Level 2 Processing
Level 2 processing refers to the submission of additional transaction data, such as customer code and sales tax, during credit card processing to qualify for lower interchange rates.
Level 2 processing is a specific tier within credit card processing that involves providing more detailed transaction information than basic Level 1 data. While Level 1 processing typically only includes the transaction amount, date, and merchant name, Level 2 requires additional data points like customer code, sales tax amount, and invoice number. This extra data allows the transaction to qualify for reduced interchange fees, which are a significant component of overall payment processing costs.
Merchants, particularly those in business-to-business (B2B) or business-to-government (B2G) sectors, benefit greatly from implementing Level 2 processing. These types of transactions often involve larger average ticket sizes and repeat customers, making the potential savings from lower interchange rates substantial. For example, a supplier regularly selling office supplies to a large corporation could see a noticeable reduction in their processing fees by consistently submitting Level 2 data.
The primary driver behind Level 2 processing is the card networks (Visa, Mastercard, etc.) incentive programs for secure and transparent transactions. By providing more data, merchants help the card networks combat fraud and gain better insights into spending patterns. In return, the networks reward this transparency with lower interchange rates. This, in turn, helps the acquiring bank offer more competitive processing fees to the merchant.
To enable Level 2 processing, merchants need a payment gateway and merchant services provider that supports it. Not all payment processing solutions are equipped to handle the additional data fields. Merchants should consult with their credit card processing provider to ensure their current setup can transmit Level 2 data accurately. Implementing Level 2 can involve adjustments to their point-of-sale (POS) system or e-commerce platform to capture and transmit the required fields. While there might be an initial setup effort, the long-term savings on processing fees can make it a worthwhile investment. Merchants should actively look for merchant services providers that prioritize and facilitate Level 2 and even Level 3 processing to maximize their cost savings.