Glossary of terms for business credit card processing services

Acquirer: The credit card processing center that enters into a licensing agreement with the major bankcard organizations, Visa and MasterCard, for the right to market Visa and MasterCard merchant account services to businesses such as yours. Merchants apply for merchant account acceptance credit card services with an Acquirer, often indirectly through an independent sales agent, and the Acquirer in turn provides the Merchant with processing, billing, reporting, settlement and other services. Every Visa and Mastercard Merchant is in effect 'sponsored' by an Acquirer institution; Merchants do not contract directly with the bankcard associations. An Acquirer institution is NOT to be confused with an Issuer Institution whose function is to put credit cards into the hands of consumers; Acquirers and Issuers are two completely different industries.

Address Verification Service (AVS): The process, generally done via the merchant POS system, of validating a cardholder's address against the records of the card issuer, to determine accuracy and deter fraud. AVS is required primarily for non face-to-face mail/telephone credit card processing merchants. A favorable level of accuracy of information match helps the Merchant secure a more favorable merchant account rate. For more information on AVS click here

Authorization: An approval code, as opposed to a 'Decline' prompt, issued by or on behalf of a cardholder issuing bank to validate a transaction for a merchant or affiliate bank. The Authorization code is normally generated by the merchant credit card acceptance machine or POS terminal. An Authorization indicates the availability of sufficient funds in the cardholder's credit limit to cover the amount of the transaction in question; is is NOT a guarantee to the Merchant that the transaction is valid or that payment is assured.

Authorization Response: The card issuer institution's electronic message to an authorization request from a merchant generally via POS equipment or credit card processing machine, which may include:

Automated Clearing House (ACH): A processing organization that facilitates exchange and settlement of electronic payments and transactions between financial institutions and other business entities. Merchant credit and debit card transaction revenues as well as merchant service processing fees owed by the Merchant will be electronically transferred or "ACH'd" in and out of the Merchant's bank account. For more info on ACH click here.

Auto Close:, A function of POS credit card processing machines built into the programming of the equipment or software that facilitates automatic end-of-day batch closing (settlement) at a pre-arranged hour, eliminating the need for the merchant to manually perform batch settlement daily.

Average Ticket (Average Sale): The average dollar amount of a Merchant's typical sale. Calculated by dividing total sales volume by number of sales. Average ticket may impact initial underwriting conditions as well as merchant account rate costs. Monitoring of average ticket activity by the processor frequently serves as a security and fraud prevention tool.

Bankcard: A credit card issued by an institution with an Aquirer license from Visa and/or MasterCard. Not to be confused with T&E (Travel and Entertainment) cards such as American Express, Diners Club and others which generally are issued directly from their respective operations rather than through banks.

Batch: The accumulation of captured (approved) credit card transactions, both sales and credits, typically one day's worth of transactions, in the Merchant's credit card processing machine or POS terminal awaiting Settlement. (See "Settlement" below).

Batch Header Fee: An add-on fee some processors charge the merchant each time they batch out or "settle" their daily accumulation of transactions in their POS credit card processing machines.

Capture: Converting an authorized electronic credit card transaction into a billable transaction record within a batch thus permitting the merchant to settle the batch and ultimately receive funds for those sales. See also "Settlement".

Cardholder: An individual whose name is embossed on a valid credit card and any authorized user of such card.

Card Association: MasterCard International, Visa USA, Visa International, and any other bankcard association or network.

Card Not Present: A credit card transaction in which the card is not physically present at the time the transaction is processed; for example, an internet ecommerce credit card processing transaction or a mail order/phone order (MOTO) transaction. In this case, instead of swiping the card through the card reader of an electronic device, the credit card data is manually entered into the terminal, which results in a surcharge over and above the normal fees the merchant pays to process that transaction (see Interchange).

Chargeback: A credit card chargeback is a previously processed transaction that is reversed (charged back) to the Merchant, typically as a result of either the customer or the customer's bank finding something 'wrong' with the transaction generally within the mandated chargeback period. Chargebacks are initiated by the card issuer on behalf of the cardholder and are subject to strictly defined rules and procedures stemming from Card Association (Visa and MasterCard) regulations, Regulation Z Truth in Lending laws, and other sources.See WHAT IS A CHARGEBACK section of this website.

Check Verification: a process in which a check writer is electronically checked against a database of check writers who have a history of writing bad checks, have had their bank account closed as a result of bad check writing, or are otherwise an undesirable check-acceptance risk. Also see CHECK GUARANTEE.

