Business Glossary of Terms

ACH

Automated Clearing House is a payment network for inter-bank clearing and settlement. The ACH system is governed by the National Automated Clearing House Association (NACHA).

ACH Credit

An ACH transaction in which a merchant issues a credit to a consumer through an ACH account. Funds are debited from the merchant and credited to a consumer’s bank account through the ACH network.

ACH Debit

An ACH transaction which a merchant issues a debit to a consumer through an ACH account. Funds are debited from the consumer and credit to the merchant’s bank account through the ACH network.

ACH Network

A nationwide electronic funds transfer system governed by the ACH Operating Rules and Guidelines, which processes electronically originated credit and debit transfers for participating financial institutions.

ACH Transaction

Automated Clearing House transactions include both ACH Credit and ACH Debit which utilize the ACH network for the electronic payments of funds.

Address Verification Service (AVS)

A service associated with credit card authorization which verifies the cardholder’s address and zip code.

Assessments and Dues

Various sets of transaction fees set by Visa, MasterCard and Discover that are charged based on the type of transaction ran on a merchant account. Common categories are Acquirer Processor Fees (APF), Assessments, and Fixed Acquirer Network Fees (FANF).

Association Rules

The rules, regulations, releases, interpretations and other requirements imposed or adopted by the card brand associations (Visa, MasterCard and Discover).

Authorization

The process which verifies that a cardholder account is valid, has available funds or credit limit, and then reserves the requested amount for processing. Issuing banks will usually show authorized funds as “pending.”

Authorization Approval Code

A number provided confirming the authorization for a credit or debit card transaction.

Authorization Request

An electronic message sent from the merchant to their financial services provider to request an authorization code for a credit or debit card transaction. This message is forwarded by the financial services provider to the appropriate card issuing entity.

Authorization Response

An electronic response sent by a card issuing entity to a financial services provider in response to an authorization request. This response is forwarded by the financial services provider to the merchant. Responses include approvals, declines and referrals (soft declines).

Batch Authorization

An off-line authorization process used for a large number of transactions, which are batched and transmitted to a financial services provider on a scheduled basis. Batch authorization is best suited for non-face-to-face transactions.

Batch Processing

A group of credit card transactions made by a merchant during a specific period of time, usually one business day. Batches may include transactions awaiting settlement or authorization and settlement.

Blended Rates / Bundled Fees

Credit card processing fees that combine Visa, MasterCard and Discover interchange, dues & assessments, and financial services provider’s fees into a single rate.

Example: 2.90% + $0.30 per transaction

Cardholder

The person to whom a credit card is issued. The cardholder uses a payment card that has been granted by an issuer.

Card Issuer

An entity which issues the credit or debit card to the cardholder. American Express and Discover directly issue cards to their cardholders. Visa and MasterCard cards are typically issued by financial institutions (issuing banks) which are members of the Visa and/or MasterCard association. Debit cards are issued to cardholders by the financial institutions in which they maintain their account.

Card Present Transactions

Face-to-face transactions in which the credit card is present and the card information is captured from the magnetic strip by swiping the card or through the EMV chip by inserting the card at a point of sale terminal or POS system.

Card Not Present Transactions (CNP)

A transaction made without the presence of a credit card, commonly referred to as MOTO which stands for Mail Order/Telephone Order. eCommerce transactions can also be considered a CNP transaction.

Chargeback

Dispute procedure that occurs when a cardholder or card issuer questions the validity of a previously settled transaction.

Chargeback Percentage

The percentage of chargebacks calculated by dividing the merchant’s total monthly chargeback volume by the volume of the merchant’s total monthly volume.

Convenience Fee

A fee charged by the merchant to offset costs for additional convenient methods of accepting card transactions, usually a flat fee.

Credit

A refund or price adjustment given for a previous purchase transaction.

Credit Card

An electronic payment card issued either by a bank (in the case of Visa or MasterCard) or a proprietary entity (in the case of American Express or Discover) that enables the cardholder to purchase goods or services which may be payable over a period of time.

Credit Limit

The credit line set by the card issuer for the cardholder’s account.

CVC

Card Validation Code matches a three-digit code which is printed on a credit card, but which is not a part of the account number, against values on file with MasterCard’s” processing system. See CVV2 below.

