Glossary

Acquirer/Acquiring Bank
Address Verification Service (AVS)
Adjustment
Authorization
Authorization Code
Auto Close
Automated Clearing House (ACH) File
Average Ticket (Average Sale)
Bankcard
Basis Point
Batch
Capture
Card Association
Cardholder
Card Issuing Bank
Card Not Present
Cash Reserve Account Days
Chargeback
Chargeback Ratio
Close Batch
Code 10 Authorization
Corporate Card
Credit (Reversal)
Credit Card Processing
DDA Account
Debit Card
Digital Certificate
Discount Rate
Electronic Commerce Transaction
Electronic Date Capture (EDC)
Electronic Funds Transfer (EFT)
ETC Type
Footer
Inquiry Fee
Interchange
Interchange Fee
Internet Merchant Account
Internet Service Provider (ISP)
Issuing Financial Institution
Manual Close
Merchant
Merchant Account
Merchant Identification Number (MID)
Magnetic Stripe
Mail Order/Telephone Order (MOTO)
Monthly Bankcard Volume
Network
Non-Qualified Transaction Fees (NON-Qual)
Payment Gateway
PC Software
PCI Compliance
Private Label Cards
Point Of Sale (POS)
POS Terminal
Processor
Processing Network (Vendor)
Processing Wireless
Procurement/Purchasing Cards
Reserve Account
Retrieval Request
Sales Draft (Ticket)
Secure Payment Gateway
Secure Electronic Transaction (SET)
Settlement
Shopping Cart Software
Smart card
T & E cards
Terminal
Terminal Identification Number (TID)
Terminated Merchant File (TMF)/MATCH
Transit Routing Number/ ABA #

Acquirer/Acquiring Bank:

An Acquirer is a Visa/Master Card Affiliated Bank or Bank/Processor alliance that is in the business of processing credit card transactions for businesses and is always Acquiring new merchants.

Address Verification Service (AVS):

The process of validating a cardholder’s given address against the issuer’s records, to determine accuracy and deter fraud. This service is provided as part of a credit card authorization for mail order/telephone order transactions. A code is returned with the authorization result that indicates the level of accuracy of the address match and helps secure the most favorable interchange rates.

Adjustment:

An adjustment is initiated by the acquirer to correct a processing error. The error could be a duplication of a transaction or the result of a cardholder dispute. The acquirer debits or credits the merchant DDA account for the dollar amount of the adjustment.

Authorization:

The process of verifying the credit card has sufficient funds (credit) available to cover the amount of the transaction. An authorization is obtained for every sale. An approval response in the form of a code sent to a merchant’s POS equipment (usually a terminal) from a card issuing financial institution that verifies availability of credit or funds in the cardholder account to make the purchase. Also see Point-Of-Sale.
An issuing financial institution’s electronic authorization request, which may include:

• Approval — transaction was approved
• Decline — transaction was not approved
• Call Center — response pending more information, merchant must call the toll-free authorization phone number.

Authorization Code:

A code that a credit card issuing bank returns in an electronic message to the merchant’s POS equipment that indicates approval of the transaction. The code serves as proof of authorization.

Auto Close:

A terminal feature that allows an end-of-day batch closing to occur automatically at a specified time, without having to be initiated by the merchant.

Automated Clearing House (ACH) File:

A file with instructions for the exchange and settlement of electronic payments passed between financial institutions. It represents debits and credits to be deducted from an account automatically as they occur.

Average Ticket (Average Sale):

The average dollar amount of a merchant’s typical sale. The average ticket amount is calculated by dividing the total sales volume by the total number of sales for the specified time period.

Bankcard:

A credit card issued by a Visa or MasterCard-sponsored financial institution. (American Express, Discover, Diners Club, JCB, etc., are issued directly from their respective operations, rather than through banks.)

Basis Point:

One-one hundredth of a percent, notated as 0.01% or 0.0001.

Batch:

The accumulation of captured credit card transactions in the merchant’s terminal or POS awaiting settlement.

Capture:

The submission of an electronic credit card transaction for financial settlement. Authorized credit card sales must be captured and settled in order for a merchant to receive funds for those sales. Also see Settlement.

Card Association:

MasterCard International, Visa U.S.A., Visa International and any other association and/or network assigned to the Merchant Bankcard Services Agreement.

Cardholder:

Any person who holds a payment card account (bankcard or otherwise). Person that uses a credit card to purchase goods and services.

Card Issuing Bank:

An EFT Network Member-Bank that runs a credit card or debit card “purchasing service” for their account holders. An example is Bank and the Bank Visa Card that they issue.

