What is Level 2 and Level 3 Processing?
Dharma’s B2B App can significantly reduce your fees
What exactly is L2 & L3?
When accepting a business or purchasing card, you can often save on your Interchange fees by providing certain data fields within the transaction. There are two levels of data that can be provided – Visa calls these Level 2 and Level 3, and Mastercard calls them Data II and Date III. For simplicity, we’re going to call them L2 & L3.
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Why use L2 & L3?
Both Visa and Mastercard have determined that, by providing more data about a transaction, it makes it less risky, and therefore can qualify for lower Interchange rates. American Express also offers reduced fees, but only to Level 2. L2 & L3 are simply extra fields passed into the transaction which gives the processor a more complete picture of why the payment is being taken
Credit card companies introduced these extra data fields to facilitate more descriptive (and, therefore, more reliable and secure) payments. In exchange for entering this data, certain merchants can benefit from discounted processing fees for US domestic payments. L2 and L3 data are generally included in business-to-business (B2B) or business-to-government (B2G) transactions. They are almost never used in consumer payments.
Are there other levels?
Technically, all transactions start out as Level 1 (L1) transactions, and contain basic data such as the card number, card expiration date, transaction value, date, and the merchant’s doing-business-as (DBA) name, and the Merchant Category Code (MCC).
This level of information is the bare minimum for a transaction to achieve authorization; this makes it quicker to collect from customers at checkout (since the card being used, and the terminal, provide all this information). However, these payments tend to result in the highest interchange fees because the issuing bank takes on a greater level of risk that the payment is fraudulent, compared with payments that include L2 and L3 data.
L3 Data
Most merchants will never have the opportunity to accept Level 3 cards, but if you’re processing in a B2B-heavy industry or if you accept a lot of Government cards, then having L3 data acceptance may help reduce your interchange costs significantly. (See a list of qualifying interchange rates, here). Often times, L3 interchange rates are up to a full 1.00% lower than their standard counterparts! But, in order to gain access to L3 data, you’ll be required to input a fair amount of information on each transaction. In addition, only certain gateways can accommodate for L3 data. Dharma offers Level 3 support through the MX Merchant interface using the B2B app. Pricing is only $20/month. MX Merchant will automatically populate all fields required for Level 2, plus the following:
- Ship-From Zip Code
- Destination Zip Code
- Invoice Number
- Order Number
- Item Product Code
- Item Commodity Code
- Item Description
- Item Quantity
- Item Unit of Measure
- Item Extended Amount
- Freight Amount
- Duty Amount
L2 Data
Level 2 credit card processing is similar to Level 3 processing, but with less requirements. Just like with L3 data, merchants are required to input additional data fields – but typically, the required fields are easier to enter and there are fewer fields to deal with. L2 processing still provides a rate reduction, but not quite as much as L3 processing.
Processing L 2 data requires either a standalone credit card terminal, or a gateway like MX Merchant or Authorize.net that’s equipped to handle L2 data. Common interchange reductions are around 0.50% lower than typical sales! (See a list of qualifying interchange rates, here). So if you’re a B2B merchant processing large orders, it’s definitely worth your while to input L2 data. In order to qualify for L2 data, you’ll be required to input the below data fields with each transaction. Don’t worry, MX Merchant automatically passes this information through with each sale to make things simple:
- Merchant Name
- Transaction Amount
- Tax Amount (Between 0.1% and 31% of the total amount)
- Transaction Date
- Customer Code or PO number
- Merchant Zip Code
Do I have to register?
Visa and Mastercard do not require registration to accept L2 or L3 data. There are requirements around the Merchant Category Code (MCC) and overall processing characteristics of the account, but no registration,
With American Express, businesses must be pre-approved for Level 2 processing. This means they have to submit Level 2 Merchant’s Validation Documentation, which should include summaries of the PCI Self-Assessment Questionnaire and Quarterly Network Scan.
Keep in mind that, even if all other thresholds are met, not all business and purchasing cards qualify for L2 or L3 interchange rates. The issuing bank ultimately determines if its cards support these data levels.
How do I accept L2 or L3 data with Dharma?
Depending on your processing needs, Dharma has two ways you can accept L2 & L3 data.
If you are using our built-in MX Merchant platform, you can enable L2 & L3 data by turning on the B2B app. B2B is $20/month and works automatically behind the scenes to provide L2 & L3 data for you (no additional data input necessary). One of the interesting things about both Visa and Mastercard specifications for L2 & L3 is that the data must exist to qualify. No where does it say the data must be correct. So the MX Merchant B2B app simply adds dummy data to the transaction for any data fields you haven’t provided in order to qualify for the best possible rate.
If you are using Authorize.net, you can qualify for L2 data only (Authorize.net does not support L3 data). With Authorize.net, you must gather the L2 data and provide it into the data stream, either at the API level, or by turning on additional fields in the virtual terminal.