Here is a great tool for business owners to read before applying for a merchant cash advance or credit card processing services. This glossary will help you understand the merchant services jargon.
Account number – A unique sequence of numbers assigned to a cardholder account that identifies the issuer and type of financial transaction card.
Acquirer - A licensed member that maintains the merchant relationship and acquires the data relating to a transaction from the merchant or card acceptor and submits that data into interchange, either directly or indirectly.
Authorization – A process defined in operations regulations whereby a transaction is approved by or on behalf of an issuer; commonly understood to be receiving of a sales validation by the merchant, by telephone, or authorization terminal.
Authorization Code – A code that notifies you that you have obtained the authorization for a specific Visa card transaction. Note: You should print this on the sales draft.
Automatic Clearing House (ACH) – A nationwide electronic funds transfer network which enables participating financial institutions to distribute electronic credit and debit entries to bank accounts and to settle such entries.
Automated Teller Machine (ATM) – An unattended, magnetic stripe-reading terminal that dispenses cash; accepts deposits and loan payments; enables a bank customer to order transfers among accounts and make account inquiries.
Address Verification System (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). If you opt not to use AVS, VISA and MasterCard will not support your transactions and will charge you an additional 1.25% on those sales.
Bankcard -A debit or credit card issued by a bank or other financial institution, such as a Master Card or Maestro card.
Bank Rate – Also known as “Discount Rate.” This is a percentage of each sale that the bank charges as per Visa and Master Card Rate requirements. All banks are required to have at least 3 rate structures. Face to face retail (usually the lowest rate e.g.. 1.49%). Phone, Mail and Internet rates (usually higher e.g.. 2.24%). And a rate for imprinted or phone authorized rates (highest rate e.g.. 2.62%). It is very important to correctly classify the way you will accept credit cards so that you can achieve the best rate structure.
Business Profile – The Associations (Visa, MasterCard) classify all merchant types into one of three classifications (1) Swiped Accounts; (2) Mail Order Telephone Order (MOTO); or (3) Internet. Interchange Rates will vary depending on the business type.
Batch – A collection of credit card transactions saved for submitting at one time, usually each day. Merchants who do not have real-time verification systems must submit their transactions manually through a POS terminal. Batch fees are charged to encourage a merchant to submit his or her transactions at one time, rather than throughout the day.
Cancellation Code – The code that a lodging or car rental merchant gives to a cardholder. The cancellation code confirms that the cardholder did, indeed, cancel a reservation.
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.
Cardholder -The customer to whom a card has been issued or the individual authorized to use the card.
Cash Disbursement – A transaction that is posted to a cardholder’s MasterCard card account in which the cardholder receives cash at an ATM, or cash or travelers checks at a branch of a member financial institution or at a qualified and approved agent of a member financial institution.
Charge Back – A charge back occurs when a card holder disputes a credit card transaction with his or her credit card issuer. The card issuer initiates a charge back against the merchant account. The amount of the disputed transaction is immediately withdrawn from the merchant’s bank account, and the merchant has 10 days in which to dispute the charge back with proof of purchase, signature, proof of delivery, etc. A charge back fee is usually assessed to the merchant on top of the actual transaction. See also retrieval request.
Charge Back Defense – A customer who does not receive his goods or services, or says he did not place an order, can ask his issuing bank to charge back the merchant. The Issuing Bank sends the charge back request to the merchant bank, which forwards it to the merchant asking to validate the charge. Information such as the amount, an invoice or folio, customer signature, or shipping documents, and the shipping address (used in AVS during the authorization) are needed to defend against a charge back.
Clearing - The process of exchanging financial transaction details between an acquirer and an issuer to facilitate posting of a cardholder’s account and reconciliation of a customer’s settlement position.
Cobranded Card - A credit card issued jointly by a member bank and a merchant, bearing the “brand” of both.
“Code 10″ Authorization – This is a voice authorization code that you might initiate when you suspect a card is stolen or fake, or when a customer is acting suspiciously.
Commerce Server – A Web server that contains the software necessary for processing customer orders via the Web, including shopping cart programs, dynamic inventory databases, and online payment systems. Commerce servers are usually also secure servers.
Corporate Card – A bankcard issued to companies for use by company employees. The liability for abuse of the card typically rests with the company and not with the employee.
Credit Card – A plastic card bearing an account number assigned to a cardholder with a credit limit that can be used to purchase goods and services and to obtain cash disbursements on credit, for which a cardholder is subsequently billed by an issuer for repayment of the credit extended at once or on an installment basis.
Credit Card Processors (or 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.
