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Glossary of Processing Terms Accounts Payable:
Debts owed to your businesss creditors. Accounts Receivable:
Debts other individuals or businesses owe to your business. Acquirer:
An Acquirer is a Visa / Master Card Affiliated Bank or Bank/Processor in the business of processing credit card transactions for businesses worldwide. Acquiring bank:
A bank that provides credit card merchant accounts and is responsible for submitting credit card purchase information to the credit card associations. Address Verification Service (AVS):
A chargeback and fraud-reduction service, which verifies the billing address provided by the cardholder with the credit card company before approving a transaction. 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. Audio Response Unit (ARU):
This is an electronic authorization and capture product where the merchant uses a touch-tone telephone to process transactions. Audit:
An inspection of financial accounts, records, and accounting procedures, which can be performed either internally, or by an independent auditing organization. Authorization:
The process of verifying the credit card has sufficient funds available to cover the amount of the transaction. An Authorization response in the form of a code sent to a merchant's POS terminal from the card issuing institution that verifies availability of credit or funds in the cardholder account to make the purchase. Authorization Response:
Approval - transaction was approved.
Decline - transaction was not approved.
Call Center - response pending more information, merchant must call the toll-free authorization phone number. Authorization Code:
A code that the credit card issuing bank returns in an electronic message to the merchant's terminal that indicates approval of the transaction. The code serves as proof of authorization. Auto Close:
A terminal feature that allows an end-of-day batch closing to occur automatically without having to be initiated by the merchant. Automatic Bill Payment:
Recurring, automatic charges to a credit or debit account for a specified service. Automatic payments must be arranged and authorized by the customer. Automatic Check Handling (ACH):
A form of electronic payment, designed to be a sort of e-check or electronic check payment. ACH is usually used to process higher volumes or small-dollar payments for settlement issues within 1 to 2 business days. These transactions are handled much the same way that written checks are handled. The clearinghouse divides all ACH files received from member banks for the day and divides them according to originating bank and paying bank, totals the accounts, and credits or debits all accounts accordingly. Average Ticket (Average Sale):
The average ticket amount is calculated by dividing the total sales volume by the total number of sales for the specified time period. Bankcard:
A credit card issued by a financial institution. Batch:
The accumulation of credit card transactions in a merchant's terminal or POS awaiting settlement. Better Business Bureau:
A non-profit, member-funded organization of thousands of US businesses dedicated to building fair and honest relationships between businesses and consumers. The BBB uses news alerts, databases, and other methods to maintain an ethical business environment. This can be a great source of information when checking up on a company youre considering doing business with. Youll also want to maintain a positive standing with the BBB in your own business. Cancellation Code:
A code provided by lodging or car rental merchants to confirm that the cardholder has cancelled a reservation. Capture:
The submission of an electronic credit card transaction for settlement. Authorized credit card sales must be captured and settled in order for a merchant to receive funds for those sales. Cardholder:
Any person who holds a payment card account . Person that uses a credit card to purchase goods and services. Card Issuing Bank:
An EFT Network Member-Bank that runs a credit card or debit card "purchasing service" for their account holders. Card Not Present:
A transaction where the card is not present at the time of the transaction (such as mail order or telephone order). Credit card data is manually entered into the terminal, as opposed to swiping a card's magnetic stripe through the POS terminal. Card Verification Value (CVV2):
A three-digit security number printed on the back of most Visa credit cards. By requesting this number on online order checkouts, in addition to using AVS protection, a merchant can reduce credit card fraud and chargeback instances significantly. Cash Flow:
Incoming cash vs. outgoing cash. Certificate Authority (CA):
A service provided by banks which digitally signs public keys sent by a web browser or by a merchant's server software. The bank issues and validates digital certificates associated with set transactions.
Chargeback:
A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder. Typical cardholder disputes involve product delivery failure or product/service dissatisfaction. Cardholders are urged to try to obtain satisfaction from the merchant before disputing the bill with the credit card issuer.
Close Batch:
The process of sending the batch for settlement. Code 10 Authorization:
If you suspect a card is fraudulent the merchant can call their voice authorization phone number and ask for a code 10. The voice operator will instruct the merchant on how to proceed. Collateral:
Property provided to secure credit or a loan, which may be subject to seizure if the loan goes into default.
Commercial Credit:
Short-term credit arrangement provided by a business enabling a customer to pay for a service or product.
