Level 2 Data Processing: What It Is and How it Can Help Your Business
Businesses today conduct transactions quite differently from how they did some decades ago. Most businesses these days use credit cards for payments, rather than cash as they allow organizations to get around cash flow issues, and enjoy rewards programs that support businesses with points for business-related purchases.
Credit card processing is something all B2B (business to business) organizations must be able to do if they want to take cards for payments, especially if they operate as an eCommerce business. B2B transactions are the payments that are made between two merchants for goods or services. While some businesses still utilize cheques and cash, digital B2B payment solutions are increasingly more popular, and more convenient for companies to be able to make, receive, and process payments much faster and with far more significant benefits.
Data processing has become an integral part of business operations, providing companies with valuable insights into their operations, customers, and markets. As data becomes increasingly complex and voluminous, businesses must develop sophisticated data processing capabilities to stay competitive. In this blog post, we will explore Level 2 data processing, what it is, and what it means for your business.
What Are Data Levels?
Credit card processing transactions fall into three different data levels—Level 1, Level 2, and Level 3. Each level requires a certain amount of information to qualify transactions, and the higher the level is, the more details it requires. The higher the data levels, the lower the interchange rates from most credit card companies. This means that the level 2 data will directly allow you access to lower interchange costs, which in turn allows for more profit and more competitive pricing.
For B2C businesses, Level 1 digital credit card processing is the most common level, and it is more than sufficient for most. However, for B2B operations, depending on the types of cards you accept, the transaction amount processed, and the amount of information needed to be gathered to secure the transactions, higher processing levels may be required. For these businesses, Level II data processing needs to be considered.
Level 2 processing helps businesses to reduce their credit card processing costs as well as provide additional reporting data to their clients.
What Is Level 2 Data?
To understand Level 2 data, it is worth quickly covering what is required for Level 1. Level 1 data is the data that all businesses receiving credit card payments must capture from cardholders at the time of purchase. The data requirements include:
Level 2 data requires the same Level 1 data—credit card number and expiration, billing address, and zip code—in addition to more detailed information for the benefit of your buyer. This additional data includes elements such as the customer code, tax amount, tax identification, and other information. Complying with these data capture requirements allows businesses to take advantage of lower interchange rates.
What are the Benefits of Level 2 Data Processing?
Level 2 data processing provides several benefits to businesses, including:
Improved Decision Making
Level 2 data processing provides businesses with valuable insights into their operations, customers, and markets. By analyzing structured data, businesses can identify trends, patterns, and anomalies that may be missed through manual analysis. This allows businesses to make informed decisions based on data-driven insights, rather than relying on intuition or guesswork.
Level 2 data processing can also help businesses streamline their operations and increase efficiency. By automating these transaction tasks, businesses can reduce the time and resources required for manual analysis. This allows businesses to focus on more strategic tasks, such as developing new products or services, improving customer experiences, and expanding into new markets.
Improved Customer Experience
Level 2 data processing can also help businesses improve the customer experience. By analyzing customer information, businesses can identify trends and patterns in customer behavior, preferences, and feedback. This allows businesses to tailor their products, services, and marketing strategies to better meet the needs and expectations of their customers.
Examples of Level 2 Data Processing
Level 2 data processing can be applied in a wide range of industries and business functions. Here are a few examples:
In the finance industry, Level 2 data processing can be used to analyze financial data, such as stock prices, interest rates, and economic indicators. This analysis can help investors make informed decisions about where to invest their money and how to manage risk.
In the healthcare industry, Level 2 data processing can be used to analyze patient data, such as medical histories, test results, and treatment outcomes. This analysis can help healthcare providers improve patient care, identify trends and patterns in disease prevalence, and develop new treatments and therapies.
In the marketing industry, Level 2 data processing can be used to analyze customer data, such as demographic information, purchase history, and social media activity. This analysis can help marketers develop more targeted and effective marketing strategies, such as personalized advertising and targeted promotions.
