Glossary of Merchant Services Industry Terms
ABA Routing Number / Transit Routing Number
A unique nine-digit number, located at the bottom of a check preceding the account number, which directs electronic ACH deposits to the correct bank. ABA numbers are assigned to the financial institution by the American Banking Association
ACH Automated Clearing House
An electronic method of transferring funds between banks via the Federal Reserve System. ACH is used by most banks physically located in the United States. The merchant’s bank must utilize ACH transactions in order to deposit credit card funds to the merchant’s checking account.
Acquiring Bank (Merchant Bank)
A bank that has a business relationship with a merchant receives all credit card transactions from that merchant and settles those transactions. The merchant technically has a merchant account with the acquiring bank, which acquires the merchant’s sales slips and credits the tickets’ value to the merchant’s account. This relationship is in the nature of a credit line. For Central Payment clients, that bank is Wells Fargo.
The processor provides credit card processing, billing, reporting and settlement and operational services to acquiring and issuing banks. Many financial institutions don’t do their own bankcard processing because it’s more cost-effective to let the processor invest in the equipment and people and do the job for them.
Address Verification Service (AVS)
A system built into the authorization process that enables a merchant to verify a United States billing address (street address and/or ZIP code) of a customer to be the same billing address the Issuing bank currently has on file.
An organization that both issues Amex cards and acquires Amex transactions, unlike Visa and MasterCard, which are bank associations.
The process of inquiring of the card-issuing back whether a card is valid and that the cardholder has adequate funds available to make a particular purchase. A positive authorization results in an authorization code being generated, and those funds being set aside. The cardholder’s available credit limit (“open to buy”) is reduced by the authorized amount. A negative authorization results in a “decline”.
A numerical (or alphanumerical) code sent by the card issuing bank verifying that the sale has been authorized. The authorization may be obtained by voice, software, or terminal transmission. The merchant should include the authorization number on the sales draft to substitute the authorization.
The average size in dollars of a merchant’s credit card transactions. This is calculated by dividing the total dollar volume in a particular period by the total number of transactions in the same period.
A credit card issued by a bank. Visa and MasterCard are bankcards. American Express and Discover are not (except that American Express cards may be issued by a bank; most Amex cards other than the Optima card are not credit cards, but the term bankcard still generally excludes Amex cards).
The accumulation of captured and authorized transactions waiting to be settled. Multiple batches may be settled throughout the day.
The process of converting the authorization amount into a billable transaction record within a batch. Transactions cannot be captured unless previously authorized, and authorizations cannot be captured until the goods or services have been shipped or transmitted to the consumer.
MasterCard International, Visa U.S.A. Inc. card associations are corporate entities that own their respective service marks, administer the issuing, acquiring and processing rules, and set pricing. The associations have banks as members; those member banks have the various powers to issue cards as well as to sponsor ISO/MSP’s to acquire merchant accounts. Wells Fargo Bank is the sponsoring institution for Central Payment Corporation.
Card Verification Value – Visa (CVV 2) / Card Validation Code – MasterCard (CVC 2)
A three-digit value printed in the signature panel on the back of a MasterCard or Visa card. This value is a security feature designed to crosscheck the information embossed on the card.
Any person who opens a credit card account and makes purchases using a credit card.
Cash Reserve Account Days
The number of days as indicated in the Merchant Bankcard Services Agreement that funds will be set aside in the Reserve Account.
Cash Reserve Amount Percentage
The percentage of settled transactions set aside in the merchant Reserve Account.
A secure third-party organization that can verify the identity and origin of a person or component, such as a website. VeriSign is the leading certification authority.
A credit card transaction that is billed back to the merchant who made the sale. This happens when a credit cardholder disputes a charge on their bill by claiming the product was never delivered or the cardholder was dissatisfied with it in some way. The merchant must respond to the charge back and provide proof that the product or service was provided to the customer. Cardholders are supposed to try to obtain satisfaction from the merchant before disputing the bill with the credit card issuer.
The amount of sale transactions divided by the amount of chargebacks received in any given month. This is calculated using either the item count of both or the dollar amount of both.
The value of a merchant’s credit card purchases that are credited to its bank account after the acquirer buys the merchant’s sales slips. The deposit is credited. It is not funded until the acquirer gets the monetary value from the issuer during settlement.
Also called a check card or ATM card, this card allows a merchant to deduct money directly from a customer’s bank account. Debit cards issued with a Visa or MasterCard logos are accepted by any merchant that also accepts Visa or MasterCard credit cards.
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.
An authentication that confirms a website is registered to the correct individual(s) through a thorough validation process.
A percentage rate charged by the bank or ISO for processing a merchant’s credit card transaction. This rate is usually determined by the type of business and/or how the credit card is processed. Retail based transactions (card present) will always have a lower discount rate than mail, phone, or Internet transactions (card not present). Other factors, such as type of card, can also affect the discount rate.
