Discover Financial Services has started to categorize its merchants by transaction volume to determine how each will have to demonstrate compliance with the Payment Card Industry Data Security Standard.

The four merchant categories announced Friday are similar to those used by Visa Inc., which has used its definitions as part of its efforts to set deadlines and impose fines to encourage merchants to come into compliance.

Discover defined its largest merchant clients as Level 1, companies that process more than 6 million Discover transactions a year. Merchants also fall into that category if another card company has assigned them to its own Level 1 category, or if, for other reasons, Discover decides the merchant should meet the same strict validation requirements.

Level 2 merchants are those that process 1 million to 6 million Discover transactions a year, or are categorized as Level 2 by another card company.

Level 3 merchants are those with 20,000 to 1 million card-not-present Discover transactions a year, or those categorized as Level 3 by another card brand. All other merchants are Level 4.

Suzanne Smits, a vice president with Discover, said in a press release that the new categorizations "will give our merchants and acquirers a more streamlined and consistent process for validating and reporting compliance."