Credit Bureau:
Companies that gather information about consumer credit histories, including personal information such as identity, payment habits, and public records. These credit reports are then sold to creditors (banks, finance companies, retailers, etc.) who use the credit reports to determine the creditworthiness of a potential customer. Experian, Equifax, and TransUnion are the three major US credit bureaus. Credit card:
A type of bank card widely used as a form of payment. The credit card holder makes a purchase on credit, then reimburses the credit card company for the amount of the purchase plus any interest that may apply. Credit Card Processing Clearinghouse:
The actual processing of the credit card transaction is usually handled by a Clearinghouse, not by your merchant bank. The Clearinghouse authorizes and validates the card, and ensures that sufficient funds are available. Credit Rating:
A system used by creditors to help determine your creditworthiness, or how likely it is that you will repay a loan. This system utilizes information collected from your credit application and your credit report. Credit (Reversal):
Nullified transaction that has not been settled. If supported by the card issuer, a reversal will immediately negate an authorization and return it to the open-to-buy balance on a cardholder's account.
DDA Account:
This is the merchants Demand Deposit Account, otherwise
known as the merchant's home account (Bank). Debit Card:
Payment card whose funds are withdrawn directly from the cardholder's checking account at the time of sale. Deposit Correction Notice (DCN):
Adjustments made for an out-of-balance condition due to various problems in the transmittal. The correction is made by the merchant's acquirer at the time of capture prior to being sent out for interchange. Digital cash:
An encrypted form of cash which can be sent to merchants as payment in online transactions. Digital cash can be either "digital coinage" downloaded to a user's PC from a participating bank or a digital money account with a bank. Digital certificate:
Online identification used to authenticate a customer, merchant and a financial institution. Digital certificates are used to encrypt the information exchanged in SET transactions. Certificates are public keys digitally signed by some trusted authority, such as a financial institution, to identify the user of the public key. Digital money:
Similar to digital cash, but also includes the use of software-based secure credit card transactions. Digital signatures:
An electronic signature that cannot be forged. A digital signature is generated from a computed digest of the text encrypted and sent with the text message. When the recipient receives the text, the signature is decrypted and the digest is retrieved. If the digests match the message is proven to be from the sender. Digital wallet:
A digital wallet holds digital money, purchased and used similar to travelers' checks. A digital wallet may also contain your credit card information and a digital certificate identifying you as the cardholder. Also called an ewallet. Discount Rate:
The percentage of sales amounts that the bankcard acquirer charges the merchant for the settlement of the transactions. Draft/Sales Draft:
Documentation verifying that a product or service was purchased. Ecommerce:
Sales, transactions, refunds, or any other business performed online. Edit Rejects:
The rejection of a sales draft by Visa or MasterCard before a transaction processes through interchange, but after it has been paid by the acquirer. Electronic Cash Register (ECR):
A device used for cash sales. Electronic Date Capture (EDC):
Process of electronically authorizing, capturing and settling a credit card transaction. Electronic Data Interchange (EDI):
Any electronic communication of business transactions. For instance, orders, confirmations and invoices. Electronic Funds Transfer (EFT):
A money transfer initiated through an ATM, electronic terminal, computer, telephone, or magnetic tape. EFTs include credit card and automated bill payments. Electronic Wallet (EWallet):
Software, which like a real wallet, stores credit card information and shipping details. The e-wallet resides as a plug-in in the Web browser and makes it possible for a credit card holder to conduct online transactions, manage payment receipts, and store digital certificates. The e-wallet initiates the data encryption in a SET transaction. Employer Identification Number (EID):
A government-issued ID used on all business tax forms and other significant documents. Also called a Tax ID or Tax Number. Encryption:
A security measure which scrambles electronic information so that only the sender and receiver can read the message. Equity:
The current market value of your business, less your business debts. Escrow:
Money, property, or some other object or written engagement that is placed in the custody of a third party, and is released only after specified conditions have been met. Specified conditions may include the delivery of a product, performance of a service, or some other action. This provides a kind of holding pen for money to ensure that both parties of the arrangement are satisfied before the exchange of goods or funds takes place. Expense Account:
An account used for business related travel and entertainment costs. Factoring:
In terms of e-commerce, factoring is the practice of allowing other companies to process credit card transactions through one company's merchant account rather than requiring them to purchase a merchant account of their own, in exchange for a percentage of the transaction. This is also known as credit card laundering, and is illegal practice that can result in heavy fines. Fleet cards:
Private label credit cards designedmostly for business vehicles. Floor Limit:
A specific dollar limit which designates that certain transactions must be authorized. For instance, if your floor limit is $2,000, authorization is required for any transaction over that amount. Footer:
Text printed at the bottom of a sales receipt. Gateway Processor:
Essential to online credit card transactions, a Gateway Processor acts as the interface between the merchant and the Credit Card Processing Clearinghouse (see above). The Gateway is used to submit payment information to the Clearinghouse and securely sends and receives payment transaction messages. Some merchant providers provider their own Gateway service, but most small merchant providers are resellers for larger Processors. Holdback:
