The payment services or merchant services industry is a very specialized field. We have provided the definitions below to help guide you through terms that may be found on credit card processing contracts and on merchant statements.
ABA Routing Number: This 9-digit number is assigned by the American Bankers Association and is used to identify individual banks. When performing an ACH transfer from one bank account to another, this number is used to assist the electronic routing of funds.
Access Number: An access number is a telephone number used by the modem in a computer to communicate with an Internet Service Provider allowing for online access.
Account Number: A unique sequence of numbers assigned to a cardholder account that identifies the issuer and type of financial transaction card.
Acquirer (Acquiring bank): Financial organization providing credit card processing services to online merchants. Merchants are supposed either to sign up an agreement with Acquirer Bank or to grant PSP with the corresponding authority.
Automatic Check Handling (ACH) - ACH can also mean Automatic Clearinghouse: ACH is a Form of e-payment or electronic payment. There are two ways payments can be transferred: (1) by wire transfer, or (2) through an automated clearinghouse. Wire transfer is an e-payment system that is designed to handle high-dollar, time-crucial payments, usually between large banks. ACH is designed to be an e-check or electronic check. Unlike the wire transfer, it is usually used to process higher volumes or small-dollar payments for settlement issues within 1 to 2 business days. All ACH transactions are settled much the same way checks are. The clearinghouse takes all of the ACH files received daily from member banks, it then divides them by the originating bank (where the check was either cashed or deposited) and the paying bank (the bank where the check was drawn), then it totals the accounts, and credits or deducts the accounts accordingly.
Address Verification Service (AVS): in 1996, VISA/MasterCard headquarters introduced a new regulation requiring all businesses who manually key in the majority of their credit card transactions to have a special fraud prevention feature on their credit card processing equipment. This feature is referred to as an address verification system (it checks to see that the billing address given by the customer matches the credit card).
Adjustments: Used to process disputes or discrepancies with other financial institutions.
Annual Fee: A fee charged to Merchants, which can be used to lower the discount rate.
Application Fee: This is a fee for processing the paperwork and setting up the account.
Approval - confirmation code: Is sent by bank to confirm the fact that the credit card of buyer exists is suitable to the use and the inquired sum is within the limits of the permissible limit.
Authorization: Verification of a credit card transaction which confirms that the card’s available credit or debit limit is not exceeded.
Authorization Code: This code is given by the credit card issuer and authorizes a specific transaction. This number should be saved for future reference.
Authorization Fee: A communication charge for each transaction (Sale, Credit, Void), and each time a merchant closes a batch of transactions.
Automated Response Unit (ARU): An ARU allows the manual keyed entry and subsequent authorization of a credit card over a cellular or land-line telephone. A business typically imprints their customer’s card with an imprinter and then processes the transaction instantaneously over the phone.
Average Ticket Size (AVT): The average Visa/MasterCard dollar amount of each transaction the merchant anticipates processing or actually processes over time.
Backup Withholding: A 28% fee that can be charged by the IRS, and taken directly from settlement amounts, if the merchant account has not properly validated its TIN number.
Bank Identification Number (BIN): The numbers on the credit card, which unambiguously determine the issuing bank. Usually these are the first six numbers.
Bank Routing Number:
The first nine digits that appear across the bottom of a personal check; they identify the financial institution.
Basis Points: l/100th of a percentage point is a basis point. In merchant processing terms there are three distinct categories: Qualified, Mid-Qualified, and Non-Qualified. Concerning the discount rate, there is an increase of basis points from Qualified to Mid-Qualified and an increase from Mid-Qualified to Non¬Qualified.
Batch: A group of credit card transactions that are submitted for payment. Typically, a company will batch out transactions at the close of the business day, but some businesses may batch out multiple times in one day. Once the merchant batches out, the daily sales are submitted for processing, and the batch is now “closed” or “settled”.
Payment of the interchange rate on transactions with all other fees assessed on the next month’s statement.
Business Financials: Business Financials are a set of reports including a: Profit and Loss Statement, Balance Statement, and Statement of Cash Flow.
Business Financials: Business Financials are a set of reports including a: Profit and Loss Statement, Balance Statement, and Statement of Cash Flow.
Capture: The submission of a credit card transaction for processing and settlement. POS terminals and real-time processing software capture transactions to submit to merchant account providers or credit card processors.
Capture Date: The date on which a transaction is processed by an acquirer.
Card Issuer: Is the financial institution or company that has provided a card to a cardholder.
Cardholder: The person who the credit card is issued to and whose name is embossed upon the face of the card.