Card Not Present:

A transaction where the card is not present at the time of the transaction (such as mail order or telephone order). Credit card data is manually entered into the terminal, as opposed to swiping a card’s magnetic stripe through the terminal.

Card Verification Value (Visa CVV 2), Card Validation Code (MasterCard CVC 2):

A three-digit value printed in the signature panel on the back of a MasterCard or Visa card. This value is a security feature designed to crosscheck the information embossed on the card.

Cash Reserve Account Days:

The number of days as indicated in the Merchant Bankcard Services Agreement that funds will be set-aside in the Reserve Account.

Chargeback:

A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder. Typical cardholder disputes involve product delivery failure or product/service dissatisfaction. Cardholders are urged to try to obtain satisfaction from the merchant before disputing the bill with the credit card issuer.

Chargeback Ratio:

The amount of sale transactions divided by the amount of chargebacks received in any given month. This is calculated using either the item count of both or the dollar amount of both.

Close Batch:

The process of sending the batch for settlement.

Code 10 Authorization:

If you suspect a card is fraudulent at the time of the transaction, the merchant can call their voice authorization phone number and ask for a code 10. The voice operator will instruct the merchant on how to proceed.

Corporate Card:

Credit or charge cards issued to businesses to cover expenses such as travel and entertainment and procurement. Includes the multiple payment card brands of purchasing cards, business cards, corporate cards and multi-utility fleet cards. Visa and Master Card now have special procedures for passing billing information back to the card issuing bank so that it can be displayed on card holder statements; this is a program for promoting the use of credit cards for business purchases by providing purchase tracking to business users. New regulations require that this billing information be passed back with the transactions, otherwise a higher pass through fee will be incurred.

Credit (Reversal):

Nullification of an authorized transaction (sale) that has not been settled. If supported by the card issuer, a reversal will immediately “undo” an authorization and return it to the open-to-buy balance on a cardholder’s account. Some card issuers do not support reversals.

Credit Card Processing:

Credit card processing is the process of taking raw data and converting it to money to be used as a form or payment. This process involves the following parties:

• Cardholder: the owner of the card used to make a purchase
• Merchant: the business accepting credit card payments for products or services sold to the cardholder
• Acquirer: the financial institution or other organization that provides card processing services to the merchant
• Card association: a network such as VISA®, MasterCard®, Discover® (and others) that acts as a gateway between the acquirer and issuer for authorizing and funding transactions
• Issuer: the financial institution or other organization that issued the credit card to the cardholder

The flow of information and money between these parties, always through the card associations, consists of the following steps:

• Authorization – The cardholder pays for the purchase and the merchant submits the transaction to the acquirer. The acquirer verifies with the issuer—almost instantly—that the card number and transaction amount are both valid, and then processes the transaction for the cardholder.
• Batching – After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment (usually at the end of the day).
• Clearing and settlement – The acquirer sends the transactions in the batch through the card association, which debits the issuers for payment and credits the acquirer. In effect, the issuers pay the acquirer for the transactions.
• Funding – Once the acquirer has been paid, the merchant receives payment. The amount the merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction.

(The whole process takes about 1-2 business days)

DDA Account:

This is the merchants Demand Deposit Account, otherwise known as the merchant’s home town bank account.

Debit Card:

Payment card whose funds are withdrawn directly from the cardholder’s checking account at the time of sale (online debit on a Debit Network) or after batch settlement (off-line debit on a Credit Card Network).

Digital Certificate:

An authentication that confirms a website is registered to the correct individual(s) through a thorough validation process.

Discount Rate:

The percentage of sales amounts that the bankcard acquirer or T&E card issuer charges the merchant for the settlement of the transactions.

Electronic Commerce Transaction:

A transaction conducted over the Internet or other network where a cardholder enters card data and transmits the data. This includes e-mail, electronic order forms, and interactive websites.

Electronic Date Capture (EDC):

Process of electronically authorizing, capturing and settling a credit card transaction.

Electronic Funds Transfer (EFT):

Any transfer of funds that is initiated by electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic tape.

ETC Type:

Electronic Ticket Capture code that identifies the method that a merchant settles transactions

Footer:

Text printed at the bottom of a sales draft. A merchant can customize the footer (i.e., Have a Nice Day, No Refunds, Thank You for Shopping With Us, etc.).

Inquiry Fee:

A fee imposed for all card types (MasterCard, Visa American Express, Diners Club, JCB, etc) each time an authorization is requested and/ or a batch is closed.

Interchange:

The standardized electronic exchange of financial and non-financial data associated with sale and credit data between merchant acquirers and card issuers on various types of MasterCard and Visa transactions.

