Glossary

A | B | C | D | E | F | G | I | K | M | P | R | S | T

A

ACH – A form of electronic payment. Automated Clearing House is typically used to process high volumes of relatively small-dollar payments for settlement within one or two business days. ACH transactions are settled in a manner similar to the way checks are settled.

Address Verification Service (AVS) Fee – Allows you to run AVS on all transactions to check the billing information that was provided to the information on file with the credit card company. This helps to fight against charge backs and fraudulent orders. Depending on which merchant provider you choose, there might be an extra fee per transaction for this service.

Acquiring Bank –  A merchant bank or financial institution that initiates and maintains credit card processing agreements with merchants so they can accept and process Visa and MasterCard transactions.

Address Verification Service (AVS) – AVS helps reduce fraud on card not present transactions. Merchants use AVS to verify a cardholder’s billing address on keyed “card not present” transactions (internet, mail or phone).

Annual Fee – The yearly account fee charged by some merchant service providers. (Also referred to as membership fee, risk assessment fee).

Application Fee – A one-time fee to cover cost of merchant account approval and paperwork processing.

Authorization – The process by which an issuing bank approves the availability of funds for a credit card transaction for a specific amount.

B

Bankcard Association – The Visa and MasterCard associations that set forth interchange rates, categories and most fees.

Basis Points – 1/100th of a percentage point.

Batch Processing: A merchant’s credit card processing terminal or software will batch out usually once a day and send all of the transaction data to the processor for settlement. This usually happens after the close of business each day.

Batching Out – Settling a terminal, also known as “batching”, is when a merchant sends their completed transactions for the day to their acquiring bank for payment. Some providers perform this automatically. It is important to close a batch every 24 hours or a higher rate will be assessed by Visa, Discover or MasterCard.

C

Card-Not-Present – Keyed credit or debit transactions that are processed from mail, phone or internet sales.

Card Present – Swiping a credit card through a terminal or using a manual imprinter to capture an imprint and signature.

Cardholder Information Security Program (CISP) – A standard of rules that companies must follow in order to be compliant that store or process cardholder information and credit card data.

Chargeback – A reversal of a credit or debit transaction due to cardholder dispute.

CVV2 – Three digit security codes printed on the back of most Visa, MasterCard and Discover cards. On American Express, it’s 4 digits and located on the front right top corner. By asking a customer for this code it usually means they have the card on their person.

D

Discount Rate – This is the fee that is charged to a merchant by Visa, MasterCard, Discover and American Express, for processing their credit card transactions.

E

eCommerce – This pertains to doing business online and making transactions, sales, refunds and selling online. This pertains to any online sales, and the way businesses communicate and grow.

EIRF –  EIRF or Electronic Interchange Reimbursement Fee means the merchant did not meet all the requirements when processing the transaction(s). Therefore, the merchant is forced to pay a higher EIRF rate for the transaction(s).

F

Front-End Processor – The front-end processor is responsible for collecting card information in various forms (terminal, gateway, software) and processing it to conform to a specification the back-end can use.

G

Online Payment Gateway –  A browser based application that allows a website or its shipping cart to authorize credit card transactions in a real time, secure environment. The online payment gateway connects the shopping cart to the processor.

Gateway Fees – Monthly charge for online payment gateway and secure server access.

I

Imprint – The impression of the front of a credit card on a paper receipt made by a credit card imprinter. Used by a merchant that processes face-to-face transactions but does not have a terminal that prints receipts.

Imprinter – A manual imprinter allows a merchant to capture an imprint of the credit card and customer signature on a credit card receipt. This should be kept on file as proof of authorization in case of a dispute or chargeback.

Internet Merchant Account – An internet merchant account allows the merchant to accept credit card payments from customers over the internet.

Interchange Fee – Interchange fee is a term used in the payment card industry to describe a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks such as Visa and MasterCard for purchases.

Interchange Plus Pricing – Some providers offer merchant account services priced on an “interchange plus” basis. These accounts are based on the “interchange” tables published by both Visa and by MasterCard. This type of pricing creates a discount rate by adding interchange rates, fees, assessments, markups and other costs.

Interchange Rate – The rate that is charged by the bankcard association to the acquiring banks for the transaction. The interchange rate, which is actually a percentage of the transaction amount, also helps account for authorization costs, fraud and the general or average banks cost of funds.

I.S.O. – An Independent Sales organization is an organization that provides a variety of merchant functions (i.e. processing) on behalf of the acquirer. An ISO can be a processor, but a processor is not an ISO. ISO functions can also include selling new merchant accounts or providing back room services. An I.S.O. can also be referred to as an M.S.P. (Merchant Service Provider). It is important that the acquirer must register all ISOs/MSPs with bankcard associations.

Issuing Bank – This is the bank that issues the customer the credit card and funds your account when you make a charge to one of their accounts. They will then bill their customers for the debit on their card.

