Glossary of terms

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Account number

A unique sequence of numbers assigned to a cardholder account that identifies the issuer and type of financial transaction card.

Acquirer

A licensed member that maintains the merchant relationship and acquires the data relating to a transaction from the merchant or card acceptor and submits that data into interchange, either directly or indirectly.

Annual fee

A yearly fee charged by some independent sales organizations (ISOs) and acquirers to maintain a merchant’s account. This is also called a renewal fee, subscription fee, or membership fee.

API

Application Programming Interface - A technological interface or communication protocol between a client and a server intended to simplify the building of client-side software.

ATM

Automated Teller Machine - An unattended, magnetic stripe-reading or EMV (Europay, Mastercard®, and Visa®) chip-enabled terminal that dispenses cash, accepts deposits and loan payments, and enables a bank customer to order transfers among accounts or make account inquiries.

Authorization

A process defined in operations regulations whereby a transaction is approved by or on behalf of an issuer; commonly understood to be receiving of a sales validation by the merchant, telephone, or authorization terminal.

Authorization code

A code notifying you that you have obtained the authorization for a specific card transaction.


Note: You should print this on the sales draft.

AVS

Address Verification System - Also referred to as Address Verification Service, AVS is a system used to verify whether the billing address given by the customer matches the credit card used for the transaction. AVS was created as a result of a regulation by Visa and Mastercard that requires all merchants who manually key-in the majority of their credit card transactions to have a special fraud prevention feature on their credit card processing equipment. This system checks the billing address of the credit card provided by the user with the address on file at the credit card company.


If a merchant chooses not to use AVS, Visa and Mastercard will not support their transactions and will charge an additional percentage on those sales.

Average ticket

The average amount of all transactions charged by a merchant on a monthly basis.

Bank card

A debit or credit card issued by an issuing bank. Also referred to as “bankcard.”

Batch

A collection of credit card transactions saved for submitting at one time, usually each day. Merchants who do not have real-time verification systems must submit their transactions manually through a point-of-sale (POS) terminal. Batch fees are charged to encourage a merchant to submit his or her transactions at one time, rather than throughout the day.

Cancellation code

A code that a lodging or car rental merchant gives to a cardholder confirming that the cardholder did, indeed, cancel a reservation.

Cancellation fee

A fee charged by the ISO or acquirer if a merchant cancels their contract before the specified contract period expires.

Card association

A payment card industry governing body that sets rules and interchange rates. Visa, Mastercard, Discover, and American Express are the four largest card associations in North America.

Cardholder

The customer to whom a card has been issued, or the individual authorized to use the card.

Chargeback

A chargeback occurs when a cardholder disputes a credit card transaction with his or her credit card issuer. The card issuer initiates a chargeback against the merchant account. The amount of the disputed transaction is immediately withdrawn from the merchant’s bank account, and the merchant has a limited amount of time (per the card issuer) to dispute the chargeback with supporting documentation such as proof of purchase, customer signature, proof of delivery, etc. A chargeback is ultimately decided and resolved by the card association. A chargeback fee is usually assessed to the merchant on top of the actual transaction. See also Retrieval request.

Check guarantee fee

Check guarantee fees are structured similarly to credit card processing fees. There is usually a percentage rate, transaction fee, statement fee, monthly minimum, and application fee.

Check verification fee

Check verification does not guarantee checks. It simply checks whether the check writer has a history of writing bad checks. The standard fee is usually a flat transaction fee, monthly minimum, and/or statement fee.

Clearing

The process of exchanging financial transaction details between an acquirer and an issuer to facilitate posting of a cardholder’s account and reconciliation of a customer’s settlement position.

Co-brand

A credit card issued jointly by a member bank and a merchant, bearing the “brand” of both.

Code 10 authorization

A voice authorization code that you might initiate when you suspect a card is stolen or counterfeit, or when a customer is acting suspiciously.

Commerce server

A Web server that contains the software necessary for processing customer orders via the Web, including shopping cart programs, dynamic inventory databases, and online payment systems. Commerce servers are usually also secure servers.

