Credit Card Processing Blog

What Is Level Three Payment Processing 101?

September 12, 2016 8:00 AM / by Reliance Star

Level Three payment processing refers to credit card transactions conducted between businesses, or between a business and government department. Here, we explain it in a little more detail.

Level One credit card processing is used for standard business to consumer transactions (B2C); the cardholder receives limited purchase data, such as the transaction amount and the date. Level Two is used for businesses providing goods or services to other businesses (B2B). On top of the information collected at Level One, data includes tax amount, tax identification, customer code, and the merchant’s details. To collect this information, specific hardware and software is required. Level Three is for larger corporate purchases. Level Three credit cards are used in business to business (B2B) and business-to-government (B2G) transactions.

The advantage of Level Three payment processing is that businesses can benefit from optimal interchange rates, since Level Three transactions attract lower interchange rates than for Level One or Two. This is because of the data they retrieve during the transaction.

How It Works

With Level Three payment processing, each transaction requires certain line item detail to be collected from the buyer. The detail that is captured is equivalent to the information found on an itemized invoice and includes merchant name and address, invoice number and tax amount, item description, quantity, commodity codes, and more. There are typically around 15 to 20 fields, but depending on the client, there can be as many as 100 line items. The data is captured via a business’s ERP system.

Benefits for the Buyer

The information collected helps corporate and government customers to monitor and track internal spending. They are then able to set limits on spending and restrict how and when cards are used.

Benefits for the Merchant

  • Businesses can collect accounts receivable funds sooner, thereby reducing Days Sales Outstanding. This will also help to eliminate the cost of floating funds and assist with cash flow.
  • You will pay lower interchange fees. Businesses are rewarded for capturing all this data because you are helping to reduce the chance of credit card fraud.
  • You are more likely to attract bigger clients – for example, many government agencies are only able to make payments using Level Three credit cards.

What You Need to Do

You will need to invest in Payment Card Industry (PCI) compliant payment processing to ensure adequate security. Guidelines that govern data security are outlined by the PCI Security Standards Council and all merchants and businesses that accept credit cards must meet these requirements.

The highest standards of payment security are crucial when it comes to protecting confidential business information and reducing the risk of fraud. The technology behind standard credit card terminals does not support Level Three payment processing.

With up to 100 different fields for line item details, reporting can be personalized. Your ERP system will be integrated with a special payment platform to enable you to submit Level Three data straight from your ERP system to the payment platform. This will involve using software that is accessed via a secure website application.

Level Three payment processing is cost effective for credit card transactions for businesses selling to other businesses and government. To protect your buyer’s sensitive payment data you will need a PCI-compliant security solution with features such as point-to-point encryption, tokenization, a suite of fraud management tools, and secure hosted payment forms. The benefits will be enjoyed by both you and your customers. Your buyers will be better able to monitor their spending, and you will be able to extend your reach by dealing with departments that only allow Level Three payment processing.