The merchant may pass on the line item information as well, whether they do so depends on what agreements or other motivation they have.

Yep, this is "level 3 data". Merchants or payments services often get lower interchange rates for providing this extra data

I always wondered about this. It feels like the information gets compressed or summarized a bit. I know this because when I previously had fraud charges I had to dispute the credit card company could report with some amount of accuracy the items that made up the transaction as well as in other transactions that they took the time to vet for fraud as well since they had me on the phone. It wasn’t brand or sku number granularity it was more categorical, clothing, maybe a sweater or something coarse like that. Perhaps the credit card companies do have this information but anonymize it a bit for the customer service folks?

For most merchants/terminals, only amex cards tend to send level 3 data.

Your cc bill says that. The shop knows individual items you purchased and they know how you paid. Someone is buying that data.

I guess these advertisers own stores, eg clothing. The marketers also only need to compare between multiple campaigns, not get a fully accurate count of how many people were served an ad then made a purchase. Yeah, if you use a Visa card you won't show up, but that's just a fixed unknown factor.