A merchant account provider may retain a portion of a merchants revenue to cover any unplanned future expenses such as charge backs, late charges and other expenses. Not all merchant providers require a holdback. Incubators:
Organizations offering a variety of resources, including mentoring, financing advice, technological training, business space, and research facilities to entrepreneurs that otherwise lack these resources. Imprint:
A physical impression of a customer's card which proves that the card was present when the sale was made. Imprints may be created electronically using a magnetic-stripe-reading terminal including a correct point-of-sale (POS) entry code. Independent Sales Organization (ISO):
An ISO is an Independent Sales Organization that represents a Bank or Bank/Processor alliance. The ISO has an agreement to sell the services of the Bank or Bank/Processor. Interchange:
The standardized electronic exchange of financial and non-financial data associated with sale and credit data between merchant acquirers and card issuers of MasterCard and Visa transactions. Internet commerce:
Any commercial transaction performed via the Internet.
Internet Service Providers:
(ISPs) are the Web Site Hosting companies that provide services for merchants web sites.
Issuing Bank:
A bank that issues credit cards to customers. The issuing bank funds the merchants account when a charge is made to one of their customers cards, and later bills the customer for that charge. Laundering:
The illegal process of using another company's merchant account to process your own company's credit card transactions. Laundering may lead to heavy fines or other penalties. Leverage:
Using credit or borrowed funds to expand the potential gains of a company, while assuming a risk of greater losses. Lien:
The legal right of a creditor to hold or sell the property of a debtor to secure or pay off a defaulted debt or duty.
Line of Credit:
A commitment from a financial institution, such as a bank or other creditor, to lend a specified amount of money, during a certain period of time, to another company or business.
M - Commerce:
E-commerce transactions performed over wireless devices, such as cell phones, pocket PCs, PDAs, etc. Magnetic Stripe:
A strip of magnetic tape affixed to the back of credit cards containing identifying data, such as account number and cardholder name. Mail/Telephone/Internet Discount Rate:
The discount rate (or Credit Card Fee) for internet/mail/telephone transactions is typically higher than the rate for traditional types of businesses. This is due to the increased risk of fraud in card-not-present transactions. Manual Close:
A batch close that must be initiated by the merchant on a daily basis. Merchant:
Customer of a processor/acquirer. Merchant Account:
An account set up by a bank which allows a business to accept credit cards and deposits collected funds into the business checking account. Merchant providers assume a risk by allowing other businesses to accept credit cards under their name, and rely on those businesses to deliver the products or services to the customer as agreed. Merchant Account Provider:
A company that can help a business establish a merchant account relationship with a bank, suitable to their credit history and processing needs. Also called Independent Sales Organizations, these companies make money through either an upfront fee, application fee, or a per transaction fee. The bank will handle the charging and depositing of funds, and unless the Merchant Account Provider manages its own Gateway, they probably resell another companys system and will play little or no part in the actual processing of the credit card transactions. Merchant Bank:
Any financial institution that works with businesses to enable them to process and accept credit card payments. This service is provided in exchange for processing fees. Ideally, you want to apply for a merchant account with the bank that handles your business checking account, but this is not mandatory. If you have reasonably good credit, you shouldnt have much trouble finding a bank to carry your merchant account, but many new or at-home companies may have trouble getting approved. Some merchant banks allow other businesses (Merchant Providers) to resell their merchant accounts, and then handle the transaction processes for those businesses. Merchant Identification Number (MID):
This number is generated for each individual merchant location. This number is used to identify the merchant during processing of daily transactions. Merchant service provider (MSP):
A bank or other institution that offers credit card processing services, and usually also provides merchant accounts to merchants and retailers. Mail Order/Telephone Order (MOTO):
Credit card transactions initiated via mail, email or telephone. Also known as card-not-present transactions. Micropayment:
Merchants who sell products, services, or information for very small amounts, from a few cents to a few dollars, use a payment acceptance method called micropayments, because it is generally not profitable to use a traditional merchant account for processing such small payments. Monthly Minimum:
The minimum monthly fee charged by most merchant providers, usually around $25. This fee is only imposed when your Discount Rate charges do not meet the monthly minimum amount. Network:
Company and system used to authorize credit card transactions. Non-Qualified Transaction Fees:
Bankcard sales transactions that do not meet set Visa/MasterCard criteria for that particular merchant and are processed at a higher interchange rate. An example of this is a merchant that is retail (card present) that processes a card-not-present transaction (or manually enters card data rather than swiping the magnetic stripe through the terminal). The merchant will pay the difference between what they should have paid on retail and what they actually qualified for (card not present). This difference is called non-qualified interchange fees. Offline Processing:
This method of credit card processing allows a business to collect a customers credit card information, and then process the charge at a later time. Overhead:
The costs of operating a business, such as rent, utilities, taxes, etc., which are not directly connected to the services or products the businesses provides.