Currency Conversion – The process by which the transaction currency is converted into the currency of settlement or the currency of the issuer for the purpose of facilitating transaction authorization, clearing and settlement reporting. The currency of transaction is determined by the acquirer; the currency of the issuer is the preferred currency used by the issuer, and most often, the currency in which the cardholder will be billed.
DDS (Digital Data Storage) debit card – A financial instrument used by consumers in place of cash. Unlike a credit card, debit card purchases are deducted automatically from the cardholder’s account, like a check. Visa and Master Card now offer debit cards through banks and other financial institutions.
Debit Card - A plastic card used to initiate a debit transaction. In general, these transactions are used primarily to purchase goods and services and to obtain cash, for which the cardholder’s asset account is debited by the issuer.
Digital Wallet - A consumer account set up to allow Ecommerce transactions through a particular credit card processing system. Before the consumer can make a purchase, he or she must first establish an account with the credit card processor, who provides an ID and password. These can then be used to make purchases at any Web site that supports that transaction system.
Discount Rate – See “Bank Rate.”
Draft/Sales Draft – A record (usually paper) used to document that a good or service was purchased.
Electronic Commerce Indicator (ECI) – A system in which the transaction data from an Internet transaction is tagged with this indicator and sent on to Visa or Master Card. It is a requirement (October 1st, 2000) for all merchants with a majority of sales via the Internet to use an approved and ECI compliant payment gateway. Hand keying of credit card numbers in to standard credit card terminals would not capture and pass on the ECI, therefore this method is not compliant.
Electronic Draft Capture (EDC) – A system in which the transaction data is captured at the merchant location for processing and storage.
Electronic Funds Transfer (EFT) – A paperless transfer of funds initiated from a terminal, computer, telephone instrument, or magnetic tape.
Emboss – The process of printing identifying data on a bankcard in the form of raised characters.
Equipment – Most credit card transactions are conducted electronically by using Electronic Draft Capture (see EDC). Typically this is performed by terminal (like the Verifone Tranz 330), Software or via the Internet.
Factoring – The purchase of debts owed, or “accounts receivable,” in exchange for immediate payment at a discount. In Ecommerce, the term is often applied to ISOs that offer to process credit card transactions through their own merchant account rather than through an account established by the merchant, in exchange for a percentage of the transaction or other fee. Factoring of credit card debt is illegal.
Floor Limit – A specific dollar limit used to determine which Visa card transactions you must authorize. If your business has a floor limit $1,000 ? you must get authorization for any transaction over that amount. Note: All airline, telephone, and mail order transactions must be authorized, even if the amount is under your floor limit.
Holdback – 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, charge back 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.
Imprint – A physical impression you make from a customer’s card which appears on the draft. This proves that the card was present when the sale was made. Note: An imprint can be created electronically if you use a magnetic-stripe-reading terminal that includes the correct point-of-sale (POS) entry code.
Imprinter -A device to produce an image of the embossed characters of the bankcard on all copies of sales drafts and credit slips.
Interchange Fee – The fee that the Card Association charges the merchant to get the funds into his bank (merchant bank) and to get the billing information to the cardholder’s bank (issuing bank). Interchange fees are based on following credit card regulations and capturing appropriate data including card swipe, address, and electronic signature as needed. These fees are also based on the timeliness of the settlement of transactions.
ISO (Independent Service Organization) – A firm or organization that offers to process online credit card transactions, usually in exchange for transaction fees or a percentage of sales. Merchants must generally establish a merchant account before contracting for ISO services, although some ISOs claim not to require separate merchant accounts. See also factoring.
Issuer – The member that enters into a contractual agreement with Master Card to issue Master Card cards.
Issuing Bank – The bank that maintains the consumer’s credit card account and must pay out to the merchant’s account in a credit card purchase. The issuing bank then bills the customer for the debt.
Magnetic Stripe – The magnetically encoded stripe on the bankcard plastic that contains information pertinent to the cardholder account. The physical and magnetic characteristics of the magnetic stripe are specified in ISO Standards 7810, 7811, and 7813.
Magnetic Stripe Reader - A device that reads information recorded on the magnetic stripe of a card. Also known as a card swipe reader.
Mail Order/Telephone Order (MOTO) – A transaction initiated by mail or telephone to be debited or credited to a bankcard account.
Member – An institution that participates in the programs offered by Master Card International Incorporated.
Merchant - A retailer, or any other person, firm, or corporation that (pursuant to a merchant agreement) agrees to accept credit cards, debit cards, or both, when properly presented.