Electronic Commerce (E-Commerce) Transaction
A transaction conducted over the Internet or other network where a cardholder enters card data and transmits the data. This includes email, electronic order forms, and interactive websites.
Electronic Data Capture (EDC)
Entering and processing the sales draft by electronic means. In some retail stores, credit card sale authorizations are acquired at the time of the purchase. Sales drafts are captured by sending the sales draft data from the point of sale terminal to be processed at the end of the day. In online payment scenarios, capture is used to denote the electronic deposit of the sales draft with the acquiring bank.
Electronic Ticket Capture code that identifies the method that a merchant settles transactions.
Independent Sales Organization (ISO)
Independent sales organizations play a role in many fields. In the credit card industry 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 the bank views them as too large a risk. These businesses use an ISO to obtain merchant status. (ISO is Visa’s term for this kind of organization; MasterCard’s term is Merchant Services Provider, or MSP. Both terms are used interchangeably).
A fee imposed for all card types (MasterCard, Visa, American Express, Diners Club, JCB, etc.) each time an authorization is requested and/or a batch is closed.
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 (“Interchange”)
A fee paid by the acquiring bank/merchant bank to the card-issuing bank. The fee compensates the issuer for the time after settlement with the acquiring bank/merchant bank and before it recoups the settlement value from the cardholder. The MasterCard and Visa card associations regulate these fees.
Card-Issuing Bank (“Issuer”)
The bank that extends credit to customers through bankcard accounts. The bank issues the credit card and receives the cardholder’s payment at the end of the billing period. Also called the issuing bank or the cardholder bank.
A manually performed, physical impression of the credit card at point of sale to prove the customer’s credit card was present.
Credit Card information entered via computer keyboard or terminal keypad instead of swiping the card through a credit card reader terminal.
An association of banks that governs the issuing of MasterCard cards and the acquiring and processing of MasterCard credit card transactions.
A business (sole proprietor, partnership, incorporation, LLC, etc.) that agrees to accept credit cards and debit cards when properly presented by the customer. A business is considered a “merchant” once they have authorization from an acquiring bank, ISO, or other financial institution to accept credit cards.
A written, commercial bank account established by contractual agreement between a merchant and a bank. The agreement contains the respective rights, warranties, and duties with respect to accepting the bankcard (i.e. Visa or MasterCard). A merchant must apply for this account much like applying for a commercial loan.
Refers to Mail Order / Telephone Order sales, where the customer’s card is not present at the time of the transaction.
Monthly Bankcard Volume
The total dollar amount of MasterCard and Visa transactions approved to be processed through a merchant account in any given month.
The transaction-processing vehicle that receives encrypted transactions from the merchant server, authenticates the merchant, decrypts the payment information, and transmits the data to the authorization and settlement networks. Most commonly used in wireless and e-commerce scenarios.
A transaction processor, distinct from the bank that processes data from the credit card transactions and then distributes funds from the merchant’s bank account. Usually refers to the computer and telecommunications “platform” that electronically manages the processing events.
A credit card transaction that is periodically charged to the customer’s account. (i.e. weekly, monthly, quarterly).
Merchant funds maintained at the clearing bank to be utilized for any potential losses generated from a merchant account, such as unpaid chargebacks or other unpaid fees.
A request from the cardholder’s bank to supply a copy of the sales draft usually for research of a dispute. A retrieval request can lead to a chargeback.
An instrument showing an obligation on the cardholder’s part to pay money (i.e. the sale amount), to the card issuer. This is the piece of paper that you sign when making a purchase with your credit card. Sales draft data can be “captured” electronically and sent to be processed over the financial networks.
Secure Hypertext Transfer Protocol (S-HTTP)
A secure version of HTTP developed by Netscape, which provides general transaction security services over the Web.
Secure Sockets Layer (SSL)
A public security protocol, also developed by Netscape, which can create a secure link between the Web server and the browser.
As the sales transaction value moves from the merchant to the acquiring bank (and then to the issuer), each party buys and sells the sales ticket. Settlement is what occurs when the acquiring bank and the issuer exchange data or funds during that process.
Stockkeeping unit; a number designating one specific product.
Credit card information that is electronically input by swiping the credit card through a card reader or terminal.
A hardware device equipped with a magnetic stripe reading device, used for processing card transactions,
typically in a retail (face-to-face) environment.
Another name for the sales slip or its monetary value that results when a credit card purchase is made.
One example of transaction is the process that takes place when a cardholder makes a purchase with a credit card.
A per-transaction amount charged by the bank for processing each transaction. This amount is in addition to the discount rate.
An association of banks that governs the issuing of Visa cards and the acquiring and processing of Visa credit card transactions.
When a merchant calls to obtain credit card authorization rather than using a terminal or credit card software to obtain the authorization electronically. The merchant must, in addition to the voice authorization, submit the credit card information via terminal or software to close out the transaction and transfer the funds to the merchant’s bank account.