K

Keyed -A “keyed” transaction is one that is manually entered on a terminal keypad or credit card processing software like an online payment gateway.

M

Mail/Telephone/Internet Discount Rate – This is the discount percent fee for Internet/mail/telephone related business. This fee is the highest fee on the market due to the increased risk of fraudulent order submissions. It is much easier for a scamster to send a credit card number over the Internet than it is in person at a retail store. This is the same thing as Credit Card Fee (Discount Rate).

Merchants (MATCH) – Electronic bulletin board used to track merchants whose accounts have been reported as “terminated” by other processors.

Merchant Account – A merchant account is a relationship and trust you have with a bank that has agreed to allow you to charge people’s credit cards. The bank is responsible for debiting the funds from the customer and depositing it into your account. There is usually a processor that is involved that processes the credit cards for the bank and lets them know the funds are available.

Merchant Bank – A bank that works with businesses to give them the ability to offer merchant accounts. They take care of charging the customer and funding the merchant account holder.

Merchant Processing – The settlement of electronic payment transactions for merchants. It is a separate and distinct business line from credit card issuing. Merchant processing involves gathering sales information from the merchant, collecting funds from the issuing bank, and payment to the merchant.

Merchant Provider – This is a company that will offer you a merchant account. They will usually have a relationship with their sponsored payment processor to give you a merchant account. If they don’t own their own gateway system, merchant providers usually resell another company’s system which will do the processing, while the bank does the charging and depositing.

Merchant Underwriting – Merchant underwriting & approval policy helps control credit risk. The policy is effective in designating and targeting merchants who meet the acquiring banks processing criteria. The policy also acts as an agreement between the third party billing agent & the acquiring banks as to what information is needed from the merchants to measure the merchant against the acquiring desired list of criteria. The policy also outlines and lists what information is needed from the merchant, for the merchants’ agreement.

Merchant Services Provider – A bank, ISO, or other firm that provides services for processing financial transactions, usually credit card sales. Many MSPs provide merchant accounts, while others require their clients to establish merchant accounts on their own. Some MSPs claim that they do not require merchant accounts; this may indicate factoring, which is illegal in many areas.

Monthly Minimum – The discount rates & transaction fees on Visa/MasterCard transactions must add up to this amount each month or the processor will charge the merchant the difference.

MOTO discount rate (mail order / telephone order discount rate) – The discount rate charged by the merchant account provider for credit card transaction in which the actual credit card was not available to the merchant. MOTO discount rates are generally higher than swipe discount rates to account for the increased chance of fraud or nonpayment.

P

Point of Sale Terminal (POS) – An electronic device used for verifying and processing credit card transactions. Is a little device that allows you to slide the credit card through to complete a charge for the customer. If the credit card is available, the merchant can swipe the card through the terminal. This is what most retail stores have. It is fast, easy and accurate to make a charge on a customer’s credit card within seconds. It is also known as a terminal machine.

Programming Fee – Charged by a merchant services provider for programming your credit card terminal.

R

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 web sites that sell products and services that consumers expect immediately, such as memberships to the site or software downloads.

Reserve – An additional percentage in addition to the normal discount rate a processor will hold back due to a merchant’s prior processing history or if their business is deemed of higher risk than normal.

Retrieval Request – When a cardholder disputes a credit card transaction with a merchant the issuing bank will initiate a retrieval request for transaction information. The merchant will normally have to provide proof of authorization, shipping and other information requested.

Rolling Reserve (a.k.a. hold back) – 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. Note: Merchant account providers almost never pay interest on holdbacks.

S

SSL Certificate – Certificate installed on a secure server that is used to identify the user (merchant) and encrypt the credit card data and other sensitive information.

Secure Socket Layer (SSL) – SSL is a secure web protocol that uses 128 bit or higher encryption technology to keep your customer’s information completely safe through the entire ordering process.

Settlement – The process by which funds less applicable fees for bona fide sales are sent to merchants.

Standard Industry Code (SIC) -The SIC code is a four digit, numeric identifier used to identify a business or organizations product and/or service.

Standard (SIRF) – Unlike the EIRF downgrade, which only applies to Visa, the Standard downgrade applies to both Visa and Mastercard. The Standard interchange is even worse than EIRF and comes in on average at around 3 percent.

Swipe Discount Rate – This is the discount rate for retail stores that use a POS terminal. This is for merchants that swipe the credit card, and run the credit card through the machine.

T

Tier Pricing – With Tier Pricing, the merchant processor “buckets” transactions into 3 groups (tiers) and assigns a rate to each tier based on criteria established for each tier. Simple for the processor, not a great deal for the merchant. That’s because these “tiers” or “buckets” are variable from one processor to the next, and the processor may switch criteria from tier to tier without notice.

Transaction Fee – This is the fee that your processor, or your merchant provider charges for the transaction.

Third-Party Organization – Any outside company with which the acquirer contracts to provide merchant processing services.