Information on Merchant Accounts,
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February 14th, 2006 by Jamie Estep

Level 1, 2, and 3 credit card processing

Filed in: Merchant Accounts | 1 comment

The credit card processing system is setup on a three level system. These levels of requirements are made to determine if a certain transaction is a qualified transaction. A qualified transaction will ensure that the business gets the lowest qualified processing rate that they are signed up with.

If the criteria for being qualified is not met, the transaction downgrades. When a transaction downgrades, an additional processing and/or transaction fee is also assessed on the transaction. Downgrade charges can be costly for some businesses do it is important to know what is required for a transaction to be qualified.

Processing Level Qualification Chart

This chart explains exactly how much information needs to be passed through the processing system for a level 1, 2 or 3 transaction to not-downgrade and remain qualified, for the lowest possible processing rate.

Data Type

Level 1

Level 2

Level 3

Merchant Name

X X X

Transaction Amount

X X X

Data

X X X

Tax Amount

  X X

Customer Code (16 Char)

  X X

Merchant Postal Code

  X X

Tax Identification

  X X

Merchant Minority Code

  X X

Merchant State Code

  X X

Item Product Code

    X

Item Description

    X

Item Quantity

    X

Item Unit of Measure

    X

Item Extended Amount

    X

Item Net / Gross Indicator

    X

Item Tax Amount

    X

Item Tax Rate

    X

Item Tax Identifier

    X

Item Discount Indicator

    X

Ship from Postal Code

    X

Freight Amount

    X

Duty Amount

    X

Destination Postal Code

    X

Destination Country Code

    X

Alternate Tax Amount

    X

Level 1 transaction are your standard retail transaction. The card holder is using a personal credit card issued from an American bank.

Level 2 transaction are normally corporate cards issued from an American bank.

Level 3 transaction are government credit cards or corporate cards.

Level 1 and 2 transactions can be run through a standard credit card terminal or PC processing program if setup correctly. Level 3 transactions require special software to transmit the extra information required to qualify the transaction.

Businesses that have many downgrades due to corporate and government card acceptance should look into a level 2 or level 3 processing solution to avoid downgrading.

Reference Posts:
What Does All This Mean? – Merchant Account Fees
Why am I downgrading? – Part 1/3 – Reasons
Why am I downgrading? – Part 2/3 – Preventing
Why am I downgrading? – Part 3/3 – Case Studies

One Response to “Level 1, 2, and 3 credit card processing”

  1. National Merchants Corp September 8, 2008 at 1:31 am

    Helpful information about credit card processing level system, especially to those involve in online business and already have merchant account this may give them ideas how the transactions being process.

 

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