Payment gateway:
The code that transmits customer orders to and from a merchant bank's transaction authorizing agent.
Personal Identification Number (PIN):
An alphanumeric or numeric code used to identify a person using a credit or other payment card. PC Software:
A software program that is designed to perform a specific function on a computer system. Examples would be accounting systems, manufacturing systems, order entry and fulfillment, ticketing, reservations, etc. The application is either purchased or built by the merchant, and must be interfaced with a credit card authorization system in order to provide on-line transaction processing. Point of Sale Terminal (POS):
The credit card processing device which reads the magnetic strip on the back of the card. After sliding or swiping the card, the terminal contacts the credit card clearinghouse to authorize the charge, displays an authorization code, and usually prints a card transaction slip which is then signed by the customer. Most retail stores use this method of card processing because it is simple to use, fast, and accurate. Also called a Credit Card Terminal, or Card Swipe Machine. Processing bank:
Once a credit card number is entered, the processing bank is the bank that processes the actual transaction. Private Label Cards:
Credit, debit or stored-value cards that can be used only within a specific merchant's store. Also referred to as proprietary cards. POS Terminal:
Equipment used to capture, transmit and store credit card transactions at the point of sale. Examples are Verifone terminals. Processor:
A Processor is the company that actually routes an Authorization Request from a Point of Sale device (such as a Verfone credit card terminal) to Visa or Master Card, and then arranges for Fund Settlement to the merchant. Such processors are traditionally accessed via direct dial out modems connecting to their system. Processors need to have a Sponsoring Bank in order to gain access to the Visa and Master Card networks. When a Processor or other entity has made such an arrangement with a Sponsoring Bank to resell their services, they are called an Agent of that bank. Any entity that sells Visa or Master Card must disclose themselves as an Agent of their Sponsoring Bank. Such sales entities may be a Processor, or an ISO/Agent of the Processor or Processor/Bank alliance. Many banks are also their own processors, while other banks will use a Third Party Processor to handle this processing for them (in their own brand name in some cases). Real-time processing:
Real-time processing allows merchants to process their credit card transactions as soon as a purchase is made, allowing them to capture funds and get the purchase approved immediately. Recurring fees:
Charges billed on a regular schedule, usually monthly Reserve Account:
One method that ACH Processor's use to mitigate risk, is to require that merchants maintain a Reserve Account at the Processor's Sponsoring Bank. This allows the Processor to issue a Hold on funds in this account when fraud has been detected or an excessively large number of returns is received. Merchants with good credit and history can usually meet the expectations of ACH Processors for covering returns and so are not always required to keep a reserve account. In cases where a reserve is required, the minimum-reserve-balance in the account is set at about 10% of the anticipated processing volume. New merchants are usually allowed to build up their reserve by sending in transactions which are not withdrawn until the minimum reserve balance is achieved; after that, the merchant is allowed to withdraw the excess funds for transfer to their home town bank. Sales Draft (Ticket):
A form showing an obligation on the cardholder's part to pay money (i.e., the sales amount) to the card issuer. This is the piece of paper that is signed when making the purchase. Sales draft data can be captured electronically and sent to be processed over the phone lines. Also see Electronic Data Capture. Secure Electronic Transactions (SET):
MasterCard and Visa developed this secure payment protocol to offer greater security for online bank card transactions. Using this protocol, credit card details are secured between the shopper and the bank; the merchant does not have access to the credit card information. Secure Socket Layer (SSL):
SSL is a security standard web protocol used by many merchants to protect customer payment data as it travels over the Internet. SSL uses 128 bit encryption or higher, creating an encrypted channel between the browser and Web server, to secure personal information so that only the intended parties can read certain information. Secure Payment Gateway:
Secure Payment Gateway companies help other Processors conduct secure business on the internet using Secure Socket Layer (SSL) technology. Settlement:
Settlement is the point at which the acquiring bank credits the merchant account for the amount of a credit card purchase, and the bankcard association credits the acquiring bank and debits the shoppers card issuer for the transaction. Setup fees:
Many merchant services providers charge set up fees for the initial opening and establishment of a merchant account. Shopping Cart:
A "virtual" shopping basket allows you to select multiple items for purchase from a merchant's website. In actuality, the shopping basket is simply a list of the items you have selected and the details for the purchase. A shopping basket allows you to review and modify your selected items as you shop. Small Business Administration (SBA):
A government agency created to counsel, assist and protect the interests of small businesses.