Corporate card

A bank transaction card issued to companies for use by company employees. The liability for abuse of the card typically rests with the company and not with the employee. Also referred to as a “purchasing card.”

Credit

A refund or return of goods by a consumer to the merchant.

Credit card

A transaction card bearing an account number assigned to a cardholder with a credit limit that can be used to purchase goods and services and to obtain cash disbursements on credit. The cardholder is subsequently billed by an issuer for repayment of the credit extended at once or on an installment basis.

Credit card processors

Merchant services providers that handle the details of processing credit card transactions between merchants, issuing banks, and merchant account providers. Also referred to as “third-party processors.”

Currency conversion

The process by which the transaction currency is converted into the currency of settlement or the currency of the issuer for the purpose of facilitating transaction authorization, clearing, and settlement reporting. The currency of transaction is determined by the acquirer; the currency of the issuer is the preferred currency used by the issuer, and most often, the currency in which the cardholder will be billed.

DCC

Dynamic Currency Conversion - A credit card processing solution that allows merchants to offer international customers the choice to pay with Visa and Mastercard in either their local currency, or the merchant’s base currency.


The exchange rate includes a 3% margin which is displayed on the cardholder’s receipt. The revenue split is available to the merchant.

Debit card

A transaction card used to initiate a debit transaction. In general, these transactions are used primarily to purchase goods and services and to obtain cash, for which the cardholder’s asset account is debited by the issuer.

Debit fees

Fees based on the debit network that issues the debit card. Debit fees are comprised of network fees and transaction fees, and usually consist of a flat fee and a statement fee.

Digital wallet

A consumer account set up to allow e-commerce transactions through a particular credit card processing system. Before the consumer can make a purchase, he or she must first establish an account with the credit card processor, who provides an identification number and password. The consumer can then make purchases at any Web site that supports the digital wallet system.

Discount rate

The rate charged to a merchant for payment processing services on debit and credit card transactions.

Draft

A record (usually paper) used to document that a good or service was purchased.

EBT

Electronic Benefits Transfer - An electronic system used in the United States that allows state welfare departments to issue benefits via a magnetically encoded payment card.

E-commerce

The buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the Internet. These business transactions occur either as business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer, or consumer-to-business.

EDC

Electronic draft capture - A system in which the transaction data is captured at the merchant location for processing and storage.

EFT

Electronic funds transfer - A paperless transfer of funds initiated from a terminal, computer, telephone instrument, or magnetic tape.

EMV

Europay, MasterCard and Visa - EMV is a global standard created by Europay, Mastercard, and Visa for authenticating payment card transactions.

EMV card

A credit or debit card with an embedded microchip and associated technology designed to enable secure payments at compatible point-of-sale terminals. Also referred to as “chip card” and “PIN-and-chip.”

eWIC card

WIC (Women, Infants, and Children) - WIC is a federal grant program designed to provide supplemental nutritious food and nutrition education to low-income pregnant, breastfeeding, and non-breastfeeding postpartum women, and to infants and children up to age five who are found to be at nutritional risk. An eWIC card is WIC’s electronic (EBT) payment card issued to participants in the program used to obtain nutrition benefits. See also “EBT card.”

Factoring

The purchase of debts owed, or “accounts receivable,” in exchange for immediate payment at a discount. In e-commerce, the term is often applied to ISOs that offer to process credit card transactions through their own merchant account rather than through an account established by the merchant, in exchange for a percentage of the transaction or a fee. Note: Factoring of credit card debt is illegal.

Floor limit

A specific dollar limit used to determine which card transactions you must authorize. For example, if your business has a floor limit of $1,000, you must get authorization for any transaction over that amount. Note: All airline, telephone, and mail order transactions must be authorized, even if the amount is under your floor limit.

Holdback

A portion of the revenue from a merchant’s credit card transactions that is held in reserve by the merchant account provider to cover possible disputed charges, chargeback fees, and other expenses. Also referred to as a “reserve.” After a predetermined time, holdbacks are turned over to the merchant. Note: merchant account providers almost never pay interest on holdbacks.

