As you set out to process different payments for your business, you need to consider various degrees of security. That’s where payment processing levels come in. Different levels dictate not security capabilities, but your ability to work with certain clients and business types. FLO Business Solutions can help you determine the difference between level 2 and level 3 payment processing—and why they’re both superior to level 1 processing.
Whether you’re looking to work with the government or process more basic Amex payments, we’ve got you covered. Knowledge is power, and when you’re done with this blog, you’ll have a better idea of what you should choose.
What are the different credit card payment processing levels?
When we process credit card payments, we essentially divide them into different levels. These levels cover the types of payments you’re allowed to handle based on the amount of info you collect. On a basic level, you’re dealing with different degrees of security obtained through this information. We divide them into:
- First – Level 1
- Second – Level 2
- Third – Level 3
The higher the level, the more secure the payment processing method becomes, and the more access it allows the vendor. While you may not have to go to the trouble of collecting too many different types of info with lower levels, you also can’t work with as many types of clients. So ultimately, while it’s more work, many business owners find achieving a higher level of payment process worth it.
What is level 3 credit card processing?
One thing that sets level 3 processing apart from other levels is its relationship with B2B payments. Although you’ll find benefits with both level 2 and level 3 payment processing systems, level 3 processing wins out in certain situations. When you incorporate level 3 processing into your payment options, you’ll often end up saving as much on B2B transactions as the merchant. The thing about this option is that it enables you to provide more transaction details for Visa and MasterCard. As such, you satisfy their requirements for a lower base cost.
When all you can provide is the name, charge amount, and date, there’s more risk of the charge being fraudulent. The more information you can provide, the more the card company can trust it. In fact, level 3 was originally created to combat excessive government spending. The level 3 processing option allows you to assuage any concerns the credit card companies may have, thus solidifying your status as a trustworthy merchant.
A merchant must, however, hit a few different requirements in order to achieve level processing privileges. You have to accept corporate cards, purchasing cards, or government spending accounts—otherwise known as GSAs—issued by MasterCard or Visa. The thing about GSAs is that you must achieve level 3 processing in order to accept them. The government has strict billing standards—stricter than that which you’ll find with standard commercial (business) card transactions.
What sets level 2 and level 3 payment processing apart?
Technically speaking, level 2 and level 3 payment processing are quite similar. Level 3 processing actually has all the same qualities as level 2 processing—it just takes security to another level. Notably, level 2 processing offers better interchange rates, but they aren’t quite as good as they would be with level 3 processing. Moreover, level 2 and level 3 card data differs in that level 2 will include factors like:
- Destination address, city, and zip code
- Tax amount and indicator
- Requestor name
- Purchase order number
- VAT ID
Again, Level 3 takes all those factors into account while also figuring in the above components we mentioned that make it extra secure. Level 2 processing isn’t going to take you to the level that level 3 processing will; however, it does open certain doors. Similar to level 3 processing, level 2 processing allows you to handle corporate card payments, B2B transactions, and organizations that require increased security… but not the absolute most sensitive ones.
What does level 1 payment processing cover?
We’ve covered the higher level payment processing options—what about level 1?
Much like level 2 in relation to level 3, level 1 covers factors those levels do. Because it’s the most basic method, it largely covers the transaction date and amount, as well as the merchant information and card number. This recovers less effort from you as the merchant. However, it also means you won’t get the same benefits as you would from level 2 and level 3 interchange rates.
While level 1 may suit business owners operating a smaller storefront or handling smaller transactions, it won’t work for those in need of more security. Additionally, if you really want to address fraud concerns on a personal level, you should opt for level 2 and level 3 payment processing. Though it’s not right for every business owner, level 1 will suit some. It’s just important to approach this issue carefully.
Conclusion:
Ultimately, the type of payment processing level you aim for depends on your business goals. If you aren’t worried about whether to prioritize level 2 or level 3 payment processing, don’t worry—FLO can help you along your journey and offer the advice you need.
Ready to jump in? Give us a call at 803-887-7356 or contact us here. Not only can we answer questions—we might be a part of your journey in the future. Let’s find out!