Smart card:
A card that electronically stores account information in the card itself. Sole Proprietorship:
A business under the complete control of a single individual. Statement Fee:
A fee, charged by Merchant Providers to generate and mail a monthly statement outlining a businesses transactions. Swipe Discount Rate:
The discount rate for retail stores using a POS terminal is usually much lower than mail, telephone, or internet rates. A card-present transaction is considered much less risky and more secure than a card-not-present transaction. Software:
A POS Terminal Application or PC or Internet Application that runs transactions and associated administration. Sponsoring Bank:
A Sponsoring Bank is a Chartered Bank or S & L that has obtained membership in Visa or Master Card in order to allow a Processor access to the Visa and Master Card networks ( in order to process these types of transactions). Since only a Bank may join Visa or Master Card, many Processors make deals with a Sponsoring Bank in order to gain access to the Visa and Master Card networks. Because these Sponsoring agreements are usually like a partnership, the line between the Sponsoring Banks and their Processors is not always clear; sometimes the partnership is referred to by the name of the bank, while other times they are referred to by the name of the Processor. T & E cards:
Credit or charge card used by businesses for travel and entertainment expenses. Examples of these cards are American Express, Diners Club, Carte Blanche and JCB. T-Commerce:
A new concept being tested in Europe which allows shoppers to order certain products or services directly from their televisions. Terminal:
Equipment used to capture, transmit and store credit card transactions. Terminal Software:
Programming that determines the characteristics and features of the terminal. Terminated Merchant File (TMF):
If a merchant receives excessive chargebacks, they may be stripped of their merchant account and placed in the Terminated Merchant File. All Merchant Service Providers have access to this list and may decline merchant account services to any merchant on the list for several years. Transaction:
Any action between a credit cardholder and a merchant which results in activity on the account, like authorization and settlement. Captures and credits are types of transactions conducted by merchants and financial institutions. Transaction Fee:
A fee charged by a credit card processor or merchant provider for each transaction processed. This fee is different from the credit card fee or discount rate, and covers the costs of the computers and network required to process the transaction. Turnkey:
In terms of e-commerce a turn-key solution refers to a fully e-commerce enabled web site which is offered to potential merchants as a complete online business solution, complete with shopping cart, web design, hosting, and a merchant account. Terminal:
Equipment used to capture, transmit and store credit card transactions. Terminal Identification Number (TID):
A unique number assigned to each POS terminal. Third-Party Processor:
A Third Party Processor is an independent processor that is contracted with by a Bank or Processor to conduct some part of the transaction processing process. U-Commerce:
Universal Commerce enables secure commerce anywhere, anytime, and with any type of device. Value Added Reseller (VAR):
Third-party vendor that enhances or modifies existing hardware or software, adding value to the services provided by the processor or acquirer. Venture Capital:
Money available for investment in new enterprises, in which the risk of loss and the potential for profit may be considerable. Also called risk capital.
Visa Payment Authentication Service (PAS):
In an attempt to secure merchant databases from hackers and to protect credit card numbers stored in merchant databases, Visa has developed a Payment Authentication Service which requires cardholders to verify their identity using a password whenever they make a purchase online.
Wire transfer:
An electronic payment system designed to handle high-dollar, time-crucial payments, typically between large banks.
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