In the manufacturing industry, Level 2 data processing can be used to analyze production data, such as machine performance, downtime, and quality control. This analysis can help manufacturers identify inefficiencies in their operations, reduce waste, and improve product quality.
Challenges in Level 2 Data Processing
While Level 2 data processing provides significant benefits to businesses, it also presents several challenges. Some of the key challenges in Level 2 data processing include:
One of the biggest challenges in Level 2 data processing is ensuring that the data being analyzed is of high quality. Poor quality information can lead to inaccurate insights and decisions. To ensure data quality, businesses need to establish clear data governance policies and procedures, as well as invest in data cleaning and validation tools.
Another challenge in Level 2 data processing is integrating information from different sources. In many cases, businesses have data stored in multiple databases and systems, which can make it difficult to analyze the data as a whole. To address this challenge, businesses need to invest in data integration tools and establish clear data integration processes.
Data security is another key challenge in Level 2 data processing. With the increasing amount of data being collected and analyzed, businesses need to ensure that sensitive data is kept secure and protected from unauthorized access. To address this challenge, businesses need to establish clear security policies and procedures, as well as invest in data encryption and access control tools.
Finally, Level 2 data processing requires a highly skilled workforce with expertise in data analysis, statistics, and machine learning. Many businesses may not have the resources or expertise to develop these capabilities in-house, and may need to invest in training or outsourcing to develop these capabilities.
What Are the Data Elements Required to Qualify for Level 2 Processing?
To qualify for Level 2 processing, businesses are required to capture all Level 1 data—credit card number and expiration, billing address, and zip code.
How Can Merchants Take Advantage of Level 2 Data Processing?
Level 2 data processing saves businesses money on transaction costs. Savings come from lowering the interchange rates that companies have to pay to the credit card associations per transaction. Interchange rates are the pricing set 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 can differ depending on the credit card association. We will cover this in more detail below.
Thanks to the enhanced data required, Level 2 credit card processing is also safer and more secure than Level 1, as it reduces any potential fraud or chargebacks to your business.
What Are the Technologies Required to Process Level 2 Transactions?
Processing Level 2 data requires technology that is fully equipped to gather this amount of information. Businesses will either need a standalone credit card terminal or a gateway like PayTrace which is set up to handle Level 2 data.
Payment gateways, like PayTrace, auto-fill the data fields that are required to comply with Level 2 and Level 3 data processing. Setting up these tools allow businesses to automatically comply with the data levels, retrieving them automatically upon purchase, so that enterprises can enjoy instant access to Level II and Level III savings on interchange rates.
These systems are also programmed to identify which cards qualify for Level 2 and Level 3 interchange savings, as not all credit card associations offer the same rates, and some have different policies for businesses to qualify. Optimizing this process and automatically collecting the correct data through the use of gateway tech platforms ensures that companies always remain compliant and qualified, setting them up to save time and money.
Level 2 Data Policies and Requirements
Each credit card association has its own set of policies, requirements, and interchange fees that apply to a variety of transactions. Some require the business to seek prior approval in order to be eligible for Level 2 payment processing, while others are more open and can automatically approve upon the transaction, eliminating the need for prior approval. Let’s explore them in more detail:
Visa Level 2 data policies and requirements
To qualify as a Level 2 data processing with Visa, a business should perform 1 to 6 million Visa transactions annually across all channels. To determine this, Visa will require annual completion of certain forms and quarterly completion of others.