Imprint

A physical impression you make from a customer’s card which appears on the draft. This proves that the card was present when the sale was made. Note: an imprint can be created electronically if you use a magnetic-stripe-reading terminal that includes the correct point-of-sale entry code.

Imprinter

A device to produce an image of the embossed characters of the bank card on all copies of sales drafts and credit slips.

Interchange fee

The fee that the Card Association charges the merchant to get the funds into the merchant’s bank (acquiring bank) and to get the billing information to the cardholder’s bank (issuing bank). Interchange fees are determined based on credit card regulations and how the appropriate data is captured, including card swipe or dip, address, and electronic signature as needed. These fees are also based on the timeliness of the settlement of transactions.

ISO

Independent Sales Organization - A company that sells credit card processing services independently from a financial firm or bank, allowing a business to accept credit card payments.

Issuer

The member bank that enters into a contractual agreement with card associations to issue cards.

Issuing bank

The bank that maintains the consumer’s credit card account and which must pay out to the merchant’s account in a credit card purchase. The issuing bank bills the customer for the debt.

ISV

Independent Software Vendor - An individual or organization that develops, markets, and sells software products that run on third-party software and hardware platforms.

IVR

Interactive Voice Response - Technology that allows a computer to interact with humans through the use of voice and dual tone multi-frequency (DTMF) signal input using a touch tone keypad. In telecommunications, IVR allows customers to interact with a company’s host system via a telephone keypad or by speech recognition.

Magnetic stripe

The magnetically encoded stripe on the bank card that contains information pertinent to the cardholder account. The physical and magnetic characteristics of the magnetic stripe are specified in ISO Standards 7810, 7811, and 7813.

Magnetic stripe reader

A device that reads information recorded on the magnetic stripe of a card. Also known as a “card swipe reader.”

MCP

Multi Currency Pricing - An e-commerce solution that converts the merchant’s base currency into the customer’s foreign currency. Merchants are funded in US currency at a guaranteed rate without any fluctuation risk.

Member

An institution that participates in the programs offered by card associations such as issuers and acquirers.

Merchant

A retailer, or any other person, firm, or corporation that (pursuant to a merchant agreement) agrees to accept credit cards, debit cards, or both, when properly presented.

Merchant account

A specialized bank-approved and issued account to process credit card transactions. It is one of three parts needed to accept credit cards. The other required parts are a local bank checking account (to deposit funds) and a processing solution (to access the merchant account) such as a terminal or gateway.

Merchant bank

A bank that has entered into an agreement with a merchant to accept deposits generated by bank card transactions; also referred to as the “acquirer” or “acquiring bank.”

Merchant Identification Number

The number that a financial institution assigns to a merchant to identify the business.

Monthly minimum

The minimum amount in fees and percentages charged by a merchant services provider in a given month. If account activity does not generate the monthly minimum, the account holder must make up the difference.

MOTO discount rate

Mail Order/Telephone Order - The discount rate charged by the merchant account provider for credit card transactions in which the actual credit card was not available to the merchant. MOTO discount rates are generally higher than swipe discount rates to account for the increased chance of fraud or nonpayment.

Payment gateway

The code that transmits a customer’s order to and from a merchant’s bank’s transaction-authorizing agent, usually a merchant account provider. See also “real-time processing.”

Payment gateway provider

A company that provides code and/or software for an e-commerce site enabling it to transfer information from its shopping cart to the acquiring bank, and on through the rest of the credit card transaction process. See also “payment gateway.”

Payment Card Industry

Payment Card Industry (PCI) rules prohibit the improper storage and/or transmission of cardholder information. All merchants and service providers that store, process, or transmit cardholder data are required to comply with PCI Data Security Standards (DSS). Compliance is not optional. See PCI Compliance: Keeping Your Business and Your Customers’ Data Safe for detailed compliance information.