Interchange Fee:

A fee paid by an acquirer to an issuer for transactions entered into interchange. The interchange fee is a percentage applied, according to Visa/MasterCard regulations, to the dollar value of each transaction. There are multiple categories of interchange, and Visa and MasterCard each have their own criteria for their own categories. A transaction must meet the specified criteria for a category in order for that category’s rate to be applied. Each transaction is evaluated individually, so various interchange rates may apply within one batch of merchant transactions.

Internet Merchant Account:

Internet merchants are not just those who have ecommerce websites. They can also be those who turn their personal computers into “virtual terminals” and process credit cards over a secure server. These merchants will receive keyed rates because the credit card information is 100% keyed into the computer. Keyed rates are higher than swiped rates because more risk is involved in not being able to check the ID of a customer. To decrease risk, the secure server (gateway) portal requires specific information to help identify if the customer is really the cardholder. The billing address for the credit card is requested, as is the expiration date of the card, and the 3 to 4 digit code on the front or back of the credit card. Transactions where this data matches the card will receive a lower keyed rate than when the data does not match the card, as those transactions are more risky and possibly fraudulent.

You will have to pay an additional fee as an Internet merchant account holder. This additional fee is the Secure Gateway Fee. Both ecommerce and virtual credit card merchant account holders have this additional fee, as the cardholder’s information will be passing over the Internet for processing in each case. The gateway keeps cardholder data private and secure from hackers and identity thieves. Rock Bottom Merchant Accounts uses Authorize.net as its gateway provider. Authorize.net is a PCI DDS (Payment Card Industry Data Security Standard) compliant company, so you know you are getting the best with this merchant account service.

Internet Service Provider (ISP):

Internet Service Providers (ISPs) are the Web Site Hosting companies that provide a home for merchant’s web sites. They typically resell and/or support the services of a Secure Gateway Provider and/or ISO or Agent or Bank.

Issuing Financial Institution:

The financial institution that extends credit to a cardholder through bankcard accounts. The financial institution issues a credit card and bills the cardholder for purchases against the bankcard account. Also referred to as the cardholder’s financial institution.

Manual Close:

A batch close that must be initiated by the merchant on a daily basis, as opposed to an auto close at a pre-set time.

Merchant:

A business that accepts credit cards. Also a customer of a processor/acquirer.

Merchant Account:

Merchant accounts provide businesses with the ability to accept credit card and debit card to pay for the purchases. Merchant accounts are set up, usually by the proprietor or business owner by contacting a merchant services provider.

Merchant Identification Number (MID):

This number is generated by a processor/acquirer and is specific to each individual merchant location. This number is used to identify the merchant during processing of daily transactions, rejects, adjustments, chargebacks, end-of-month processing fees, etc.

Magnetic Stripe:

A strip of magnetic tape affixed to the back of credit cards containing identifying data, such as account number and cardholder name.

Mail Order/Telephone Order (MOTO):

Credit card transactions initiated via mail, email or telephone. Also known as card-not-present transactions.

Monthly Bankcard Volume:

The total dollar amount of MasterCard and Visa transactions approved to be processed through a merchant account in any given month.

Network:

Company and system used to authorize and capture credit card transactions.

Non-Qualified Transaction Fees (NON-Qual):

Bankcard sales transactions that do not meet set Visa/MasterCard criteria for that particular merchant and are processed at a higher interchange rate. An example of this is a merchant that is retail (card present) that processes a card-not-present transaction (or manually enters card data rather than swiping the magnetic stripe through the terminal). The merchant will pay the difference between what they should have paid on retail and what they actually qualified for (card not present). This difference is called non-qualified interchange fees.

Payment Gateway:

The transaction processing vehicle that receives encrypted transactions from the merchant server, authenticates the merchant, decrypts the payment information, and transmits the data to the authorization and settlement networks.

PC Software:

A software program that is designed to perform a specific function on a computer system. Examples would be accounting systems, manufacturing systems, order entry and fulfillment, ticketing, reservations, etc. The application is either purchased or built by the merchant, and must be interfaced with a credit card authorization system in order to provide on-line transaction processing.

PCI Compliance:

PCI is the abbreviation for Payment Card Industry. The card associations (MC/Visa etc.,) put together the guidelines that are required for all merchants to follow to become PCI compliant. PCI compliance has been established to protect cardholder data. You can go to Visa’s website at www.visa.com/cisp for more details regarding PCI compliance.

Private Label Cards:

Credit, debit or stored-value cards that can be used only within a specific merchant’s store. Also referred to as proprietary cards.

Processing Wireless:

Enables you to take payment anywhere, anytime with a wireless payment processing device. Credit card payment is needed to be more convenient and when your processing wireless with a terminal your possibilities are endless.