Card Verification Code (CVC): A unique value calculated from the data encoded on the magnetic stripe of a MasterCard card, validating card information during the authorization process.
Card Verification Value (CVV): A unique value calculated from the data encoded on the magnetic stripe of a VISA card, validating card information during the authorization process.
Card Not Present: A transaction performed without the physical presence of the card, such as one done over the phone or online. A Card Present transaction would typically be swiped through a POS terminal or through a reader.
Chargeback: A reversal of a credit card transaction, typically initiated by the transaction card issuer at the cardholder's request. Chargebacks can occur for any number of reasons, including: customer disputes, potential or actual Fraud (on the part of merchants, sales associates and/or customers), processing errors and authorization issues.
Chargeback Reason Code: A two digit number, through which the reason of the chargeback is indicated.
Clearing Account: Is a account at the clearing bank that will receive a member's credit or debit for net settlement.
Clearing Bank: Is a bank designated by the member to receive the member's daily net settlement advisement. The clearing bank will also conduct funds transfer activities with the net settlement bank and maintain the member's clearing account. This bank may be the member itself.
Compliance: The procedure a VISA or MasterCard member may use to resolve a dispute between members when no chargeback reason code applies. The challenging member must prove financial loss due to a violation of MasterCard and/or VISA rules by the other member.
Contingent Liability: Contingent Liability refers to a situation created when a merchant processes transactions before the date a cardholder receives the goods or services purchased. Travel agencies and mail order / telephone order merchants pose contingent liability risks to the bank.
Corporate Resolution: A document used by a corporation that designates individuals to allow them to act as signers on behalf of the company.
Credit Card Processors(Third Party Processors): Merchant services providers that handle the details of processing credit card transactions between merchants, issuing banks, and merchant account providers. Web site operators usually must first establish their own merchant account before contracting for credit card processing services.
Credit Report: A credit report is run on every signing principal on the merchant account application and is used to make approval decisions.
Daily Discount: Subtraction of the discount rate from daily transactions. An alternative is Monthly Discount, which makes it easier to get an overall breakdown of transaction expenses.
Data Capture: The collection, formatting and storage of information in computer memory. Some point-of-sale terminals perform data capture functions. See EDC terminal.
Data Encryption: The process of transforming processing information to make it unusable to anyone except those possessing special knowledge, usually referred to as a key.
Decline: The decline of a credit card transaction.The denial of an Authorization Request by, or on behalf of, an Issuer Member.
Deposit Account: An Access Account, other than a Credit Account, maintained by a Member for processing transactions. Deposit Accounts include checking, NOW, savings, share draft, and such other depository accounts as are legal under Applicable Law.
Discount Rate: The fee for handling a transaction. Named because it is the amount that is “discounted" from the total sale price by the credit card processor.
Doing Business As (DBA): Refers to the specific name and location of the merchant establishment where credit card purchases are made. A Fictitious Name Registration is required and association with the legal company.
E-Check: The electronic equivalent of a paper check.
e-Commerce: e-Commerce stands for Electronic Commerce and is the process of buying or selling goods or services via the internet. This is most commonly done though a merchant’s or service provider’s website and usually involves an online catalog and shopping cart. Payments are processed with an online gateway.
Electronic Money (e-money): Digital available amount of money. It is stored in electronic Form on a computer or a microprocessor. Digital available amounts can be purchased and remain on a special storage device.
Electronic Wallet: Software that enables a cardholder to conduct online transactions, manage payment receipts and store digital certificates. Electronic purse - a smart card on which electronic money can be stored.
Encryption: The technique of scrambling data automatically in the terminal or computer before data is transmitted for security/anti-fraud purposes.
Federal Tax ID Number: This is a 9-digit number assigned by the IRS and is used to track business taxes. All applications are required to specify their Federal Tax ID number. Some smaller merchants who are sole-proprietors may use their personal Social Security Number in place of a Federal Tax ID number.
Fraud screening: Procedures used to prevent customers from using of fake or stolen credit cards.
Funds Transfer System: A wire transfer network, ACH, or other communication system or clearing house or association of banks through which a payment order by a bank may be transmitted. Includes: SWIFT, CHIPS, Fedwire, The National Association of Clearing House Associations, MasterCard and VISA.
Gateway: A service which connects the shopping cart with the card processor. The gateway accepts the data in the shopping cart’s format translates it to the card processor’s format and sends it to the card processor. It then does approximately the same thing, but in reverse, when it returns the authorization and other codes to the shopping cart.
