Credit Card Processing Terms & Definiations

Glossary of Merchant Account Terms & Definitions

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ACH: Automated Clearing House - A bank-to-bank eletronic payment network that enables the exchange and settlement of electronic payments between financial institutions for transactions such as direct deposits, automatic bill payments, and credit card processing settlements.
Acquirer, Acquiring Bank, Acquiring Institution: The financial institution supplying the merchant with means to accept credit cards for payments and will charge the merchant a fee for accepting, processing and settling credit card payments on behalf of the merchant.
API: Application Programming Interface - An interface allowing integration with virtually any programmable software package or platform.
AVS: Address Verification Service - Typically used for mail order/telephone order transactions, an AVS response is given to indicate the level of accuracy of a given address based on the billing address of the customer's credit card.
Authentication: The process of verifying the legitimacy of the credit card and cardholder during a credit card transaction.
Authorization: A transaction verifying the availability of funds in a cardholder's account to make the purchase (usually identified by an Approval Code). Often the first step in an Authorize & Capture sales process.
Auto Close: The feature allowing some gateways and terminals to automatically batch transactions daily without them being initialized by the merchant.
Average Ticket: Average value of a merchant's credit card sales transactions used by acquirers in assessing risk.
BillBack / Blended Pricing: A merchant account pricing structure where merchants are charged an initial fee per transaction and then billed the other fees at a later date.
BIN (Bank Identification Number): The bank's Issuer Identification Number identified by the first six digits of a merchant account or credit card.
Blockchain: Technical methodology of structuring data that's used in BitCoin and other crypto-currencies.
Capture: The process that signals the actual billing of an authorized or pre-authorized credit card transaction. Often the second step of an Authorize & Capture sales process.
Card Issuing Bank: The financial institution that issues credit cards to consumer. This institution is responsible for generating the customer credit card statements and collecting the payments on the customer's credit card transactions.
Card Not Present: A transaction where the card is not present at the time of the transaction (i.e. MOTO & ecommerce). Credit card data is typically manually entered instead of by card swipe.
Cardholder: A person who holds a payment card account.
Chargeback: A credit card transaction is billed back to the merchant after a sale has been completed typically on behalf of the cardholder. The cardholder usually has disputed the transaction because of dissatisfaction or failure to deliver.
Check Guarantee: A service that guarantees merchants will still receive payments in the event checks are returned for insufficient funds and customer disputes.
Check Verification: A service that allows merchants to access a national database of checking accounts that are closed and of people who are known to write bad checks.
Chip Card: Credit or debit card with embedded RFID chip that contains account and other identifying information and can communicate with EMV-compliant point-of-sale (POS) devices.
Close Batch: The process of sending a batch of transactions for settlement.
CVV ("Card Verification Value"): The three or four digit security code printed on the back of credit and debit cards that is typically required in card-not-present transactions to confirm that the customer is in posession of the physical credit card being used.
Deposit Account or Direct Deposit Account (DDA): The merchant's business checking account that will be used by the acquirer to deposit merchant settlements and debit merchant fees.
Discount Rate: The fee charged by the merchant financial institution to the merchant for services associated with processing card transactions.
Downgrades: Surcharges that are assessed on specific transactions that may be based on the type of card being used, how the transaction is being processed, and other factors.
Dynamic Currency Conversion: POS service that enables cardholders visiting foreign countries to make purchases in the currency of their home country in real time.
Ecommerce: Commercial sales, and other business, conducted over the Internet.
Electronic Check: A method of using checking account information to create an electronic payment over the ACH system that decreases the time to collect funds and removes the hassles and risks of paper checks.
EMV (EuroPay, MasterCard & Visa): Global security standard the defines the chip cards and POS devices used to process chip card transactions in a retail credit card processing environment that is intended to reduce fruad
Encryption: Process of securing credit card transaction data by using algorithms that scramble the data to make it indecipherable without a corresponding decryption key.
Factoring: Act of using a merchant account to process credit card transactions on behalf of a company or individual who does not have a merchant account. This is highly frowned upon and is also called "money laundering" and, when discovered, will result in the termination of the merchant account and the owner of the merchant account being placed on the TMF/MATCH list. This should not be confused with accounts receivable invoice factoring, which is specific type of business loan.
Floor Limit: The maximum transaction amount a merchant is permitted to accept without an authorization.
Gateway: A web-based software application that enables card-not-present credit card transactions.
Gift Cards: Non-refillable pre-paid cards that are typically branded and distributed by retailers.
Interchange Fee: A fee, generally assessed as a percentage of the transaction plus a flat fee, and based on card type and transaction method, that is set and collected by the bankcard association from the merchant financial institution and paid to the issuing financial institution to cover processing and float expenses incurred in billing the cardholder.
Interchange Plus or Interchange Pass Through: A merchant account pricing model where the acquirer bundles the Interchange fees with a set mark-up.
IP Address: An internet address usually represented in dotted decimal, e.g. "127.0.0.1".
ISO: Independent Sales Organization - ISOs act as a third-party between the merchant and the acquiring bank. Many businesses are unable to obtain merchant status through an acquiring bank because they are viewed as too large a risk, and need to go through an ISO to obtain merchant status.
Issuer or Issuing Bank: Same as "Card Issuing Bank".
Loyalty Program: Incentive used by card issuers and merchants to encourage customers to make payments using a specific type of card.
MATCH (Member Alert To Control High Risk): Shared database of terminated merchant accounts that lists every merchant account terminated for violating card brand rules. This was previously known as the "TMF" (Terminated Merchant File) list and is routinely checked before issuing a merchant account. Appearing on this list will make it very difficult, if not impossible, to qualify for a direct merchant account.
MOTO (Mail Order/Telephone Order): Credit card transactions initiated via mail, email or telephone. Sometimes ecommerce transactions are referred to as MOTO instead of ecommerce.
Non-Qualified Transaction Fees: Bankcard sales transactions that do not meet set Mastercard & Visa criteria for that particular merchant and are processed at a higher interchange rate.
PAN (Primary Account Number): Numeric code embossed on the front and encoded on the magnetic stripe of credit cards that identifies the issuer and cardholder's account number, and also includes a validation code.
PayFac (Payment Facilitator): Merchant services provider that maintain a "master account" and operate a platform for businesses that don't have their own merchant account and are enrolled as "sub-merchants". The PayFac assumes all responsibility with the acquirer for any chargebacks or losses incurred by their sub-merchants.
PCI DSS (Payment Card Industry Data Security Standard): Technical standards, specifications, and procedures that are defined by the PCI Security Standards Council to protect cardholder data before, during, and after a credit card transaction.
PIN (Personal Identification Number): Security code set and used by cardholders to authenticate retail transactions and most commonly used with debit cards.
PIN Pad: Part of the POS terminal the allows the customer to enter their PIN.
Prepaid Cards: Debit cards that are, or must be, pre-loaded with funds and can be used to spend only up to the amount that is pre-deposited. Prepaid cards may be single use or reloadable.
Processor: Organization linked to the card brands and affiliated with one or more acquiring banks that provides credit card authorization, payment clearing, and settlement services.
Purchasing Cards: Charge cards used by businesses to cover purchasing expenses, such as raw materials or office supplies.
Third-Party Processor: A company that provides a variety of bank/merchant services including billing, reporting, customer service, authorization, and settlement services on behalf of the acquiring financial institution.
Transaction ID: A unique fifteen digit numerical code that is generated at the time of the transaction and provides an audit trail of the specific transaction throughout its cycle.
VAR: Value Added Reseller - Third-party vendor that enhances or modifies existing hardware or software, adding value to the services provided by the processor or acquirer.

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