Level 2 and Level 3 Processing: Lowering Costs on B2B Card Transactions

By Expedio Payments · Call (786) 206-8198

If your business regularly bills other businesses or government agencies rather than individual consumers, there's a good chance you're paying more in card processing costs than you need to, simply because the extra data that qualifies a transaction for a lower interchange rate isn't being submitted. Level 2 and Level 3 processing describe the additional line-item and purchase data that, when included with a transaction, can move it into a lower-cost interchange category. This guide explains what that data is, who benefits from providing it, and what's needed to start capturing it.

What "Level" Processing Actually Means

The card networks group transaction data into three tiers, Level 1, Level 2, and Level 3, based on how much information about the purchase is submitted along with the basic card and amount. Each level requires progressively more detail, and in exchange, transactions that qualify for Level 2 or Level 3 can be eligible for lower interchange rates than the same dollar amount processed with only Level 1 data. This mostly affects business-to-business and business-to-government transactions; the reduced rates are generally tied to commercial and purchasing cards rather than standard consumer credit cards.

It helps to think of the three levels as a spectrum of how much a card issuer's system knows about a given purchase. A consumer buying a shirt at a retail counter gives the issuer almost no context beyond the amount and the merchant category. A business buying a pallet of parts from a supplier, with a purchase order number, a tax line, and a line-item breakdown, gives the issuer far more to work with. The card networks built Level 2 and Level 3 specifically to capture that extra context and price it accordingly, rather than treating every swipe the same regardless of how much information came with it.

Level 1: The Default for Most Retail Transactions

Level 1 is the baseline every card transaction includes at minimum: cardholder name, account number, transaction amount, and date. It's what happens automatically at a retail counter or in a typical e-commerce checkout, and it's the only level most consumer-facing businesses ever need, since consumer cards aren't eligible for the lower Level 2/3 rates regardless of how much extra data is submitted.

Level 2 and Level 3: What Extra Data Qualifies a Transaction

Level 2 processing adds a specific set of fields on top of the Level 1 basics: a sales tax amount, a customer or purchase order reference number, and a merchant tax ID, among a few others depending on the card network. These fields are the kind of information already sitting in most invoicing systems; they just need to be transmitted with the transaction rather than left out, which is typically a setup and configuration issue rather than something that requires new equipment.

Level 3 goes further, requiring true line-item detail: a description, quantity, and unit price for each item on the invoice, along with freight amount, ship-from and ship-to zip codes, and a few additional fields depending on the network. This is meaningfully more data than most point-of-sale systems capture by default, which is why Level 3 processing is almost always handled through invoicing or virtual terminal software built to capture and transmit it, rather than a standard card reader.

Why This Data Lowers Interchange Costs

Interchange rates are, in part, the card networks' way of pricing risk and reconciliation effort. A transaction that arrives with full line-item detail, tax information, and reference numbers is easier for the purchasing business's own accounting system to reconcile automatically and carries a clearer audit trail, which the networks reward with a lower rate on qualifying commercial and purchasing cards.

Our interchange rates explained guide covers the broader set of factors, card type, transaction method, and industry, that determine where a given charge falls on the interchange schedule. Level 2/3 data is one of the more controllable factors a business can influence directly, since it's about what you submit rather than what card the customer happens to be holding.

Who Should Actually Care About Level 2 and 3 Processing

The businesses that see a real difference are the ones that regularly invoice other businesses or government entities: B2B suppliers, wholesalers, professional services firms, construction and trade contractors, and anyone processing purchase-order-based transactions on commercial or purchasing cards. A retail shop selling primarily to individual consumers on personal credit cards won't see much benefit, since those cards generally aren't eligible for Level 2/3 rates no matter how much data is submitted.

The size of the benefit scales with volume and average ticket size. A contractor invoicing a handful of commercial clients a month will see a modest reduction. A wholesaler or distributor processing a large volume of purchase-order-based transactions on commercial and purchasing cards every month is the kind of business where the difference between Level 1 and Level 3 qualification adds up to a meaningful line item over the course of a year, simply because the rate difference applies automatically to every qualifying transaction rather than requiring any extra effort once it's configured.

Getting Set Up for Level 2/3 Processing

Qualifying for these lower rates isn't automatic; it requires a virtual terminal, invoicing platform, or payment gateway configured to capture and transmit the additional fields, and in some cases a review of how your invoicing data is structured so the right information is available to submit in the first place. This is typically set up as part of a broader move away from manual, over-the-phone or mail-order card entry toward a system built for recurring B2B invoicing and payment collection, such as a dedicated MOTO and invoice payment processing setup.

In practice, the setup usually involves three things: confirming your processor's platform actually supports Level 2/3 field submission (not every gateway does by default), mapping the fields your invoicing or accounting software already tracks, such as tax amount, PO numbers, and line-item detail, to the fields the card networks expect, and then testing a handful of live transactions to confirm they're qualifying at the lower rate before rolling it out across your full transaction volume. None of this requires replacing your existing invoicing system; it's almost always a configuration change on the payment side.

How Expedio Payments Helps

Expedio Payments configures Level 2 and Level 3 processing as part of our MOTO and invoice payment processing service, so B2B and government-facing businesses aren't leaving qualifying transactions on the table simply because the extra data was never set up to transmit. If you're currently taking commercial card payments over the phone or through a basic virtual terminal without this configured, it's worth a conversation. The setup is usually straightforward, and the savings apply automatically to every qualifying transaction going forward.