Glossary of Credit Card Processing Terms


About Capital Processing Network

The world of card processing has a lot of jargon and definitions that aren’t commonly known by merchants. Capital Processing Network has created this list of definitions in order to help people understand some of the terminology used in the merchant account industry.

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A



ACH

Automated Clearing House. A form of electronic payment designed for electronic checks.

Acquiring Bank

The bank that provides a business with a merchant account.

Authorization

Verification of a credit card transaction which confirms that the card's available credit or debit limit is not exceeded.

AVS

Address Verification System. A system designed to verify that the billing address entered on a transaction, usually online, matches the address on file.

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B



Backup Withholding

A 28% fee that can be charged by the IRS, and taken directly from settlement amounts, if the merchant account has not properly validated its TIN number.

Bank Card

A debit or credit card accepted by merchants.

Basis Point

One one hundredth of a percent. 100 basis points would be one percent. Credit card transaction fees, discounts, and downgrades may be expressed in basis points added to a tier or interchange rate.

Batch

A group of credit card transactions that are submitted for payment. Typically, a company will batch out transactions at the close of the business day, but some businesses may batch out multiple times in one day.


Bill Back

Payment of the interchange rate on transactions with all other fees assessed on the next month's statement.

Biometric Verification

The use of fingerprint or retina authentication for identity verification. Currently not in widespread use for financial transactions.

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C



Capture

The point at which a credit card number is submitted for settlement.

Card Association

Brand-level companies like Visa, MasterCard, and American Express, which define rules associated with using their brand for credit card transactions.

Card Not Present

A transaction performed without the physical presence of the card, such as one done over the phone or online. A "present" card would typically be swiped through a reader. Card Not Present transactions generally cost more because there is a higher risk of fraud.

Card Present

Transactions where the card is swiped through a reader. These transactions usually have the lowest rates.


Cardholder

The owner of a debit or credit card.

Chargeback

A customer dispute regarding a credit card. Chargebacks may arise from fraud, customer service issues, or forgotten transactions. Most merchants try to avoid chargebacks due to the expense of the dispute process and the danger of higher fees on future transactions.

Check Imaging Device

A peripheral device that can be added to a credit card reader to verify checks on a system such as Telecheck.

Contactless Reader

A credit card machine peripheral that uses radio frequencies to read credit cards with embedded RFID microchips or phones with NFC chips to transfer data. Many fast food operations have contactless readers built into their terminals.


Credit Card

A bank card which accesses a line of credit which must be reimbursed. Credit cards may revolve, or must be settled on a monthly basis.

CVV or CVC

A numeric security code found on the signature line of MasterCard and Visa Cards, or on the front of American Express cards. Usually requested for online or phone-based transactions.

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D



Daily Discount

Subtraction of the discount rate from daily transactions. An alternative is Monthly Discount, which makes it easier to get an overall breakdown of transaction expenses.

Discount Rate

The fee for handling a transaction. Named because it is the amount that is "discounted" from the total sale price by the credit card processor.

Dongle

An inexpensive card reader that plugs into a smartphone (or tablet) headphone jack. Not all dongles are PCI-compliant, and the services that use them are generally more expensive than standard merchant accounts.

Downgrade

A higher rate paid for a transaction when a merchant, or sale, does not meet the requirements for the base rate.


Durbin Amendment

Legislation that limits the amount that can be charged on debit transactions, the Durbin Amendment has made it more attractive for merchants to encourage customers to use Debit cards, since fees may be significantly lower than credit cards.

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E



EBT Card

A card (Electronics Benefits Transfer) issued by a government agency for the payment of cash assistance or unemployment benefits. Many EBT cards have Visa and MasterCard logos and look just like standard debit cards.

Effective Rate

The bundled rate that combines all fees including the discount rate and various assessments.

EMV Card

Short for Europay, MasterCard, and Visa, EMV is a standard for smart cards which is being implemented in 2013 and rolled out to merchants. Cards with electronic chips or contactless features follow the EMV standard.

ETF

Early Termination Fee. A charge that may be assessed when a business switches from one credit card processing company to another.

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F



Fleet Card

A credit card designed to be used for expenses related to business vehicles, such as fuel or repairs. Fleet cards may only be accepted at specific gas stations or repair shops. Voyager and Wright Express are fleet cards.

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G



Gift Card

A branded payment card that can be created for in-store purchases. Merchants of all sizes can get gift cards created for their stores if they have the right credit card processing services.

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H



Hand Keyed Transactions

Transactions entered manually into a credit card machine, either because the magnetic stripe on the card is bad or because the card is not present.

Holdback

A fee held back on merchant credit card transactions to cover disputes and/or chargebacks.

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I



Imprinter

The old fashioned "knuckle buster" that imprints a card number on a carbon-copy receipt.

Interchange

Exchange of data between an acquiring bank and issuing bank.

Interchange Fees

Fees charged by a card association in order to pass funds and billing information between merchant banks, issuing banks, and other organizations. Interchange fees may vary by the type of card used, and these fees are typically marked up by processing companies.