PIN

Personal Identification Number - A four-to-twelve character secret code that allows an issuer to positively authenticate the cardholder for the purpose of approving an ATM or terminal machine transaction occurring at a point-of-interaction device.

POS

Point of Sale - A location where a transaction takes place between a merchant and a customer when a product or service is purchased, commonly using a point-of-sale system to complete the transaction. POS can also refer to point-of-sale hardware and software, such as electronic cash register systems, touch-screen displays, barcode scanners, and receipt printers.

POS terminal

A device that allows a customer to swipe, tap, or insert a credit card to make a charge. Also known as a “terminal machine.”

Processing solution

A device, software, or virtual product that allows a merchant to connect to a merchant account. Without a processing solution like a credit card terminal, there would be no way to verify, approve, and deposit credit card transactions.

Purchasing card

A credit card designed to help companies maintain control of purchases while reducing the administrative cost associated with authorizing, tracking, paying, and reconciling those purchases. Also referred to as a “corporate card.”

Real-time processing

The process of having a customer’s credit card information validated and processed automatically and in real-time. The credit card will be charged and the money will be deposited into your bank account all automatically.

Receipt

A hardcopy document representing a transaction that took place at the point of sale, with a description that usually includes the transaction date, merchant name/location, primary account number, amount, and reference number.

Recurring fees

Regularly occurring charges for maintaining a merchant account. Recurring fees include the discount rate, transaction fees, statement fee, and monthly minimum.

Reserve

See “Holdback.”

Retrieval request

A retrieval request occurs when a cardholder cannot remember a credit card transaction, or when the bank wants order information. The card issuer initiates the retrieval request, and the merchant has 10 days to respond with the order information or the retrieval request will turn into a chargeback. Retrieval requests usually include a fee issued against the merchant.

SDK

Software Development Kit - A collection of software used for developing applications for a specific device or operating system. SDKs typically include a compiler, which is used to create applications from source code files, and an integrated development environment (IDE) enabling a developer to write source code, fix program errors, and edit a program’s graphical user interface (GUI).

SSL

Secure Socket Layer - A system for encrypting data sent over the Internet, including e-commerce transactions and passwords. With SSL, client and server computers exchange public keys, allowing them to encode and decode their communication.

Settlement

The process by which merchant and cardholder banks exchange financial data and value resulting from sales transactions, cash disbursements, and merchandise credits.

Setup fees

Fees charged for establishing a merchant account, including application fees, software licensing fees, and equipment purchases.

Smart card

A plastic card with an embedded microcontroller or a memory chip that stores and processes data. Smart cards can be used to provide personal identification, authentication, data storage, and application processing. Credit cards with smart card technology provide enhanced security features to protect cardholder information. See also “EMV card.”

Stored-value card

A transaction card programmed with a specific dollar value stored onto the card itself, not in an external financial institution like a bank. Unlike a credit card, a stored-value card can only spend out the dollar amount its owner has already put into the card account. It is similar in function to a prepaid calling card but is available for all purchases.

Swipe discount rate

The discount rate charged by a merchant account provider for transactions in which a credit card is available for inspection by the merchant. Swipe discount rates are generally lower than MOTO discount rates because the merchant can match signatures and perform other checks for fraud or misuse.

Transaction

An interaction between a cardholder and a merchant, or a cardholder and a member institution, that results in activity on the cardholder account.

Transaction date

The date on which a cardholder effects a card purchase of goods, services, or other things of value, or effects a cash disbursement.

Transaction fee

A charge for each credit card transaction, collected by the merchant account provider or ISO.

VAR

Value Added Reseller - A company that adds features or services to an existing product, then resells it (usually to end-users) as an integrated product or complete turnkey solution.

3D Secure technology

A set of fraud prevention protocols that enables a real-time, secure, information-sharing connection between merchants, payment networks, and financial institutions to authenticate customers more accurately and reduce fraud in card-not-present transactions. Each card network (Visa, Mastercard, American Express, and Discover) has their own version of 3-D Secure.