Merchant Account - A specialized bank approved and issued account to process credit card transactions. One of three parts needed to accept credit cards. Other parts required, a local bank checking account (to deposit funds) and a Processing Solution (to access your merchant account).
Merchant Bank – A bank that has entered into an agreement with a merchant to accept deposits generated by bankcard transactions; also called the acquirer or acquiring bank.
Merchant Identification Number – The number a financial institution assigns to a merchant to identify your business.
Monthly Minimum - This is a fee that is imposed if your credit card charges (Discount Rate) do not add up to their monthly minimum amount. For example, your monthly minimum is $25 a month. If your discount rate was 2.25% and you processed $1000.00 in credit card volume, $22.50 is charged to the account plus an additional $2.50 (the difference of the $25.00 minimum and actual discount fees).
also: The minimum amount in fees and percentages Charged by a merchant services provider in a given month. If account activity does not generate the monthly minimum, the account holder must make up the difference.
MOTO (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.
Payment Gateway – The code that transmits a customer’s order to and from a merchant’s bank’s transaction-authorizing agent usually a MAP (merchant account provider). See also payment gateway provider.
Payment Gateway Provider – A company that provides code and/or software for an Ecommerce 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.
Personal Identification Number (PIN) – A four-to-twelve character secret code that allows an issuer to positively authenticate the cardholder for the purpose of approving an ATM or terminal transaction occurring at a point-of-interaction device.
Point of Sale (POS) Terminal – A small device that allows you to slide the credit card through to make a charge. 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.
Processing Solution – A device, software or virtual product that allows you to connect to a Merchant Account. With out a processing solution, like a credit card terminal, there would be no way to verify, approve and deposit credit card transactions.
Purchasing Card - Designed to help companies maintain control of purchases while reducing the administrative cost associated with authorizing, tracking, paying, and reconciling those purchases.
P-Cards – A Purchasing Card is a form of company credit card that allows goods and services to be purchased and was designed to help companies maintain control of small purchases while reducing the administrative costs. The P-Cards are traditionally used by companies to replace paper invoices.
Real-Time Processing – Having your customer’s credit card information validated and processed for you automatically. The credit card will be charged and the money will be deposited into your bank account all automatically. This is perfect for an internet-based business.
Receipt – A hardcopy document representing a transaction that took place at the point of sale, with a description that usually includes: date, merchant name/location, primary account number, amount and reference number.
Recurring Fees – Regular, usually monthly, charges for maintaining a merchant account. Recurring fees include the discount rate, transaction fees, statement fee, and monthly minimum.
Reserve Account – See “Holdback.”
Retrieval Request – A retrieval request is what happens when a cardholder cannot remember a credit card transaction, or the bank wants order information for some reason. The card issuer initiates a retrieval request, in which the merchant has 10 days to respond with the order information or the retrieval request will turn into a charge back. There is usually a retrieval request fee issued against the merchant also in these cases.
Risk-Adjusted Rates – The Associations (Visa, MasterCard) have developed Credit Policy Requirements to identify proper risk classification which includes such factors as: location, sales method, delivery dynamics, customer type, principals personal credit report, business longevity.
SSL (Secure Socket Layer) – A system for encrypting data sent over the Internet, including Ecommerce transactions and passwords. With SSL, client and server computers exchange public keys, allowing them to encode and decode their communication.
Settlement – The process by which merchant and cardholder banks exchange financial data and value resulting from sales transactions, cash disbursements and merchandise credits.
Setup Fees – Fees charged for establishing a merchant account, including application fees, software licensing fees, and equipment purchases.
Smart Card – A plastic card containing a computer chip that can store electronic “money.” Unlike a credit card, a smart card can only spend out the dollar amount its owner has already put into the card account. It’s similar in function to a prepaid calling card but is available for all purchases.
Stored Value Cards – Represents money on deposit with the issuer, and is similar to a debit card. One major difference between stored value cards and debit cards is that debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous.
Swipe Discount Rate – The discount rate charged by a merchant account provider for transactions in which a credit card is available for inspection by the merchant. Swipe discount rates are generally lower than MOTO discount rates because the merchant can match signatures and perform other checks for fraud or misuse.
Third-Party Processing - Processing of transactions by parties acting under contract to issuers or acquirers.
Transaction – Action between a cardholder and a merchant or a cardholder and a member that results in activity on the cardholder account.
Transaction Date – The date a cardholder effects a card purchase of goods, services, or other things of value, or effects a cash disbursement.
Transaction Fee – A charge for each credit card transaction, collected by the MAP (merchant account provider) or ISO. Transaction fees usually fall between $0.20 and $1
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