Merchant Account Glossary

 

  [A] [B] [C] [D] [E] [F] [G] [H] [I] [J] [K] [L] [M] [N] [O] [P] [Q] [R] [S] [T] [U] [V] [W] [X] [Y] [Z]

A

ABA Routing Number:
This 9-digit number used to identify individual banks is assigned by the American Banker's Association. This number is used during the electronic transfer of funds when completing an eCheck or ACH payment.

Access Number:
This is the phone number that is used by either a computer modem or credit card terminal to connect to the Internet Service Provider to allow access online.

ACH (Automated Clearing House):
An network of processing organizations established to clear and settle electronic check and credit transactions without the use of traditional paper checks.

Acquiring Bank:
The term given a Visa/MasterCard member bank that has established and continually maintains a working merchant relationship with the card companies which allows processing of merchant transactions.

Address Verification Service (AVS):
AVS is an added security tool to be used by merchants as a means of deterring fraud on transactions that are completed without the credit card present. When processing these types of orders, merchants are required to confirm the address of the credit card prior to approval. The address is the billing address on file at the issuing bank for the card holder.

Annual Fee:
A fee charged by either the bank or the merchant account agent. This fee can be used to lower the buy rate to the merchant.

Application Fee:
A fee charged by either the bank or merchant account agent for processing the application.

Arbitration:
In the event of a chargeback, members can elect to use this procedure to help resolve the issue. Visa or MasterCard will resolve these issues and decide accordingly what monetary fines should be paid by the at fault party.

Authorization:
The process when a merchant contacts the card issuing bank to receive approval for the specific amount of the transaction. This process can be done through a credit card terminal or over the telephone prior to completing the transaction.

Authorization Code:
The specific transaction code given to a merchant by the card issuing bank to confirm a transaction. These codes are important to save in the event of a question on a previous transaction.

Authorization Fee:
The fee charged for each transaction - whether it be a sale, a credit, a void or a failed transaction. The merchant is charged for every transaction through their merchant account.

Automated Response Unit (ARU):
An ARU allows for merchants to instantly charge a customers credit card over the phone. This is usually done when a customers credit card is imprinted, followed by the authorization of the sale over the telephone.

Average Ticket Size (AVT):
The average sales price of the products sold. This can either be an estimate of future sales or an average of actual sales.

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B

Bankruptcy Notification Service:
A joint service between MasterCard and Visa where bankruptcy filings and cases from the various bankruptcy court are compiled, then sent to the credit bureaus. Account numbers are recorded then sent daily to the appriopriate parties.

Basis Points:
A basis point is 1/100th of a percentage point. Basis points increase between the 3 various caetgories - Qualified, Mid-Qualified and Non-Qualified catgories. The base rate a merchant pays is their Quaified rate, the Mid-Qualified rate is slighty more costly followed by the Non-Qualified rates.

Batch Processing:
At the end of the day, a merchant needs to close out or settle their transactions from the day. A merchant will "Batch Out" transactions as a way to close all open accounts and send them to the bank for processing. Many times companies opt for Auto Batching as a way to prevent accounts remaining open overnight.

Business Financials:
Business Financials consist, but are not limited to the follwoing reports: P&L (Profit and Loss) Statement, Balance Statement, and Statement of Cash Flow.

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C

Card Issuer:
The financial institution or company that has provided a credit card to a cardholder.

Card Present:
A transaction completed by swiping a card through a credit card terminal or by imprinting the card and signing the credit card draft.

Cardholder:
The individual to whom the credit card issuer has approved and sent a card with their name imprinted on it.

Cash Advance:
A process where a bank or another financial instituion can put in for cash to be forwarded to a cardholder. The money is posted against the cardholders account and usually incurs interest from the day of the transaction.

Charge-Off:
In the event that an issuer is facing a delinquent loan, to the extent that they must write off that amount of debt, at least temporarily, in order to clear their ledgers. The issuer may continue t pursue inorder to collect some or all of the amount owed through the recovery process, such as a debt collection service.

Chargeback:
A chargeback is the result of a cardholder disputing a charge from a merchant through the credit card issuer. The card issuer initiates a chargeback against the merchant's account, at that time the sale amount is immediately removed from the merchants bank account. At that time, the merchant has 10 business days to file a dispute against the chargeback. Merchants can dispute the chargeback by providing a signature, proof of devlivery or even authorized information from the credit card. During the process, a chargeback fee is generally assessed to the merchant account holder by the merchant bank for handling the dispute.