Point Of Sale (POS):

A location where credit card transactions are performed with the cardholder present, such as a retail store. The card is read magnetically, and the cardholder’s signature is obtained as insurance against the transaction. This is the most secure form of credit card commerce.

POS Terminal:

Equipment used to capture, transmit and store credit card transactions at the point of sale. Examples are Verifone, Hypercom, Ingenico or Lipman terminals.

Processor:

A Processor is the company that actually routes an Authorization Request from a Point of Sale device (such as a Verifone credit card terminal) to Visa or Master Card, and then arranges for Fund Settlement to the merchant. Such processors are traditionally accessed via direct dial out modems connecting to their system.

Processing Network (Vendor):

The medium of data transport between the merchant application and the processor. This company authorizes and captures credit card transactions.

Procurement/Purchasing Cards:

Charge cards used by businesses to cover purchasing expenses, such as raw materials or office supplies.

Reserve Account:

One method that ACH Processor’s use to mitigate risk, is to require that merchants maintain a Reserve Account at the Processor’s Sponsoring Bank. This allows the Processor to issue a Hold on funds in this account when fraud has been detected or an excessively large number of returns is received. Merchants with good credit and history can usually meet the expectations of ACH Processors for covering returns and so are not always required to keep a reserve account. In cases where a reserve is required, the minimum-reserve-balance in the account is set at about 20% of the anticipated processing volume. New merchants are usually allowed to build up their reserve by sending in transactions which are not withdrawn until the minimum reserve balance is achieved; after that, the merchant is allowed to withdraw the excess funds for transfer to their home town bank.

Retrieval Request:

A request from the cardholder’s bank to supply a copy of the sales draft usually for research of a dispute.

Sales Draft (Ticket):

A form showing an obligation on the cardholder’s part to pay money (i.e., the sales amount) to the card issuer. This is the piece of paper that is signed when making the purchase. Sales draft data can be captured electronically and sent to be processed over the phone lines. Also see Electronic Data Capture.

Secure Payment Gateway:

Secure Payment Gateway companies help other Processors conduct secure business on the internet using Secure Socket Layer (SSL) technology. They provide a system that passes credit card data, authorization requests, and authorization responses over the internet using encryption technology. The transaction information is sent by the Payment Gateway secure server via leased line to the credit card network where the validity of the card is checked and the availability of funds on that account is verified. An authorization code is returned via leased line to the Payment Gateway; the authorization is encrypted by the Payment Gateway and transmitted in encrypted form to the web server of the merchant, which triggers fulfillment of the order.

Secure Electronic Transaction (SET):

A future industry standard that will authenticate customers and merchants to ensure the safety and confidentiality of data processed over the Internet.

Settlement:

The process of sending a merchant’s batch to the network for processing and payment. For non-bankcards, the issuer pays the merchant directly (less applicable fees) and then bills the cardholder. For bankcards, the acquirer pays the merchant (less applicable fees) with funds from Visa/MasterCard. The bankcard issuer then bills the cardholder for the amount of the sale. Also see Capture.

Shopping Cart Software:

These applications typically provide a means of capturing a client’s Credit Card information, but they rely on the Software Module of the Secure Gateway Provider, in conjunction with the Secure Payment Gateway, in order to conduct secure Credit Card transactions online. Any given shopping cart can work with any given Secure Gateway Provider, the only requirement being that some computer code be written or provided to communicate with the Secure Gateway of choice, and that this code be integrated into the Shopping Cart Application.

Smart card:

A credit-type card that electronically stores account information in the card itself. Software:

A POS Terminal Application or PC or Internet Application that runs transactions and associated administration.

T & E cards:

Credit or charge card used by businesses for travel and entertainment expenses. Examples of these cards are American Express, Diners Club, Carte Blanche and JCB. Also see Corporate Cards.

Terminal:

Equipment used to capture, transmit and store credit card transactions.

Terminal Identification Number (TID):

A unique number assigned to each POS terminal.

Terminated Merchant File (TMF)/MATCH:

MasterCard introduced this program back in 1987 to help bankcard issuing and processing companies determine whether to sign up a merchant. It was intended to function as one of many tools to be utilized against fraudulent merchants. Designed to provide acquirers with the ability to develop or enhance risk information, MATCH is a database containing the names of merchants that have defrauded the industry. Association members and processors utilize this database to check for merchants who, for one reason or another, created issues within the system and were terminated by an ISO, processor or member. As a result, their business name appears in MATCH as a reference point for others to be wary or outright avoid doing business with them.

Transit Routing Number/ ABA #:

A nine-digit identification number assigned to a financial institution necessary to authenticate automated clearinghouse (ACH) transmissions regarding a merchant account.