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Level 1, 2 and 3 Processing

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 so 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.

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

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

Level 3 transactions 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.