How do I qualify for different merchant levels?

Who decides what your merchant level is?
What are the criteria for reaching different merchant levels?
What are the implications of reaching different merchant levels?

First there are VASTLY DIFFERENT MEANINGS OF MERCHANT LEVEL’s.

Scenario- A customer complains about their rates being too high. The salesperson says he’ll look into it and then calls the customer back. Congratulations! I was able to qualify you for a better merchant level. Now your rates will be xyz instead of abc.

What happened to make this change? Probably nothing. The salesperson used an excuse to lower the merchants rate while still saving face about any prior deal.

1. Many processors have internal criteria for determining your merchant level. Basically they make decisions about what you’ll pay for different types of card transactions. This largely applies to companies that offer a 3 tier payment system. For example, an individual company may make up their own criteria that says
a. – all businesses processing under $100,000 in annual Visa/MasterCard will qualify for merchant level 1. Debit cards will be at x qualified rate. Some cards will be at y qualified rate, if they collect the certain special information. If the card is not on the y list, or if they don’t collect the special information, then we will charge them z rate.
b. – all businesses processing over $500,000 in annual Visa/MasterCard will qualify for merchant level 3. Debit cards will be at x qualified rate. Some cards will be at y qualified rate, if they collect the certain special information. If the card is not on the y list, or if they don’t collect the special information, then we will charge them z rate.
These are completely made up examples to Illustrate how a company might achieve a specificmerchant level.

The important thing to understand is that this has nothing to do with the entire world of credit card processing, this is strictly one companies criteria to reach a specific merchant level.

NOTE: For comparison, we do not assign similar merchant levels to our customers.

Visa and MasterCard Merchant level qualification
This is entirely different. For the most part, it rarely is directly tied to the actual rates you pay. (There are some exceptions)

As the chart below demonstrates, you are not likely to change merchant levels unless you have a large business that is expanding. The vast majority of businesses are level 4 and never move from there.

Visa Merchant Level Definition**
1 Any merchant-regardless of acceptance channel-processing over 6,000,000 Visa transactions per year. Any merchant that Visa, at its sole discretion, determines should meet the Level 1 merchant requirements to minimize risk to the Visa system.
2 Any merchant-regardless of acceptance channel-processing 1,000,000 to 6,000,000 Visa transactions per year.
3 Any merchant processing 20,000 to 1,000,000 Visa e-commerce transactions per year.
4 Any merchant processing fewer than 20,000 Visa e-commerce transactions per year, and all other merchants-regardless of acceptance channel-processing up to 1,000,000 Visa transactions per year.
** Merchant level definitions effective of July 18, 2006.
** Any merchant that has suffered a hack that resulted in an account data compromise may be escalated to a higher validation level.

What happens if you do get changed to a different merchant level?
There are security implications. The bigger you are the bigger your responsibility. My next article will address security for level 2 merchants to level 4 merchants.

Read more at Visa.com about merchant levels and compliance