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Acquiring Bank

A member of the Visa/ MasterCard network that acquires data relating to transactions from a merchant for processing. All merchant accounts must be sponsored by an Acquiring bank. They are responsible for depositing the funds into a merchant's bank account. Also referred to as a Sponsor Bank or Member Bank of Visa/ MasterCard.

Address Verification Service (AVS)

AVS is a tool for merchants to reduce the risk associated with card not present transactions, such as mail order, telephone order or Internet transactions. The billing address given by the customer is passed in the transaction and it is checked against the billing address on file at the customer's card Issuing bank.

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.

Approval Code

The 6-digit code returned to the merchant upon approving a transaction.

Arbitration

The procedure used to Visa & MasterCard to determine responsibility for a chargeback if the Issuing Bank and Acquiring Bank cannot resolve it on their own.

Authorization

The process whereby a transaction is approved by an Issuing bank before the transaction is completed by the merchant. An approved authorization places a hold against the cardholder's credit limit for the dollar amount approved. Most authorizations have a life cycle of three to five days, then the hold against the cardholder's credit limit is released. A transaction, which settles, will usually match an approved authorization amount and clear it from the authorization status, thus removing the hold against a cardholder's credit limit.

Authorization Code

A code that indicates the approval or rejection for an authorization request. The code is returned in the authorization response message and is usually recorded on the transaction receipt as proof of authorization.

Automated Clearing House (ACH)

is an electronic network for large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. Debit transfers also include new applications such as the point-of-purchase check conversion program sponsored by NACHA-The Electronic Payments Association. Both the government and the commercial sectors use ACH payments.

Average Ticket Size

The average dollar amount per sale or transaction that a merchant processes.

Bank Identification Number (BIN)

The first four to six digits of a credit card. The bank identification number identifies the institution issuing the card. Acquiring banks are also assigned a BIN number to distinguish them from each other.

Basis Points

Basis points are the increments by which discount rates are calculated. One basis point is equivalent to .01% or .0001.

Batch

A collection of credit card authorizations or transactions saved for submission at one time. An 'open' Batch has a group of unsettled authorizations that must be 'closed' in order for the merchant to receive their funds. Batching generally occurs at least once per day.

Cash Advance

A cash loan obtained by a cardholder through presentation of his/her credit card at a bank office or automated teller machine.

Capture

Converting the authorization amount into a billable transaction record within a Batch. Transactions cannot be captured unless previously authorized, and authorizations should not be captured until the goods or services have been shipped or conveyed to the consumer.

Card Present

A transaction that takes place in a face-to-face environment where the cardholder physically swipes their credit card on a terminal or POS system and signs a receipt.

Card Not Present

A transaction where the card is not present at the time of the transaction such as a mail order, telephone order, or Internet order. Credit card data is manually entered into a gateway or POS system as opposed to swiping a credit card's magnetic stripe through a terminal.

Card Verification Code (CVC)

A unique check value encoded on the magnetic stripe of a card to validate card information during the authorization process. The card verification value is calculated from the data encoded on the magnetic stripe using a secure cryptographic process. This method is used by MasterCard.

Card Verification Value (CVV)

A unique check value encoded on the magnetic stripe of a card to validate card information during the authorization process. The card verification value is calculated from the data encoded on the magnetic stripe using a secure cryptographic process. This method is used by Visa.

Check Verification

A system providing merchants with varying degrees of insurance against bad check losses by verifying the authenticity of the check and/or its presenter by using a check processing organization.

Chargeback

A chargeback is the result of an action taken by a cardholder who disputes a credit card transaction through their credit card Issuer. The card Issuer initiates a chargeback against the merchant's account. The sale amount of the disputed transaction is immediately debited from the merchant's bank account. Merchants typically have 10 days in which to dispute the chargeback. This may be accomplished by providing the card Issuing bank with a proof of purchase by the cardholder. This could be a signature or proof of delivery. A chargeback fee is generally assessed to the merchant account by the merchant bank for the handling of this process.

