Every time your business accepts a payment, three entities get paid – the bank (interchange), the network (Visa, MC, etc.) and the processor.
Level 3 processing refers to the reduction in interchange cost from Level 1 (the highest cost transaction). These interchange adjustments are due to additional information being added to the transaction, reducing its risk according to the card network and issuing bank.
Interchange accounts for 70-90% of your cost of accepting payments and getting Level 3 payment processing discounts will reduce your cost of accepting credit cards from government and other businesses by a full percent or more.