Check Guarantee: Takes the check verification process one step further and guarantees that the check is good by reimbursing the Merchant if the check bounces, subject to the terms of the Check Guarantee agreement. Available for both POS face-to-face environments, and e-commerce environments.

CISP: Stands for "Cardholder Information Security Program". See "PCI".

CVV2/CVS2: A three digit numerical value printed in the signature block of a Visa or MasterCard consumer card; a security feature designed to crosscheck the information embossed on the card. Visa and MasterCard have different designations for this feature, as follows:

Close Batch: The process of transmitting a batch for settlement, which results in the funding of the Merchant bank account. May be auto or manual close. See also "Settlement".

Code 10 Authorization: A universally accepted distress code a small business credit card processing Merchant may verbalize to a voice authorization phone operator if the sales clerk suspects a card is fraudulent or otherwise encounters difficulty. The voice operator will understand the meaning of the code and advise or act accordingly.

Credit Card Terminal: Also known as a "credit card acceptance machine"; a hardware device equipped with a magnetic strip card reader used for processing credit and debit card transactions. Typically used in retail (face-to-face) environments. This category includes wireless credit card terminals often utilized by mobile merchant account businesses such as pool services, plumbers, limousine services and many others.

Debit Card: A payment card, also known as a 'Check Card', which unlike a credit card is linked to and draws from an existing pool of funds, usually the cardholder's checking account, from which funds to cover the sales transaction are processed via two methods: at the time of sale in the case of Online Debit on a Pin Pad based Debit Network, or after batch settlement in the case of "off-line" or "signature" debit on a Credit Card network.

DDA Account: A merchants checking account, also known as "Demand Deposit Account", which is linked to the business Merchant Services Account to deposit funds into and debit funds out of as needed.

Doing Business As (DBA): The name of a business that the public sees whether on a physical storefront or a web page, not to be confused with the legal name of the business, be it corporate, LLC, or other.

Discount Rate: The merchant account rate is the percentage of the total sales amount that the bankcard acquirer or T&E card issuer charges the merchant for the settlement of the transaction.

Early Termination Fee: A clause in the Merchant contract fine print outlining financial penalties the merchant account service provider will hold the bussines responsible for in the event of breach of the contract by virtue of closing down the Visa and/or Master Card Merchant Account prior to the expiration of the "term" of the contract (also found in the fine print). Terms are generally 2-3 years, often much more. Early Termination Fees are generally in the $295 to $395 range, often considerably more.

ECommerce: A generic term describing business done over the internet and/or processed electronically. Online merchant account services require a special ecommerce merchant account in order for the business to conduct web credit card processing acceptance; to accept a credit card online with an unsecured retail processing account is extremely dangerous and contrary to security regulations.

Face-To-Face: A credit card transaction completed with the customer present, the credit card physically in the hand of the Merchant, and the card physically swiped through a mag stripe reader of a credit card terminal. As opposed to internet merchant account services and mail/telephone credit card processing order (MOTO) transactions in which typically neither customer nor card are physically present and the card data is manually entered into the processing device.

Footer: Text printed at the bottom of a sales draft, often customized by the Merchant. If there are special conditions attached to the sale, those conditions MUST be printed in the footer area in order to be considered in any chargeback dispute scenario. Examples include "all sales final", "no refunds", and so on.

Federal Tax ID Number (EIN): A nine-digit number assigned by the IRS for tracking business taxes. This number is generally required when applying for a Credit Card Merchant Account as well as for opening a merchant bank account.

Interchange Fee: The fee paid by Acquirers to Visa and MasterCard associations for transactions entered into the system. In other words, for all intents and purposes, this is the WHOLESALE cost of credit card transactions which, like all other commodities and businesses, is marked up to allow a reasonable profit and re-sold to merchants. These fees are standardized so that they are basically identical for all acquirers and therefore all merchants worldwide. There are multiple categories of Interchange depending on type of transaction and how processed, and Visa and MasterCard each have their own criteria for their own categories. Each individual transaction processed by a Merchant must meet the specified criteria for a category in order for the rate for that particular category to be applied, otherwise it will downgrade to another category with a higher fee attached. Each Merchant transaction is evaluated individually, so various interchange rates may apply within one batch of Merchant transactions. Click here to see VISA 2007 Interchange Schedule Click here to see MASTERCARD 2007 Interchange Schedule ISO/ISA:Used interchangeably, stands for "Independent Sales Office" or "Independent Sales Agent". An ISO or ISA is an independent sales Agent or sales office registered with one of the national processing banks (Acquirers) or a merchant account service provider to represent and assist the provider in the marketing and/or support of their small business credit card acceptance services.