Level 1 processing requirements
- Merchant name
- Billing zip code
- Purchase amount
- Purchase date
Level 2 processing requirements
- Everything from Level 1
- Sales tax indicator and amount
- Merchant tax idenification number (TIN)
- Merchant zip code (optional)
- Invoice number
- Order number
- Customer code, appliciable to only government/purchasing cards
Level 3 processing requirements
- Everything from Level 1 and Level 2 processing
- Product/SKU description
- Product code
- Unit price and unit of measure
- Unit quantity
- Discounts applied and line item total
- Debit/credit indicator
- Freight and/or shipping cost
- Duty and/or import taxes assessed
- VAT tax and tax rates (optional)
- Destination zip code (optional)
Visa has one of the more liberal policies, accepting accept Level 1, Level 2, and Level 3 credit card data without pre-approval, as long as the business meets the requirements.
Mastercard Level 2 data policies and requirements
Mastercard also qualifies Level 2 clients as any merchant with more than 1 million, but less than or equal to 6 million of total combined Mastercard and Maestro transactions annually. Alternatively, they will accept any merchant that is meeting the Level 2 criteria of Visa. To determine this, Mastercard will require annual completion of the following forms:
- Annual Self-Assement
- Onsite Assessment at Merchant Discretion
- Quarterly Network Scan by an ASV2
Like Visa, Mastercard will accept Level 1, Level 2, and Level 3 credit card data without prior approval, as long as the business meets their requirements.
Amex Level 2 data policies and requirements
American Express requires businesses to get pre-approval before they accept Level 2 data processing. To apply, merchants must submit the “Level 2 Merchants’ Validation Documentation”–which must include summaries of findings of the Quarterly Network Scan and a completed PCI Self Assessment Questionnaire.
Once approved, Amex accepts both Level 1 and Level 2 data and offers Level 2 interchange rates, but it does not provide any discount on interchange rates for Level 3 data.
Discover Level 2 data policies and requirements
Like Visa and Mastercard, Discover, considers Level 2 merchants to be those that are processing between 1 million and 6 million in card transactions on the Discover network annually.
Unfortunately, however, Discover only handles Level 1 data and doesn’t offer any discount on interchange rates for submitting Level 2 or Level 3 data.
The Bottom Line
Level 2 data adds huge value to B2B organizations processing high transaction volumes. Even with credit card associations that offer smaller discounts, every little bit adds up. If you run more than $1M annually in debit or credit card transactions, these savings on processing fees add up to a rather significant discount amount.
With technology platforms available like Payment Depot, businesses need not worry about credit card processing costs; they can simply sit back and enjoy the savings. Contact us today to learn more.
Quick FAQs about Level 2 Data Processing
Q: What is Level 2 Data Processing and how does it benefit businesses?
Level 2 Data Processing is an advanced level of credit card processing transaction that requires additional data beyond Level 1 data, such as customer code, tax amount, tax identification, and other information. It offers significant benefits to businesses, including lower interchange rates, access to valuable insights into operations, customers, and markets, increased efficiency, and improved customer experience.
Q: What are the requirements for Level 2 Data Processing?
To qualify for Level 2 processing, businesses must capture all Level 1 data (credit card number, expiration, billing address, and zip code) as well as additional Level 2 data. This includes customer codes, tax amounts, tax identification, and more by using a standalone credit card terminal or a gateway like PayTrace.
Q: How does Level 2 Data Processing reduce credit card processing costs?
Level 2 Data Processing reduces credit card processing costs by lowering the interchange rates that businesses have to pay to credit card associations per transaction. These reduced rates lead to savings on transaction costs and contribute to more profit and more competitive pricing.
Q: What technology is needed to handle Level 2 Data Processing?
Businesses require either a standalone credit card terminal or a payment gateway like PayTrace that is fully equipped to gather and handle the amount of information required for Level 2 Data Processing. These gateways auto-fill the necessary data fields to comply with Level 2 and Level 3 data processing and optimize the process for businesses.
Q: Do different credit card associations have different policies for Level 2 Data Processing?
Yes, each credit card association (Visa, Mastercard, American Express, and Discover) has its own set of policies, requirements, and interchange fees for Level 2 Data Processing. Some associations require prior approval for eligibility, whereas others automatically approve transactions that meet their criteria without pre-approval.