Contingent Liability:
The situation that is created when a merchants processes a transaction prior to the date a cardholder takes receipt of the goods or services purchased. Such industires as Travel agencies and mail order / telephone order merchants practice contingent liability, which increases risks to both the merchant and the bank.

Corporate Resolution:
A document used by companies that assigns the individuals who are allowed to act as signers on behalf of the company.

Credit Card:
A plastic card issued by a bank or business used for electronic payments on credit. Cards include the name of the bank, card holder and account number on the front. A magnetic strip and signature panel are located on the back. These cards a frequently called a charge card.

Credit Card Fraud:
Credit card fraud occurs when a merchant is "tricked" into selling merchandise or providing services, with the belief that the card holder present will provide payment for the goods and/or services. After the transaction is complete, the merchant learns from the issuing bank that the payment was fraud and funds received from the transaction will be reclamied by the bank from the merchant.

Credit Card Processing:
The process of obtaining authorization of payment for a credit card transaction. During this process the issuing bank notifies the merchant of approval or denial for the transaction.

Credit Card Processors:
Providers of Merchant Services, including the processing of credit card transactions between the merchants, the issuing banks and the merchant account providers. Operators usually set up a merchant account for their business prior to contraction credit card processing services.

Credit Card Terminal:
A Credit Card Terminal is an electronic piece of equipment that allowes a merchant to either swipe or manually enter a credit card's information to process a transaction. Credit Card Terminals are dedicted equipment that handle not only credit cards, but other closely related electronic payment cards, including debit cards and gift cards. Terminals require a connection to both the register where the transaction is tracked and the internet to contact the issuing banks.

Credit Report:
A summary of an applicants credit history. This is run on every signing principal of a merchant account and is used to make approval decisions.

CVV2:
(Card Verification Value2) This is the 3 digit security code that is found imprinted into the back side of most credit cards. This number is frequently required to complete purchases when the card is not present. This added step is a fraud-deterent and provides added security for merchants handling transactions where the customer is not present.

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D

Data Capture:
The process of collecting, formatting and storing of information in a computer's memory. Some POS terminals perform Data Capture operations.

Debit Networks:
Most companies accept customers payments that are directly funded by their checking account. Though these networks have been traditionally smaller than the Credit Networks, they are the fasting growing segment.

Deposit Account:
An account that is used by a customer to make deposits and withdrawls. Checking accounts, Savings account and other various accounts fall under this category.

Direct Mail Merchant:
Merchants who send sales drafts through the mail for payment. Also known as a Paper Merchant.

Direct Marketing:
Direct Marketing, often referred to as "Junk Mail", is when a business trys to solicit new customers with mailers or other types of marketing materials. Merchants find this as a good way to reach new customers directly.

Discount Rate:
The percentage of each transaction that a merchant is charged for each credit card transaction that is performed. These charges are passed along from the Merchant Services Provider.

Doing Business As (DBA):
A DBA is a ficticous name, used in place of a personal or company name. These names are usually recorded in town hall for record keeping.

Downgrades:
Downgrades occur when a merchants transaction does not meet the Visa/MasterCard requirements. When this occures, the transaction is moved to a lower level of interchange. This in return forces the merchant to pay a higher rate on that transaction.

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E

e-Commerce:
Stands for Electronic Commerce. The process of buying or selling goods or services over the internet. These sales usually are done through a merchant's website and involves the use of a shopping card. Payments for these products or services are processed through the use of a gateway.

EDC Terminal:
Electronic Data Capture terminal. A POS device that reads encoded information from the bankcard's magnetic stripe, performs authorization functions and stores transaction data for transmission and batching to the bank.

EFTS:
Electronic Funds Transfer System is an electronically-based system that does not require paper (such as a check) in the movement of funds. Common examples are ATM withdrawal or a pay-by-phone transactions.

Electronic Ticket Capture (ETC):
ETC system reaches out and takes sales ticket information electronically. Customers information is contained on the bank cards magnetic strip. Once the merchant "swipes" the card through a credit card terminal, the customers information is rea" by the computer system and merged with the sales information.

Electronic Transactions Association (ETA):
ETA is an electronic payments industry association that represents companies in the transaction processing industry.

Embossing:
The process of imprinting data on a bankcard. This printing usually is in the form of creating raised characters.

Encryption:
A security method that scrambles financial information when processing transactions.

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F

Face-To-Face:
Term used to describe transactions that take place between the cardholders and merchants directly. During these transactions, the cardholder swipes through the merchants terminal or signs a sales draft with the credit card imprinted onto it. These transactiosn have the lowest discount rate.

Factoring:
The act of purchasing of debts owed, or "accounts receivable," in exchange for an immediate payment, at an agreed upon discount. Factoring of credit card debt is illegal. This can occur when ISO's charge credit cards through their own account for another merchant, in exchange for a fee.

