Level 1

Level 1 is the most basic level of data, and it is the most common as well. This is what most consumer transactions fall under, and it requires the least amount of data to be authorized. Most merchants will fall under the criteria for Level 1 processing and will never need higher levels of data processing because they do not sell business-to-business or business-to-government. The data required for level 1 transactions are very simple: merchant name, merchant code, date of purchase, and purchase amount. Because level 1 transactions capture the least amount of data (and because the ticket sizes are generally much smaller), the interchange rates are higher than levels 2 and 3. Additionally, Level 1 transactions can be processed using a normal terminal or gateway.

Level 2

Level 2 data processing is commonly used in business-to-business transactions. Along with the four data fields required for level 1, level 2 requires five additional pieces of data: sales tax amount, customer code, merchant zip code, merchant tax ID number, and for MasterCard, applicable women- or minority-owned merchant status. With this extra information, credit card companies assess that the risk of fraud is lower, which is reflected in lower interchange rates.

Since Level 2 requires more data, the equipment used to capture this data must be set up to do so. When accepting Level 2, most merchants have a payment gateway set up to automatically capture the data, which makes this process much less of a headache. However, a physical credit card terminal can be set up to accept Level 2 payments as well and the data can be entered manually if one so chooses.

Merchants who want to qualify for the lower interchange rates associated with levels 2 and 3 should speak with their processor to determine if it’s a feasible decision for their business and what they can do to accept it. Not all businesses need to process transactions that require levels 2 and 3 data, especially not if they’re primarily selling to consumers.

It’s true that things are much more different in the payments scene than they were even four years ago. Look at China, for example. Mobile ecommerce payments have taken the country by storm, all but replacing cash and credit cards. Instead of having certain businesses not accepting card transactions under a certain minimum or requiring cash outright, mobile payments in China are quickly becoming the status quo. Citizens scan QR codes and pay with apps like WeChat or Alipay to pay for food, transportation, and other everyday necessities. This preference for mobile payments is creating a ripple effect in neighboring countries like Japan, as vacationing Chinese citizens increasingly prefer to pay with their phones. “Mobile pay is growing so rapidly in mainland China that as a foreigner I sometimes found it difficult to complete basic transactions without it,” writes journalist Evelyn Cheng, going on to outline her difficulties purchasing items at a McDonald’s and paying for a cab with cash. But Cheng also notes some concerns with this widespread system of mobile payments, namely privacy.

With this in mind, merchants who conduct business online need to ensure they have streamlined, secure end-to-end payments infrastructure in place. The continued push toward online and CNP payments means merchants must partner with trusted merchant service providers to keep their customers happy.

This means that developing a plan to implement mobile-first payments is increasingly crucial for merchants. In order to capture business from tech-savvy users, business need to make the structure of mobile-first payments a priority.

An easy way to start making mobile payments a priority is simply to make your business’s website adaptive. This means structuring your site so it will automatically adjust to the screen size of the user browsing it. That means that whether customers are logging on from their PC or their phone, they’ll have the same experience on the site. Or, merchants can go a step further and optimize their site for mobile first. Customers will appreciate an a shopping experience that was designed for mobile users and will be more likely to make a purchase.

Having an good grasp of mobile payment is a must for merchants who hope to focus on mobile first payments. One key aspect of this is understanding how exactly your customers want to pay on mobile. While AliPay and WeChat aren’t as popular for payments outside of China, digital wallets are gaining users and popularity. Digital wallets are simply a tokenization of a user’s data stored digitally. This means that while a digital wallet can include payments (more on that in a moment), it can also include other types of data like boarding passes, room keys, or identification.