Issuing Financial Institution: The financial institution that extends credit to a cardholder by issuing him/her a credit card and billing the cardholder for purchases against the bankcard account. Not to be confused with "Acquirer Financial Institution" . Issuers deal with consumers, Acquirers deal with business merchants. Each is a totally different and unrelated industry.

Manual Close: A batch close or settlement that must be performed manually by the Merchant on a daily basis in order to settle his batch of credit card transactions in order to get paid, as opposed to an auto close at a pre-set time in which the terminal closes itself out automatically.

Keyed Merchant: A Merchant whose transactions are manually keyed into the POS credit card processing machine more than 50% of the time, instead of physically swiped through a card reader. Rules, procedures, risks and rates are very different for swiped (face-to-face) and keyed (mail/phone/internet) merchants, and therefore so are the designs of Merchant Accounts underwritten for each type of Merchant.

Merchant Identification Number (MID): An identifying number generated by a processor or acquirer which is specific to each Merchant location, used to differentiate one Merchant from another. Not unlike an Account Number for any other bank account such as checking or savings.

Mail Order/Telephone Order (MOTO) Merchant: Merchants who do business and credit card sales via mail, email, telephone, internet or any other non face-to-face environment. Also known as "card not present" transactions. As with Keyed Merchants, rules, procedures, risks and rates are very different for face-to-face and non face-to-face transactions, and therefore so are the criteria for Merchant Processing accounts that cater to each different business type. Furthermore, many Acquirers specialize in one business type or the other, but not both, which is why it is important for any Merchant to open a Merchant Account underwritten by an Acquirer who specializes in that Merchant's particular business model.

MATCH (Member Alert To Control HIgh-Risk Merchants: An electronic bulletin board shared by the Acquirer and Processor community to track people and businesses whose Merchant Processing Accounts are reported as "terminated" by Acquiring Banks. Any person or business who finds his/her personal or business name on the MATCH list would probably find it next to impossible to obtain a Merchant Processing Account anywhere.

Merchant Category Code (MCC): Merchant classification code that identifies each Merchant by business type. Also known as "SIC Code" or Standard Industrial Classification code. Click here to see MCC/SIC code list Mid-Qualified/Non-Qualified Fees: Bankcard transactions that do not meet set Visa/MasterCard criteria for that particular transaction type are downgraded to a higher mid-qualified or non-qualified interchange rate. For example, a face-to-face merchant who manually keys in credit card data into a terminal instead of swiping it through the reader for any reason would pay a higher fee for that transaction by virtue of having it downgraded to mid or non qualified. The same would hold true for a merchant who fails to settle a batch within the required 24-hour time frame.

Monthly Minimum: The minimum monthly processing charge (typically not including statement fees, per item fees, and other charges) that a Merchant will pay only if the Merchant's monthly credit card volume multiplied by the applicable discount rate percentage is less than the monthly minimum processing charge.

For example: A Merchant has a $25 monthly minimum. His discount rate is 1.69% and he does $1400 in Visa volume. His discount charge would be $1400 X 1.69% = $23.66. Since $23.66 is less than the $25 monthly minimum, this Merchant would be charged an extra $1.34 to bring the $23.66 charge up to the minimum $25.

PCI: Payment Card Industry (PCI) Data Security Standard, is a mandatory compliance program that ALL Merchants who store, process or transmit cardholder data MUST comply with in regards to data security. Merchants are held responsible for data breaches or compromise. Each card brand maintains it's own compliance program and rules, and has the right to levy significant fines against Merchants who fail or refuse to comply. See also "CISP" upon which PCI is based.

Pin Pad: A small device attached to a credit card terminal into which a cardholder enters numeric information (his PIN number)for authentication purposes. Pin Pads are used primarily with on-line debit card applications.

POS Terminal: Equipment used to capture, transmit, and store credit and debit card transactions at the point of sale. The credit card is swiped through the terminal magnetic card reader, the sale amount and other information is entered into the machine, the cardholder enters a PIN number in the case of an on-line debit transaction, the terminal communicates out for an authorization (or decline) code and, when successful, most terminals produce a printed receipt for the cardholder signature. The terminal then stores the sales data awaiting batch close and settlement, either manual or automatic. POS terminals are among the most secure forms of credit card commerce. Examples of dependable POS terminals are Verifone and Hypercom.

