Level 1, Level 2, Level 3 and Level 4 Merchant Accounts Explained

We help you understand the cost of doing business by accepting credit and purchasing cards.

  • Have you been informed about qualified versus mid or non-qualified fees and how these fees affect your monthly statement within the 3 tier pricing model?
  • If you do B2B or B2G business with customers using Purchasing Cards or P-Cards have you explored savings on Interchange pricing or a Level 3 Merchant Account?

You want a merchant services provider who will ask the right questions, has options to meet your needs and who will look for ways for merchant processing expense to minimize while your customer gets what they need.

Why are there so many merchant services options?Merchant processing levels explained

Fees and rates are the payments for the privilege of accepting credit, debit and purchasing cards.  Your industry, product or service, the method of delivery of your services, the type of cards you accept, etc. all play into the rate determination.  These are called interchange categories.  An incorrect interchange category assignment can be very costly.

So what is the difference between Level 2 and Level 3 credit card payment processing?

Standard counter-top credit card terminals (MOTO or Level 2) ) are not capable of supporting Level 3 processing requirements.

Credit and Purchasing Card Uses:

MOTO or Level 2 transactions are common for retail.

Level 3 transactions are typical in the B2B corporate and B2G purchasing worlds.

While you can use a MOTO terminal with the Corporate Purchasing Card or Government Card – you will not reap the benefits of lowest transaction rates that come with upgrading your merchant account to Level 3 to capture the enhanced date set. Level 3 processing classification allows specially issued Purchase Cards (p cards) to accept an enhanced set of data about the goods and services that are being purchase. Initially used by banks to federal, state and local government agencies, more and more large corporations are beginning to use this system to streamline the collection of payment from their customers.  Here’s a handy chart to explain the differences of Level 1, 2 and 3 processing information.

Credit Card Data Captured:

Level 2 processing is currently the standard processing level, the following information is required: Credit card number and expiration, billing address, zip code, invoice number, sales tax amount.

Level 3 requires all of Level 2 information as well as: freight amount, duty amount, product/service ID, product/service description, quantity, item amount, unit of measure. With this additional information, merchants can receive payment quicker, reduce their invoice costs, as well as receiving preferential treatment by government agencies and larger corporations because of the additional data.

Processing rates for Merchant Accounts:

By accepting Level 3 P-cards, merchants are rewarded with a lower processing rate. With current rates ranging from 2.89% -3.25%, Level 3 can decrease processing rates as much as 1%. This is accomplished by requiring more stringent and comprehensive data information gathering built into the merchant processing back end through the Level 3 merchant account

“We are thrilled to provide tools to help our clients manage their interchange exchange rate easily and efficiently,” says Marnie Ochs-Raleigh. “Our help desk is trained to provide customer support for this product, but with it’s ease of use, once the client is properly trained it is so simple, it’s a web feature merchants can set up once and reap the reward with every financial transaction.”

Merchant Account Defined:

A merchant account is a type of bank account that allows you to accept payments by payment cards, typically debit or credit cards or purchasing card (p-card). A merchant account is created under an agreement between you and a merchant acquiring bank (Visa, Mastercard, etc.) for the settlement of payment card transactions. In some cases a payment processor, independent sales organization (ISO), or merchant service provider (MSP) is also a party to the merchant agreement because you may not have the resources or volume to deal directly with the merchant acquiring bank. Whether a merchant enters into a merchant agreement directly with an acquiring bank or through an aggregator, a contract binds you, the merchant to obey the regulations established by the card associations.  Aggregators also offer the benefits of PCI compliance, 24/7 customer support, latest technology and personal relationship.

Get more definitions to merchant processing terms.