Federal Tax ID Number:
The 9-digit number assigned by the IRS and used to track business activities for tax purposes. All merchant account applications are required to specify their Federal Tax ID number. Occassionally, smaller merchants who are sole-proprietors may use their Social Security Number in lieu of a Federal Tax ID number.

Full Business Name:
The complete name of a business, which is also the name attached to the business' Federal Tax ID Number.

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G

Gateway:
This is the application that connects the website's shopping card to the credit card processor. A gateway takes the information from the shopping cart, encrypts it into the format accepted by the card processor and send it along. When the authorization comes back from the card processor, the same process is excuted, except in reverse.

Global Payment Systems:
This is the facility that is the primary data transport communication between MasterCard customers and the MasterCard data processing center. This system creates a single on-line financial network (similarly called a packet-switching network).

Guarantor:
Similar to a co-signer, a guarantor is a personal guarantee that any losses incurred while processing will be repaid in full. Many times a personal credit report is pulled for review by the underwriters.

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H

Highly Suspect Merchant:
A merchant who has a disproportionately large amount of questionable transactions based on their total business. This percentage can be measured between any period of time to arrive at a number of questionable transactions.

Holdback:
This is the portion (or percent) of revenue from a merchant's transactions that are held in a reserve by the merchant account provider. This holdback, or reserve, is used to cover disputes, chargebacks and other fees. These reserves are usually held for a pre-determined amount of time, at which those funds will be released back to the merchant.

Hypercom:
Hypercom Corporation is one of the largest providers of electronic payment solutions and point of transaction services in the world.

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I

Imprinter:
A device with a slide on top that creates an embossed image of the credit card number and name onto a transaction slip. Imprinters are commonly used as a backup for electronic credit card terminals and when credit card terminals are not able to be used (such as in a trade show).

Independent Contractor/Independent Sales Organization (IC/ISO):
This is an acronym for a registered sales representative. These individuals have been contracted to sell merchant accounts for designated banks.

Integrated Point of Sale (IPOS):
Refers to coventional credit card terminals that are "more intelligent", allowing them to speak with other terminals owned by the same merchant - even if they are at another location.

Interchange:
This is the set fee charged by both Visa and MasterCard for providing the payment service. These companies take a percent of each transaction whenever a credit or debit card with their logo is used.

Internet Merchant Account:
A merchant account that has been established which allows a retailer to accept credit card payments from customers via the Internet.

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K

Keyed:
A transaction that is entered by using the keypad on the computer or credit card terminal. These transactions occur either because the credit card is not present at the time of the transaction or the credit card can not be read by the terminal.

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M

Magnetic Stripe:
The stripe on the back of a ban kcard that is magnetically encoded containing the cardholder account information.

Magnetic Stripe Reading Terminal:
A POS terminal that can read the information from the Magnetic stripe on the back of a bank card when swiped through the terminal. Once swiped, information is automatically transmitted to the authorizing agent.

Member Alert to Control High-Risk Merchants (MATCH):
A means to control high risk merchants, MATCH is a system that tracks businesses and people after a merchant account has been terminated by the acquiring bank. It is set up as an electronic bulletin board to alert suspicious activity.

Merchant Account Provider:
Provide businesses the ability to process credit and debit card payments for goods and/or services. Payments can be taken either over the internet, over the phone or face to face.

Merchant Accounting System:
The system that electronically transfers funds from interchange to the merchant's bank account via ACH. This system also sends the merchant's monthly statements concerning the transaction history for that period.

Merchant Accounts:
Also known as Credit Card Procesing. This is an account that allows businesses to accept credit cards, debit cards, gift cards and other forms of payment except cash. A commercial bank or card issuers agrees to permit a business to accept credit card payment and then fund their business accounts with those payments, less any fees they have agreed to prior for the services.

Merchant Identification Number (MID):
The number that the FDC assigns to each merchant to identify them along with the credit card processors that they use.

Monthly Volume (MV):
Visa/MasterCard approval process provides a maximum monthly dollar amount when the account is initally set up. Other companies (American Express, Discover, etc.) amounts are not figured into the montly volume. The amount of the approval will also reflect in the amount of documentation and other information needed to successfully set up.

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N

Nurit:
A leading manufacturer of wired and wireless credit card terminals.

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O

Off-line:
An operating mode in which terminals are not connected to a central computer. Responses are governed by guidelines, set by the issuer, which are housed in the terminal or in a supporting device.

