Merchant Account / Credit Card Terms Glossary
There are so many terms to credit card processing. This glossary should help you navigate through the business of accepting credit cards.
ACH (Automated Clearing House): A processing organization networked with others to exchange (clear and settle) electronic debit/credit transactions (no physical checks).
Address Verification Service (AVS): AVS is a tool for merchants to reduce the risk associated with card not present transactions, such as mail order, telephone order or Internet transactions. The billing address given by the customer is passed in the transaction and it is checked against the billing address on file at the customer's card issuing bank.
Authorization: The process whereby a transaction is approved by an issuing bank, authorized agent, or Visa/MasterCard on behalf of that issuer, before the transaction is completed by the merchant via telephone or terminal.
Average Ticket Size (AVT): The average Visa/MasterCard dollar amount of each transaction the merchant anticipates processing or actually processes over time.
Basis Points: A "basis point" is 1/100th of a percentage point.
Batch Processing: This occurs when a merchant transmits the "batch" of daily sales for processing. An "open" Batch is one that is not yet "closed." Batching generally occurs at least once per day.
Capture: The process in which point of sale terminals store authorization and transaction information.
Card Present: A transaction evidenced by the action of swiping a card through a terminal or by an imprinted and signed credit card draft.
Chargeback: A chargeback is the result of an action taken by a cardholder who disputes a credit card transaction through their credit card issuer. The card issuer initiates a chargeback against the merchant's account. The sale amount of the disputed transaction is immediately debited from the merchant's bank account. Merchants have 10 days in which to dispute the chargeback. This may be accomplished by providing the card issuing bank with a proof of purchase by the cardholder. This could be a signature or proof of delivery. A chargeback fee is generally assessed to the merchant account by the merchant bank for the handling of this process.
Discount Rate: A fee taken by the bank as a percentage of all sales transactions. If the discount rate is 2.50%, for example, the discount rate fee is $2.50 for a $100.00 charge. There different discount rates for each transaction type: Qualified, Mid-Qualified and Non-Qualified. Mid-Qualified is higher than Qualified and Non-Qualified is higher than Mid-Qualified.
Electronic Ticket Capture (ETC): An ETC system reaches out and "grabs" sales ticket information electronically. Buyer information is contained on the magnetic strip on the back of the credit card. The merchant "swipes" the card through a terminal, and the buyer information is "read" by the computer system and merged with the sales information. It then processes the ticket just as if the merchant was making a manual deposit at a bank. This action is normally done in "batches" of tickets, such as at the end of the day.
Gateway: This is a service that connects the shopping cart with the card processor. Essentially, the gateway accepts the data in the shopping cart's format translates it to the card processor's format and sends it to the card processor. It then does approximately the same thing, but in reverse, when it returns the authorization and other codes to the shopping cart.
Imprinter: The now old fashioned manual, slide type device used to produce an image of the raised (embossed) characters on a credit card, to a transaction slip. All merchants should have a manual imprinter for cases that demand a physical imprint.
Internet Merchant Account: A Merchant Account is a relationship between a retailing company and a Merchant Bank, which allows the retailer to accept credit card payments from customers via the Internet.
Keyed: A transaction is "keyed" when the information from a credit card is manually typed into a terminal or computer. A transaction is keyed because either the card is not present at the time the transaction is entered or the equipment being used to process the transaction can't read the card.
Mid-Qualified: A "card not present" transaction, which includes the billing address being passed for an authorization or sale transaction. The discount rate for this transaction is higher than the discount rate for a Qualified transaction.
Monthly Minimum: The minimum amount of discount fees charged by a Merchant Service Provider in a given month. If account activity does not generate the monthly minimum, the merchant pays the difference.
Monthly Statement: Statement of processing activity and charges mailed by the bank after the last day of each month the account is active.
Monthly Volume (MV): The maximum monthly dollar volume a merchant is approved to process in Visa and MasterCard transactions. The MV is important for underwriter consideration of the file and also helps to determine what type of documentation will be required with the file. (American Express, Discover or any other card processing volume is never included in the calculated monthly volume.)
Non-Qualified: A "card not present" transaction, which does not include the billing address being passed for an authorization or sale transaction. This also applies to charges on Government, Corporate and Foreign Cards and when sales transactions are not batched within 24 hours. The discount rate for this transaction is higher than the discount rate for a Mid-Qualified transaction.
Pinpads: Pinpads are small boxes with a 10-key pad on them. Connected to a processing terminal, they are used by cardholders to enter PIN numbers and debit card transactions.
Point of Sale (POS): The physical location where a sale is completed. Usually used as "POs terminal" to refer to the credit card terminal (equipment).
Qualified: These transactions are card present, a retail transaction that is card swiped and the merchant batches out at the end of the day.
Refund Policy: How (and to what extent) will the merchant guarantee products or services sold to a cardholder? Merchant Banks require a written refund policy for each applicant, as a liberal refund/return policy may encourage the reduction in the number of chargebacks that a merchant receives.
Retrieval Request: When the cardholder's bank request retrieval of information. This is done in order to substantiate a chargeback claim made by a customer.
Secure Server: All Web servers that handle credit cards should use SSL (secure socket layer) encrypted communications. While a secure server discusses sensitive credit card information with the customer, anyone eavesdropping on this electronic conversation (through any Internet computer) between browser and server will only see illegible data. Of course, it can't protect the customer from someone watching over the customer's shoulder.
Settlement: The process in which acquirers and issuers exchange financial data and value resulting from sales.
Shopping Cart: As used on the Internet, a shopping cart is analogous to choosing items in a grocery store and placing them in a shopping cart for eventual purchase. Chosen items are grouped into a single purchase (Shopping Cart) so that only one electronic purchase need be completed.
Statement Fee: This is a monthly fee that entitles the merchant to customer support, and a statement to be mailed to the merchant.
Swipe: This is the action of physically sliding a credit card through a terminal or magnetic stripe reader that "reads" the magnetic strip on the back of all credit and debit cards. The alternate method of getting this information into the terminal is by manually keying it in. The value of swiping cannot be overstated in that it documents the physical presence of the card at the point of sale. By definition, all swiped transactions are card present transactions.
Transaction Fee: This is a per item fee charged for each transaction between your terminal or software and the processors network.