Close Batch

The process of submitting a batch of authorizations for settlement.

Credit Limit

The dollar amount assigned to a cardholder as the limit of credit that they are approved to borrow. Credit card purchases are actually loans to the cardholder by an Issuing bank.

Credit/Return

If a customer is unhappy with the product or service they purchased and want a refund the merchant will issue a credit or refund to the cardholder.

CVV2

CVV2 is a three digit security code that is printed on the back of most credit cards. The CVV2 program is designed to reduce fraud in the card-not-present environment by validating that a genuine Visa/MasterCard credit card is being used during a transaction.

Debit

A charge to a customer's bankcard account. A transaction, such as a check, automated teller machine (ATM) withdrawal, or point-of-sale (POS) debit purchase that debits a demand deposit account.

Debit Card

A financial instrument used by consumers in lieu of cash. Unlike a credit card, debit card purchases are automatically deducted from the cardholder's account.

Doing Business As (DBA)

The trading name or publicly recognized name of a corporation.

Descriptor

The unique identifier that shows the business name and phone number for a purchase on a customer's credit card statement.

Demand Deposit Account (DDA)

A checking account, which must be linked to a merchant processing account to deposit funds to and debit funds from as needed. This is often used as a sweep account.

Deposit

Process of transmitting funds from Acquiring Bank's settlement account into merchants checking account.

Discount Rate

A fee taken by the bank as a percentage of all sales transactions. Transactions fall into three main discount based on the card type and charge type. They are Qualified, Mid-Qualified and Non-Qualified.

Electronic Benefits Transfer

The process by which food stamps and other government benefits are converted from paper checks and coupons to secure debit cards.

Electronic Draft Capture (EDC)

A method of processing bankcard transactions electronically where the transaction information (e.g., cardholder account number, transaction amount, transaction date, authorization number) is captured electronically and housed in the POS terminal until the terminal is settled.

Electronic Funds Transfer (EFT)

Process of electronically transferring funds to or from an account.

Encryption

The technique of modifying a bit stream on a transmission line so that it appears to be a random sequence of bits to an unauthorized observer.

Gateway

A payment gateway is an e-commerce application service that authorizes payments for e-businesses, online retailer or traditional brick and mortar business. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways protect credit card details by encrypting sensitive information, such as credit card numbers, to ensure that information is passed securely between the customer and the merchant and also between merchant and the payment processor.

Guarantor

Most merchant accounts are personally guaranteed by the owner of the business/ merchant account. The guarantor agrees to protect the merchant processor/ Acquiring Bank from any losses that may occur as a result of the transactions the merchant accepts.

Imprinter

An old fashioned handheld device that enables a merchant to manually produce a carbon copy image of the raised (embossed) numbers/ characters on a credit card by sliding the device across the card. Also known as a 'knuckle-buster".

Independent Sales Organization (ISO)

An organization that registers with Visa & MasterCard via one of their Member/ Sponsor Banks to market, setup and maintain merchant accounts.

Interchange

The exchange of information, transaction data and money among banks. Interchange systems are managed by Visa and MasterCard associations and are very standardized so banks and merchants worldwide can use them.

Interchange Fee

The amount paid by the Acquiring Bank to the cardholder institution (issuer) on each sales transaction. Interchange rates vary according to the type of merchant (retail, travel and entertainment, mail order) and the method of processing (paper, EDC).

Issuing Bank

An Issuing Bank is any Visa/MasterCard Member Bank that enters into contractual relationships with cardholders for the issuance of cards.

JCB Card

This is a card issued by JCB (Japan Credit Bureau) International Credit Card Company, Ltd.

Keyed Transaction

This is a transaction where the information from a credit card is manually typed into a terminal or payment gateway. A transaction is keyed because either the card is not present at the time the transaction is entered or the equipment being used to process the transaction can't read the card.

