investing in the capability to transact in this manner.

To learn more about how WEX payment solutions technology can help your business, click here.

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