Hold back (reserve account): A portion of the revenue from a merchant's credit card transactions, held in reserve by the merchant account provider to cover possible disputed charges, chargeback fees, and other expenses. After a predetermined time, holdbacks are turned over to the merchant.
Host capture: The automatic composition of a batch-file for the processor of payments or the payment gateway.
Host computer: The computer responsible for the authorisation and completion of the transaction.
Independent Sales Organization (ISO): This is an organization that processes merchant’s online credit card transactions in exchange for a percentage of the sales or transaction fees.
Interchange: A standard format for sharing or transferring data electronically between parties that do not share a common application. Usually a format that is platform-independent is agreed upon as a standard. Examples of common interchange formats include EDI (electronic data interchange), ASCI I (American Standard Code for Information Interchange), and GIF (graphics interchange format).
Interchange Fee: Fees paid by the acquirer to the issuer to compensate for transaction-related costs. VISA and MasterCard establish interchange fee rates.
Internet Merchant Account: A Merchant Account is a relationship between a retailing company and a Merchant Bank, which allows the retailer to accept credit card payments from customers via the Internet.
Issuer/Issuing Bank: The financial institution (a licensed member of MasterCard or VISA) which holds contractual agreements with and issues cards to cardholders.
Japanese Credit Bureau (JCB): Issuers of the JCB card.
Key: Numbers which are appliedfor cryptographic algorithms.
Key length: The length of a key, expressed in bytes.
MATCH: Member Alert To Control High Risk. A list of individuals and merchants that have had merchant accounts terminated for cause
Merchant: E-commerce Web-site owner providing electronic sales function.
Merchant Agreement: The written contract between merchant and acquirer that detail their respective rights, responsibilities and warranties.
Merchant Category Code (MCC): The code which indicates the type of activities of the Merchant
MID (Merchant Identification Number): Unique identifier issued by Acquirer Bank in order to track and collect Merchant's online payments.
Monthly Minimum: A base fee for card processing. Generally a merchant must generate a small amount in fees or must make up the difference.
Monthly Volume (MV): With Visa and MasterCard transactions, a merchant account is approved to process up to a maximum dollar volume. American Express, Discover, and any other card processing volumes are not included into the calculated monthly volume.
MOTO - Mail Order-Telephone Order: Credit card transactions that originate over the phone, or through order forms.
Net Payment: Payment to the merchant for sales drafts less credits minus the appropriate discount fee.
Net Revenue: Discount income less interchange expense.
Net Settlement: The settlement, through an actual transfer of funds, of the net effect of a series of financial transactions involving customers of two or more banks.
Non-Qualified Rate: Among tiered rates, the non-qualified rate is generally the highest rate charged because it does not meet any of the requirements for lower rates.
Originator: A financial institution that initiates a wire transfer or automated clearing house (ACH) payment.
Payment Gateway: A service that authorizes payments for e-businesses and online retailers. A gateway connects users to a financial institution for data transmission.
Payment Gateway Provider: A company that provides code and/or software for an e-commerce site to enable it to transfer information from its shopping cart to the acquiring bank, and on through the rest of the credit card transaction. See also payment gateway.
Payment Processor: A company that provides the processing of credit card transactions. Payment Processors are to be distinguished from issuing banks which act as the recipient of the transaction proceeds.
PCI-DSS: Payment Card Industry Data Security Standard. This is a set of rules designed to prevent security breaches and fraud using credit and debit cards
Post authorization: The transaction, which precedes the vocal authorization.
Qualified Discount Rate: Among tiered rates, the qualified rate is the lowest rate, and often the one quoted by processing companies. This usually applies to transactions where the card is present, and the card itself is not a rewards, mileage, or corporate card.
Real-Time Processing: The verification and processing of credit card transactions immediately following a purchase. Real-time verification on the Web usually takes less than five minutes. Real-time verification is especially important for websites that sell products and services that consumers expect immediately, such as memberships to the site or software downloads.
Reason Code: A code used to provide additional information to the receiving clearing member regarding the nature of a chargeback, subsequent presentment, fee collection, funds disbursement, or request for a source document.
Refund Policy: Refund Policies depend on the merchant. The merchant decides how and to what extent they can guarantee their products or services to cardholders. Refund or return policies that are very liberal can do a lot to reduce the number of charge-backs that a merchant receives.
Recurring Transaction: A transaction charged to the cardholder (with prior permission) on a periodic basis for recurring goods and services, i.e., health club membership, book-of-the-month clubs, etc.
Retrieval Request: A request by the issuer to the acquirer for a copy of the actual ticket of a transaction. The initial step that the issuer takes in the event that either the issuer or the cardholder disputes a transaction.