Manual Close

A batch close that must be initiated by the merchant on a daily basis, as opposed to a programmed or automated pre-set batch close time.

Member Bank

This is the same as a Sponsor Bank or Acquiring Bank. It's a banking entity that is a registered member of Visa and MasterCard's payment network.

Member Alert to Control High Risk Merchants (MATCH)

MATCH is an electronic bulletin board or notification system used to track individuals and businesses whose merchant processing activity has been deemed 'high risk' due to aggressive marketing tactics, neglect or fraud.

Merchant

Any business that accepts VISA/ MasterCard bankcards as a form of payment.

Merchant Account

A specialized business bank account setup to enable businesses to accept credit cards.

Merchant Agreement

A binding agreement between a business owner and a merchant processor/ Acquiring Bank outlining each parties respective rights, duties, and warranties with respect to the acceptance of bankcards.

Merchant Category Code (MCC)

Four-digit classification code assigned to an entity which categorizes the organization based on its principal profession and the way it conducts business. These codes help assign the appropriate risk associated with certain business types.

Merchant Identification Number (MID)

A series or group of numbers that uniquely identifies a merchant for account and billing purposes.

Member Service Provider (MSP)

An MSP is synonymous with an ISO, MSP being MasterCard's classification. It is a 3rd party company who is registered with Visa & MasterCard via a Sponsor/ Member Bank to market, setup and maintain new merchant accounts.

Merchant Statement

A billing statement or summary of processing activity and charges for a given period of time which is mailed to the merchant or made available online each month.

Mid-Qualified

Transactions that do not meet Visa/MasterCard Interchange criteria are downgraded from Discount 'Qualified' to either Discount 'Mid-Qualified' or Discount 'Non-Qualified'. The latter two are processed at a higher Interchange rate. Transactions are typically downgraded to the status of 'Mid-Qualified' because they were 'keyed' rather than swiped. Many 'Rewards' cards are also processed as 'Mid-Qualified' transactions.

Monthly Minimum

The minimum amount of fees charged by a merchant processor in a given month. If the merchant's account activity does not generate the monthly minimum, the merchant is required to pay the difference.

Mail/Telephone Order Merchant Type (MOTO)

A merchant that transacts business in a card-not-present environment. Orders are taken over the phone or by mail.

Monthly Volume (MV)

The maximum monthly dollar volume a merchant is approved to process in Visa and MasterCard & Discover transactions. This amount is typically based on the merchant's credit worthiness as well as previous processing history. American Express processing volume is not included in the calculated monthly volume.

Non-Qualified

This is an Interchange classification where the transaction is downgraded from Discount 'Qualified' or 'Mid-Qualified' to 'Non-Qualified'. This is typically a card-not-present transaction that fails to include the billing address at the time of authorization; however, a transaction can also downgrade to 'Non-Qualified' if the merchant doesn't settle the transaction in the allotted timeframe. This downgrade also applies to charges on Government, Corporate and Foreign Cards due to the elevated risks inherent with those types of credit cards.

Offline/Signature Debit

This refers to a debit card transaction that does not include the cardholder's PIN number. It will not debit the cardholder's account immediately, but rather will run through the credit card network and will be treated as if it were a credit card.

Online Debit

This refers to a debit transaction that is authorized with the use of a PIN number. No signature is needed for this type of transaction. Online debit transactions are charged a flat fee instead of a combined discount rate and transaction fee.

PIN (Personal Identification Number)

A PIN is a personal identification number used by a cardholder to authenticate card ownership for ATM or debit card transactions.

PIN Pads

Pin pads are small key pad devices that are connected to a processing terminal or register and used by cardholders to enter PIN numbers on debit card transactions.

Point of Sale (POS)

The physical location where a sale/ order is completed. POS systems include standard credit card terminals, mobile payment devices, electronic cash registers, virtual terminals/ payment gateways or specialized software.

