Just when you feel you have a handle on interchange rates and compliance standards, the major card networks shift the goalposts. Visa has signaled upcoming changes to transaction processing regulations, specifically targeting Level 1 and Level 2 processing protocols, with full implementation expected by 2026.

Ignoring these changes isn't an option. Failure to adapt to Visa's evolving standards often results in "downgrades"—a scenario where your transactions are processed at a lower tier of security or data quality, triggering significantly higher fees.

Here is what you need to know about the new Level 1 and Level 2 processing regulations approaching in 2026 and how to prepare your business to maintain compliance and profitability.

Understanding the processing levels

To understand the 2026 changes, we first need to clarify what "levels" mean in the context of Visa transactions. There are generally two ways "levels" are discussed: Merchant Levels (based on volume) and Processing Levels (based on data). The upcoming regulations impact both, specifically how they interact.

What is Level 1 vs. Level 2 Processing?

Level 1 Processing is the standard for most B2C transactions. It requires minimal data: the card number, expiration date, zip code, and transaction amount. Think of this as your typical retail purchase.

Level 2 Processing is designed for B2B transactions. To qualify for Level 2—and the lower interchange rates that come with it—merchants must pass additional data points such as:

• Customer code
• Tax amount
• Tax indicator
• Merchant zip code

Visa incentivizes merchants to provide this extra data because it reduces the risk of fraud and chargebacks. In return, the merchant pays a lower fee.

What is changing in 2026?

The 2026 regulations focus on two main pillars: Data Fidelity and Security Validation. Visa is tightening the requirements for what constitutes a "valid" Level 2 transaction and how Level 1 and 2 merchants must validate their security compliance under the new PCI DSS v4.0 standards, which will be in full maintenance mode by 2026.

1. Stricter data matching for Level 2 qualification

Historically, some payment gateways could "autofill" missing data to help merchants qualify for Level 2 rates. The new regulations aim to close loopholes in artificial data enrichment.

By 2026, Visa will require stricter validation that the data provided (specifically tax IDs and customer codes) matches the cardholder's issuing bank records more accurately. This means merchants relying on outdated software that estimates or defaults these fields may find their transactions downgrading to "Standard" rates, which can cost an additional 0.50% to 1.00% per transaction.

2. Enhanced PCI DSS v4.0 enforcement

While (PCI DSS) v4.0, the Payment Card Industry Data Security Standard was introduced earlier, the "future-dated" requirements become mandatory in 2025, meaning 2026 will be the first full year of strict enforcement.

For Level 1 Merchants (processing over 6 million Visa transactions annually) and Level 2 Merchants (1 million to 6 million transactions), the 2026 landscape introduces:

• Targeted Risk Analysis: You can no longer just check a box. You must document why you check the box and how often.

• Authenticated Scans: Quarterly scans must be more rigorous.

• Phishing Resistant Multi-Factor Authentication (MFA): Simple SMS verification may no longer satisfy the requirement for accessing cardholder data environments.

How will this impact your bottom line?

The financial implications of these changes are straightforward: compliance saves money; non-compliance costs money. If your system fails to meet the new data validation standards for Level 2 processing, you lose the interchange discount. For a B2B business processing $1 million a month, a downgrade from Level 2 to Standard rates could result in thousands of dollars in lost revenue monthly.

Furthermore, Visa creates "integrity fees" for transactions that do not meet their processing standards. If your 2026 audit reveals you are not meeting the new security protocols tailored for Level 1 and Level 2 merchants, you face monthly non-compliance fines until the issues are resolved.

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We aren’t experts on the topic but we could certainly refer merchants to one of our processing partners on a case by case basis.