ACH (Automated Clearing House)
A method of electronic payment typically used to process a group of transactions that are each for relatively small amounts. ACH transactions function like “electronic checks” that are settled (paid) within one or two business days using procedures that are similar to the way that paper checks are settled.
Acquiring Bank
A financial institution that provides credit card processing accounts for merchants. Also referred to as a merchant bank or an acquirer, the bank receives funds from a cardholder when a credit card transaction is completed, and then deposits the payment amount, less any fees, into the merchant’s business checking account.
AVS (Address Verification System)
A fraud prevention feature built into most credit card transaction processing equipment that runs an automatic check in order to verify that the billing address given by the customer matches the billing address for the credit card that is presented for payment.
Bankcard
A piece of plastic with a magnetic strip, more commonly known as a “credit card”, that is used by the holder to leverage a pre-established line of credit with a bank, and is widely accepted as payment for goods and services by merchants operating under a standard set of rules for the authorization of its use and for the settlement of all transactions.
Batch
A merchant’s collection of credit card transactions over a period of time, usually one full day, that are saved for submission to the acquiring bank all at once, usually at the end of each day. Batch fees are charged by acquiring banks as a way of encouraging merchants to submit transactions in a group, rather than one at a time throughout the day.
Batch Close
The process by which a merchant gathers all of the credit card transactions that have occurred over a specified period of time, usually one full day, and submits them to the financial institution acting as the acquiring bank for settlement.
Capture
The submission of a customer’s credit card transaction information to the merchant account provider or the credit card processor, through the use of a POS (point of sale) device or by way of real-time transaction processing software, for settlement.
Cardholder
The person or company with an active credit card account that enables them to leverage a pre-established line of credit with a bank, and by which transactions for purchases can be processed.
Card Issuer
The financial institution that establishes a line of credit with a cardholder and issues the credit card that is used for the purchase of good and services.
Chargeback
An amount that is charged by the acquiring bank and deducted from a merchant account for any transactions that are successfully disputed by a credit card holder as being unauthorized or fraudulent.
Credit
More commonly referred to as a “refund”, this is a transaction initiated by the acquiring bank that transfers money out of the merchant account and back into the credit card holder’s account.
Debit Card
A financial instrument that resembles a credit card in appearance, but is used by consumers in place of cash. Unlike a credit card, all debit card purchases are deducted automatically from the cardholder’s bank account, much like a check.
Discount Rate
A percentage-based fee, usually falling somewhere between two and ten percent, that is paid to the acquiring bank or ISO for the time and expense involved in the handling of any electronic transaction.
EDC (Electronic Data Capture)
The use of a POS terminal for submitting credit card transactions to an acquiring bank or to any other credit card processor. For online credit card processing or for orders that are phoned in, proprietary software takes the place of the POS terminal.
EFT (Electronic Funds Transfer)
A method of transferring money from one bank account to another, using any of a wide variety of electronic methods currently available.
Gateway
A computer-based application that takes the transactions from online merchant storefronts and then routes them to a financial institution’s processing system.
Holdback
A portion of the revenue generated from a merchant’s credit card transactions, which is held in reserve by the acquiring bank to cover possible future disputed charges, fees and other expenses. After a predetermined time, holdbacks are released and deposited into the merchant’s checking account, usually with no interest accumulated.
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.
Merchant Account
A specialized bank account established between a merchant and a financial institution in order to process credit card purchases. By establishing a merchant account, the financial institution agrees to pay the merchant for valid credit card purchases in exchange for the right to collect on the debt owed by the consumer.
Merchant Bank
A financial institution that provides credit card processing accounts for merchants. Also referred to as an acquiring bank or an acquirer, the bank receives funds from a cardholder when a credit card transaction is completed, and then deposits the payment amount, less any fees, into the merchant’s business checking account.
Merchant Services Provider
A bank, an ISO, or any other firm that provides the various services required for the processing of a merchant’s credit card sales.
Monthly Minimum
The minimum amount that will be charged to a merchant by a merchant services provider in any given month. If the merchant account activity does not generate the monthly minimum, the account holder is automatically charged the difference.
MO/TO. MOTO
Mail order and telephone order. A high risk type of merchant account with a unique set of rules that are much more restrictive than the rules that govern retail merchants, because this type of account allows a merchant to accept credit card payment without the cardholder’s signature.
POS (Point of Sale) Terminal
An electronic device used for verifying and processing credit card transactions. If the credit card is available, the merchant can swipe the card through the terminal, or the card numbers can be manually keyed in.
Recurring Fees
Regular, most often monthly, charges that are incurred when maintaining an active merchant account. Recurring fees include the discount rate, transaction fees, statement fees, and the monthly minimum.
Real-Time Authorization
The authorization or approval of a credit card transaction at the same time that the customer is making the purchase, with no delays for the processing of data.
Real-time Processing
The immediate verification and processing of a credit card transaction following a purchase made by the customer, usually taking less than five minutes before the purchase is finalized.
Reserve Account
A portion of the revenue generated from a merchant’s credit card transactions, which is held in reserve by the acquiring bank to cover possible future disputed charges, fees and other expenses. After a predetermined time, reserves are released from these accounts and deposited into the merchant’s checking account, usually with no interest accumulated.
Representment
A follow-up transaction originated by the merchant in order to recover funds that were previously charged back to the merchant, by the card holder and/or the card issuer, as being unauthorized or fraudulent.
SET (Secure Electronic Transaction)
A standardized global security protocol, being developed by the credit card companies and several major banks for online credit card purchases, that combines 1,024-bit encryption with digital certificates.
Settlement
The process of completing all necessary funds transfers so that the merchant involved in a credit card transaction is paid for their goods or services.
Setup Fees
The initial costs that are incurred by a merchant in the process of establishing a merchant account with an acquiring bank or other merchant services provider, including application fees, software licensing fees and equipment purchases.
Swipe Discount Rate
The lower discount rate that is charged by an acquiring bank or merchant services provider for any transactions that occur during which both the credit card and the cardholder’s signature are available for visual inspection by the merchant.
Ticket Size
The actual monetary value of the goods or services purchased in a single credit card transaction.
Transaction Fee
The pre-determined and customary charge that is incurred for each individual credit card transaction a merchant processes, and collected by the merchant account provider or the ISO.