Secure Server: A Web server or other computer connected to the Internet that is capable of establishing encrypted communication with clients, generally using SSL or SET
Session Key: The key for the symmetrical coding, which is used for a limited time, is more frequently used for a protected connection, for example, on protocol SSL.
SET (Secure Electronic Transaction): System of providing safety of payments For bank cards, developed by the companies VISA, MasterCard, Microsoft and by several leading banks, based on the coding with the open key of the information, connected with the parameters of the card, and with the separation ofinformation between participants in the transaction in such a way that none of the participants in the calculations possesses information wholly. With the aid of standard SET, the buyer and salesman can unambiguously identify each other, after exchanging the digital SET- certificates.
Settlement: The crediting of a merchant account for charges made on credit and debit cards.
Settlement Statement: A document issued to the merchant, indicating the sales and credit activity, billing information, discount fee and chargebacks (if any) occurring during a particular time frame (one week, one month).
Setup Fee: An initial fee paid to the Merchant Service Provider for establishment of an account and for processing and reporting tools.
Shopping Basket or Shopping Cart: Used for internet shopping, a customer uses a shopping cart on a website by placing items inside for eventual purchase. A shopping cart groups the chosen items so that only one online credit card transaction is needed to complete their purchases.
Shopping Cart Software: Shopping cart software allows the cardholder to select items from an online store and place them in a virtual shopping basket or shopping cart. The shopping cart remembers which items are selected while the cardholder views other items within the virtual storefront, keeps a running total, and may calculate taxes and shipping.
SIC Code: Code of standard business- classification (Standard Industry Classification). This is the four-place number, which determines the type of activity.
SSL (Secure Socket Layer): A system for encrypting data sent over the Internet, including e-commerce transactions and passwords. With SSL, client and server computers exchange public keys, allowing them to encode and decode their communication.
Standard Industry Code/Merchant Category Code (SIC/MCC Code): Four-digit, numeric codes that identify merchant business types. There are thousands of SIC codes and all of them are defined by VISA International in the Visa USA Merchant Data Manual.
Symmetric Cryptography: Symmetrical cryptography or cryptography with the closed gate. The cryptographic algorithm, in which for the coding and the decoding are used one and the same key.
Terminated Merchant File (TMF): Merchants with excessive chargebacks are stripped of their merchant account and the ability to accept credit card orders. The merchant is then placed on the TMF match list that all Merchant Service Providers have access to.
Tier: A billing level for transaction fees. In credit card processing, the 3 main tiers are Qualified, Mid- Qualified, and Non-Qualified.
TIN Number (Taxpayer Identification Number): The IRS validates TIN numbers, which may either be EIN numbers for corporations or Social Security Numbers for sole proprietorships.
Third-Party Processing: Processing of transactions by service providers acting under contract to card issuers or acquirers.
Tokenization: The replacement of a credit card number with a “token," which is a substitute number that is nearly useless to a data thief. Merchants can use tokens for recurring billing and adjustments, but tokens have no value to identity thieves.
Transaction: Any action between a cardholder and a merchant that results in activity on the account, such as an authorization and settlement. Merchants and Financial institutions also conduct follow-on transactions that affect the cardholders' account, such as a capture and credit.
Transaction Fees: Service costs charged to a merchant on a per-transaction basis.
Transaction Log: The transactions, recorded by the state of accomplishment.
Underwriter: An underwriter is an intermediary between buyer and seller who is trained to evaluate risk and liability and assign appropriate classifications to a proposed business relationship.
Virtual Terminal: A virtual terminal is an application that is usually bundled with a gateway that enables a merchant to process credit card transactions securely over the Internet.
Voice Authorization: Submission of payment processing information by telephone, where an authorization code is presented to the merchant.
Void: Refusal of the buyer's payment after successfully passed authorization. The transactions, marked as Void, are not included into the batch and are not presented to further payment.
Wireless Fee: A fee charged on a wireless merchant account by a wireless service provider to administer communication services for a portable point of sale terminal (POS).
Wireless Terminal: A credit card terminal that uses cellphone technology to authorize cards in locations (craft fairs, carnivals, construction sites, delivery areas) that do not have fixed communications or power capabilities.
XML: Ameta language containing a set of rules For constructing other markup languages. With XML, people can make up their own tags, which expands the amount and kinds ofinformation that can be provided about the data held in documents. It enables designers to create their own customized tags to provide functionality not available with HTML. For example, XML supports links that point to multiple documents, as opposed to HTML links, which can reference just one destination each.