Off-Line Transaction Processing:
Capture of order and credit card information for later authorization and transaction processing through a traditional card swipe terminal or through a computer.

On-line:
An operating mode in which terminals are connected to a central computer and have access to the data base for authorization, questions and file changes.

Over the Counter:
Indicates merchants that submit actual sales drafts for payment (paper merchant) to a local bank for payment.

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P

Payment Gateway:
An e-commerce ASP service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical POS(Point-of-sale) terminal located in most retail outlets, except for merchants completing transactions without the card present. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.

Payment Gateway Provider:
A company that provides code and/or software for an e-commerce site to enable it to transfer information from its shopping cart to the acquiring bank and through the rest of the credit card transaction.

Payment Processor:
A company that provides the processing of credit card transactions. Payment Processors are to be distinguished from issuing banks which act as the recipient of the transaction proceeds.

Personal Identification Number (PIN):
This is the number that is assigned by the bank to cardholders for identification purposes. It can be used as an electronic signature so that ATM transactions, debit card transactions and online payments may take place without the card holder's written signature.

Pin Pads:
This is a small box-type terminal attachment with a 10-key pad. They are used so that a cardholder may enter their PIN number and are commonly used for debit card transactions.

Point of Sale (POS) terminal:
A small device that most retail stores have which allows you to slide the credit card through to make a charge. It is fast, easy and accurate to make a charge on a customer's credit card within seconds. It is also known as a terminal machine.

Purchase Cards:
Government agencies or corporations may issue their employees these cards. A Purchase Card is similar to a credit card, but unlike a regular credit card, it can only be used in certain merchant locations.

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Q

Qualified Discount Rate:
When a retail transaction is card-swiped and the merchant does and electronic batch settlement at the end of business on the same day. Internet merchants or Keyed transactions need to have an AVS response, an order number and batch out at the end of the same day to receive the Qualified Discount Rate.

Questionable Merchant:
A merchant location at which a noticibly excessive number of confirmed fraud transactions have occurred within a specified period.

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R

Refund Policy:
Refund Policies vary from merchant to merchant. The merchant decides how and to what extent they can guarantee their products or services to cardholders. Refund or return policies that are more relaxed can help reduce the number of charge-backs that a merchant receives.

Recurring Transaction:
A transaction charged to the cardholder (with prior permission) on a periodic basis for recurring goods and/or services, i.e., health club membership, book-of-the-month clubs, etc.

Retrieval Request:
A request by the issuer to the acquirer for a copy of the actual ticket of a transaction. The initial step that the issuer takes in the event that either the issuer or the cardholder disputes a transaction.

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S

Setup Fee:
An initial fee paid to the Merchant Service Provider for establishment of an account including processing and reporting tools.

Shopping Cart:
When shopping on the internet, a customer can use a shopping cart to place items inside for eventual purchase. A shopping cart combines the chosen items so that only one online credit card transaction is needed to complete their purchases of all selected items.

Standard Industry Code/Merchant Category Code (SIC/MCC Code):
These are four-digit, numeric codes that identify merchant business types. There are thousands of SIC codes and all of them are defined by VISA International in the Visa USA Merchant Data Manual.

Statement Fee:
The statement fee is a monthly fee associated with the monthly statement that is sent to the merchant at the end of each monthly processing cycle.

Swipe:
The act of running a credit card through a credit card terminal. The credit card terminal reads the magnetic strip on the back of the card. This provides the lowest transaction rates for both credit and debit cards since the card is physically present for the transaction.

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T

Terminal Provider:
The supplier of the software that allowes the terminal to function.

Terminal Identification (TID) Number:
The unique number assigned to each point of sale terminal that tells the Host which merchant a transaction came from and where an authorization is to be sent.

Trade Reference:
Trade references are the names of businesses that extend credit or have business relationships with an applicant. These are needed by underwriters to see if an applicant makes bill payments in a timely manner and also purchases goods and services from outside sources.

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U

Unique Transactions:
A transaction that cannot be categorized as a retail sale or a cash advance. In this case there are special merchant classification codes needed. A merchant with this ability must have written approval from MasterCard and/or Visa.

Unsecured Credit:
Credit extended to a merchant or card holder without sufficiet collateral.

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V

VeriFone:
A company that manufactures and distributes electronic payment equipment.

Vital Processing Services:
Formerly known as Total Systems. A joint venture of VISA USA and Total Systems Services, Inc. that combines the TSYS merchant accounting system with the Visanet terminal product line.

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W

White Plastic Fraud:
Is a fraud committed when account numbers are imprinted on blank or altered cards. Fraudulent sales are committed with the cards and funds are deposited intto the merchant's bank account.