Processor

A company that partners with Acquiring Banks as well as organizations at various levels within the electronic payments industry, (i.e. FSP's, ISO/MSP's, MLS's, etc.) to provide them with the platform and technology necessary to setup and maintain merchant accounts. Most processors also sell directly to merchants.

Purchase Cards

Purchase Cards are credit cards for use by employees of government agencies or corporations. What makes Purchase Cards different from ordinary credit cards is that they may only be used at certain types of merchant locations.

Qualified

Discount Qualified transactions meet all the necessary Visa/MasterCard Interchange criteria to receive the lowest possible Interchange rates/fees. These transactions are swiped in a face-to-face environment and are authorized and settled in the same day.

Refund Policy

A merchant's policy for handling returned merchandise or service where the customer was dissatisfied. Acquiring Banks/ Processors typically require a written refund policy for each applicant. From the Processor/ Banks perspective, the more liberal a merchant's refund/return policy is the better as it may reduce the number of chargebacks a merchant receives.

Recurring Transactions

A transaction where the cardholder has given a merchant permission to periodically charge the cardholder's account (e.g. monthly subscription to a magazine, etc.).

Representment

The second stage in the chargeback process. This step includes the Acquirer's response to an Issuer's chargeback by returning the disputed transaction with additional documentation to the Issuer.

Reserve

A method in which a percentage of the sale amount is retained by the Processor/ Acquiring Bank to protect themselves against fee related or chargeback losses.

Retrieval Request

This is when the cardholder's Bank (Issuing Bank) requests documentation regarding the transaction from the Acquiring Bank. This is typically done when an Issuing Bank is not sure if its cardholder can substantiate a chargeback so they initiate this discovery process to retrieve documents.

Reversal

An online financial transaction used to negate or cancel a transaction that has been sent through interchange in error.

Sales Draft

The paper form used by the merchant and signed by the cardholder to document the sales transaction.

Settlement

The process by which credit card sales authorizations are batched and progress from an exchange of data to actually funding the merchant's bank account. The point of sale to the merchant settling and physically receiving its funds is typically 24-48 hours.

Shopping Cart

An online application in an e-commerce environment that is integrated with a point-of-sale software or payment gateway to process a secure credit card transaction.

Smart Card

A credit or debit card containing a computer chip with memory and interactive capabilities used for identification and to store additional data about the cardholder.

SSL Certificate

This is a certificate which is installed on a secure server and is used to identify the merchant using it. It encrypts credit card and other sensitive data to help securely process a transaction.

Standard Industry Code (SIC Code)

Similar to an MCC code, an SIC code is a four digit, numeric identifier of merchant business types based on its principal profession and the way it conducts business. These codes help assign the appropriate risk associated with certain business types.

Swiped Transaction

This is the action of physically sliding a credit card through a terminal or magnetic stripe reader that "reads" the magnetic strip on the back of all credit and debit cards. The value of swiping a credit card is very high in that it documents the physical presence of the card at the point of sale. By definition, all swiped transactions are card present transactions.

Terminal

A hardware device equipped with a magnetic strip reading device that is placed at the merchant location to electronically process credit card transactions. Terminals are capable of authorizing, capturing and settling credit card and ATM/Debit card transactions.

Terminal ID (TID)

A TID is a number assigned to processing equipment devices to help connect the equipment to the Processor and Acquiring Bank. A TID can be used for all processing equipment, (e.g., wired & wireless terminals, payment gateways as well as other software applications.

Transaction

Any action between a cardholder and a merchant that results in activity on the cardholder's credit card account.

Transaction Fee

This is a per item fee charged for each sale or order that is electronically processed.

Void

The reversal of an approved transaction that has been authorized but not settled. Settled transactions require processing a credit back on the card in order for the transaction to be reversed. A void does not necessarily remove the hold the Issuing Bank may have placed on the cardholder's card.

Voice Authorization

An approval response obtained through interactive communication via telephone, facsimile or other automated forms of communication.

Article ID: 36000106349