Level 2 Processing: What It Is and What It Means for Your Business

Businesses today conduct transactions drastically different to how they did some decades ago. Credit cards are now the method by which most businesses transact 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 which applies to all B2B organizations that take cards for payments. B2B payments are the payments which are made between two merchants for goods or services. While some businesses still utilize cheques and cash, digital B2B payments 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.  

Credit card 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.

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 quantity being processed and the amount of information needed to be gathered to secure the transactions, higher processing levels may be required. For these businesses, Level 2 data processing needs to be considered.

Level 2 processing helps businesses to reduce their 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 required to be captured from all businesses receiving credit card payments. The data requirements include:

  • Credit card number 
  • Expiration date
  • Billing address
  • Zip code

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 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 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 — as well as the following: 

  • Sales tax amount
  • Customer code
  • Merchant postal code
  • Merchant tax identification number
  • Invoice number
  • Order number

How Can Merchants Take Advantage of Level 2 Data Processing?

Level 2 data processing saves businesses money on processing costs. Savings come from lowering the interchange rates that companies have to pay to the credit card associations per transaction. Interchange rates are set by credit card companies such as MasterCard, Visa, American Express, and Discover, and 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 extra level of information required, 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.

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 2 and Level 3 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 saving 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 the following forms: 

  • Complete a Self-Assessment Questionnaire (“SAQ”).
  • Submit an Attestation of Compliance (“AOC”) Form.

And quarterly completion of:

  • Conduct a quarterly network scan by an Approved Scan Vendor (“ASV”). 

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-Assessment3
  • Onsite Assessment at Merchant Discretion3
  • Quarterly Network Scan conducted 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 the above 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. With more than 1 million is going through the business annually, these savings come to a significant amount at the end of the year. 

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.