ISO

Independent Sales Organization. An organization that processes credit card transactions on behalf of another entity. Most processors are Independent Sales Organizations of major banks.


Issuing Bank

The bank that issues a credit card and pays the merchant account on settlement.

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L



Low Risk Portfolio

A grouping of merchant accounts from companies that have a lower risk of fraud or chargebacks. Capital Processing Network features a low risk portfolio.

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M



MATCH

Member Alert To Control High Risk. A list of individuals and merchants that have had merchant accounts terminated for cause. It is very difficult for merchants on MATCH to get new merchant accounts.

Merchant

Typically, Merchant is used to describe a company that is accepting credit and debit cards. In the parlance of processors, "merchant" can also describe non-profits and individuals with credit card terminals, regardless of their actual business type.

Merchant Account

A special account designed to process payments typically generated through credit card terminals, payment gateways, and other sources that process debit and credit cards.

Merchant Cash Advance

A cash advance to a merchant that is paid back based on a percentage of proceeds from debit and credit card transactions.


MID

Merchant Identification Number. A number used to identify a merchant in a transaction.

Mid-Qualified Rates

Among tiered rates, mid-qualified rates apply to keyed (non-swiped) transactions. A mid-qualified rate can also be applied if charges are not batched in a timely manner.

Mobile Wallet

A smartphone app that allows for multiple credit cards to be stored electronically. Phones with NFC chips can make payments without the physical presence of a credit card.

Monthly Minimum

A base fee for card processing. Generally a merchant must generate a small amount in fees or must make up the difference.


MOTO

Mail Order - Telephone Order. Credit card transactions that originate over the phone, or through order forms. Prior to the widespread acceptance of the Internet, catalog and mail order companies were the most common MOTO sources.

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N



Next Day Funding

Payment within 24 hours for charges batched before a certain time. It may be necessary to batch out early (example: before 8PM) to get next day funding if it is available to you.

Non-Qualified Rate

Among tiered rates, the non-qualified rate is generally the highest rate charged because it does not meet any of the requirements for lower rates.

Nuisance Fee

Fee for re-swiping declined cards.

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P



Payment Gateway

A service that authorizes payments for e-businesses and online retailers. Essentially a gateway connects users to a financial institution for data transmission.

PCI-DSS

Payment Card Industry Data Security Standard. This is a set of rules designed to prevent security breaches and fraud using credit and debit cards.

PIN Pad

A peripheral device added to a credit card terminal or POS system in order to accept personal identification numbers from debit card transactions.

POS

Point Of Sale. Terminals that are integrated into electronic sales and ordering systems. Generally POS terminals are found in restaurants, gas stations, and supermarkets.


Proprietary Terminal

A credit card terminal that only works with one processing company. Many name-brand terminal manufacturers will create proprietary terminals for larger customers.

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Q



Qualified Rate

Among tiered rates, the qualified rate is the lowest rate, and often the one quoted by processing companies. This usually applies to transactions where the card is present, and the card itself is not a rewards, mileage, or corporate card.

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R



Reprogramming

Changing the firmware on a credit card terminal to work with a different processor. This may not be possible with all terminal or processor types.

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S



Settlement

The crediting of a merchant account for charges made on credit and debit cards.

Setup Fee

A fee which may be charged to set up or transfer a merchant account. Generally this fee is designed to recoup charges from third-party organizations that may charge for authorization, security, and underwriting.

Smart Card

A credit card which may either have an electronic contact pad or contactless microchip that passes information between the card and a reader. (See EMV cards.)

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T



Terminal

A machine that accepts credit card information, typically through a swiper, numerical keypad, or contactless reader technology. Most terminals also print receipts for transactions.

Tier

A billing level for transaction fees. In credit card processing, the 3 main tiers are Qualified, Mid-Qualified, and Non-Qualified.

TIN Number

Taxpayer Identification Number. The IRS validates TIN numbers, which may either be EIN numbers for corporations or Social Security Numbers for sole proprietorships.

Tip Line

A line added to a credit card receipt so tips can be added, typically at restaurants or beauty salons. A terminal may need to be programmed to add a tip line to a receipt.


Tokenization

The replacement of a credit card number with a "token," which is a substitute number that is nearly useless to a data thief. Merchants can use tokens like cards for recurring billing and adjustments, but tokens have no value to identity thieves. First Data's Transarmor is a popular tokenization source.

Transaction Fee

A fee for transactions processed through a merchant account.

Transarmor

A system, created by First Data, that encrypts credit card numbers and replaces them using Tokenization, in order to prevent fraud and data theft.

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V



Voice Authorization

Submission of payment processing information by telephone, where an authorization code is presented to the merchant.

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W



Wireless Terminal

A credit card terminal that uses cellphone technology to authorize cards in locations (craft fairs, carnivals, construction sites, delivery areas) that do not have fixed communications or power capabilities.

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