Reserve Account: One method that credit card processors use to limit risk and loss is to require certain Merchants to maintain a Reserve Account in a specific dollar amount in escrow at the Processor's Sponsoring Bank. This allows the Processor to have funds on hand to cover any losses they may incur in the event fraud has been detected, the Merchant absorbs an inordinate number of chargebacks or returns that he/she can't cover to reimburse the Acquirer, and other instances. Reserve requirements most often apply to Merchants engaging in high-risk or high ticket businesses, businesses that traditionally have a large number of returns and/or chargebacks, and Merchants with poor business and/or personal credit history.

Rewards Cards: Visa or MasterCard branded cards that return to the cardholder in return for purchases made on the card cash back or bonus points which can be redeemed for merchandise or services. MasterCard rewards cards are often referred to as Merit cars.

Retrieval Request: A request to a Merchant from the cardholder's bank to supply a copy of a valid sales draft, usually for research of a dispute issue.

Routing Number: A 9-digit number that identifies an individual bank. Usually found at the bottom of a check to the left of the DDA number.

Sales Draft/Ticket: Documents, or the electronic records of same, to evidence the credit card transaction. The format of such sales draft must be approved by the Acquirer and/or supplied by the processor.

Settlement: The process of sending a Merchant's daily batch to the network for processing and payment. In the case of bankcards, the acquirer pays the Merchant (less applicable fees), and the bankcard issuer bills the cardholder for the amount of the sale. See also "Capture".

Shopping Cart: A necessary component of any e-commerce website merchant, along with a payment gateway and a merchant account. This application typically provides a means of safely capturing a buyer's credit card information for purchase of goods over the internet, as well as collecting and sorting items chosen by a customer from an on-line store or catalog.

Statement Fee: A charge on the Merchant monthly statement for monthly reports detailing the Merchant's activity on their Merchant Account.

Stop Pay Protection, Disputed/non-disputed: Check Guarantee and/or Conversion coverage generally applies to checks dishonored due to NSF, but not necessarily checks not honored due to a Stop-Pay order issued by the check writer. Stop-pay coverage may or may not be available at additional cost. Additionally, the Stop-Pay protection may be limited or otherwise compromised depending on whether or not the Stop Pay was the result of a dispute between customer and Merchant.

Smart Card: A payment card similar to a credit card in appearance, but different in that it stores account information internally usually on a chip instead of a magnetic strip.

Swiped Merchant: A merchant, almost always face-to-face retail, whose transactions are card-in-hand physically swiped through a mag stripe reader more than 50% of the time. See also "Keyed Merchant".

Terminal: Often simply known as a "credit card machine". Equipment used to swipe customer credit cards, capture, transmit, and store credit card transactions awaiting to be closed and settled. Terminals may have integrated printers, check readers, and/or pin pads, or these devices may be plugged in to the terminal externally. Examples of terminals include Verifone and Hypercom models. Software that mimics terminals but run on computers are also available.

T & E Card (Travel & Entertainment): American Express, Diners Club, and Carte Blanche are examples of T&E cards, as opposed to Visa and MasterCard which are bankcards. See "Bankcard" above.

Third Party Processor: An independent processor that is contracted with by an Acquirer or Processor to fulfill some part of the complicated process of processing credit cards. For example, the third party processor may produce and/or provide technical support for the custom software that resides in and runs the POS terminal or processing device. The third party processor may also provide the vast communication networks that route data and authorization requests to all of the parties involved in each individual transaction, such as the Acquirer bank, the issuer bank, the Merchant depository bank and so on. Examples of major third party processors include Global/MAPP, Vital, FDR, and many others. These third party processors are often referred to as "front end" (involved in getting the authorization at point of sale) and "back end" (involved with moving the money from party to party during and after settlement).

Transaction Fee/Per Item Fee: The cost charged to the Merchant on a per transaction basis in addition to the discount fee percentage, usually $.20-.30 flat per item. Occasionally it is possible for a Merchant to negotiate a rate structure with only a discount rate and no flat fee, known as a "bundled rate", but this rarely works to the financial advantage of the Merchant since by necessity it involves a much higher discount rate percentage.

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