CVV2

Credit Card Verification Value 2 matches a three or four-digit code which is printed on a credit card, but which is not a part of the account number, against values on file with Visa and American Express’ and Discover’s processing system. See CVC2 above.

Debit Cards, Off-line

An electronic payment card issued by a bank and bearing the Visa or MasterCard logo. These cards are processed like a credit card except funds are debited directly from the cardholder’s checking account.

Debit Cards, On-line

An electronic payment card, such as an ATM card, issued by a bank which may also be used for the purchases in a face-to-face environment with funds being directly debited from the cardholder’s account and requiring a PIN number to complete the transaction.

Dial-Up Terminal

Processing equipment which dials a financial services provider for authorization and settlement of credit and debit cards (e.g., point-of-sale terminal) through a phone line.

Discount Rate

A fixed markup rate above the costs of Interchange, Dues and Assessments charged on the volume processed. The discount rate is determined and billed by the processor.

Downgraded Transactions

Higher Interchange and Assessment rates will apply to transactions which do not qualify for the best available rate. Transactions which would be downgraded under many circumstances such as old transactions being batched out, cards in a card not present environment, or not supply certain information such as AVS.

Electronic Funds Transfer

Any transfer of funds initiated through an electronic terminal, telephone, computer, or magnetic tape. The term includes, but is not limited to, credit card payments, Automated Clearing House transfers, Fedwire transfers, and transfers made at automated teller machines and point-of-sale terminals.

Encryption

A process used in Internet transactions whereby credit card information/transaction information is encoded so that the information has no logical meaning making it difficult or impossible to be breached.

Face-to-Face Transaction

A transaction where the cardholder is physically present for a card-swiped transaction; conversely a ‘Non-Face-to-Face’ transaction is when a cardholder is not physically
present for a transaction so the card is not swiped. (see Card Present and Card Not Present transactions)

Financial Services Provider

A processor of the four nationally recognized credit cards (MasterCard, Visa, Discover and American Express branded cards), on-line and off-line debit cards, and/or other future forms of electronic payments.

Host Capture

The process by which a batch credit card settlement file is created on the financial services providers system, which capture’s the necessary payment information for authorized transactions.

Imprinter

A manual or electronic device used to physically imprint the merchant’s name and MID number as well as the cardholder’s name and card number on a sales draft.

Interchange

Various sets of transaction fees set by the Visa, MasterCard and Discover that are charged based on the type of transaction ran on a merchant account. Fees vary based multiple factors such as card brand, type, method of acceptance, etc. These fees are paid to the issuing bank that the cardholder uses for that transaction.

Issuing Bank

A financial institution which issues cards such as Visa, MasterCard and Discover credit or debit card to cardholder.

IVR

Interactive Voice Response – a system that enables a caller to use a touch-tone phone to enter information (e.g., credit card numbers, dollar amounts, invoice numbers) in order to conduct a transaction.

Merchant

The party which offers goods for sale or provides services in exchange for payment. A merchant that accepts payment cards must have a relationship with a financial services provider.

Merchant Number (MID)

A number that numerically identifies each merchant, or each payment program within for a merchant, to the financial services provider for accounting and billing purposes.

Merchant Initiated Settlement

The process by which a merchant settles the stored transactions on their financial services providers system by transmitting the transaction totals (number of items and net dollar amount) to the provider.

Payment Gateway

An entity logically located between an merchant’s Internet payment application and their financial services provider which supports the encryption of data transmitted over the Internet. These may also support a virtual terminal to allow merchants to run transactions directly on a web hosted portal.

Personal Identification Number (PIN)

A number, usually related to an on-line debit card, which must be entered along with the card to initiate any transaction. The PIN is the equivalent in function to a password in that a user cannot use the card without providing the PIN.

Peripheral Devices

Devices such as PIN pads or printers that attach to point-of-sale terminals.

Point-of-Sale Terminals

Processing equipment placed in a merchant’s location which is connected to their financial services provider’s system via phone lines or ethernet cable for authorizing and settling credit and debit card transactions.

Preauthorized Payments

A transaction where a customer authorizes a merchant to make one or more future charges to such customer’s credit or debit card account.

Processing Fee

A fee charged by financial services providers to merchants for processing services.

Rebuttal

A written reply to a chargeback that provides documentation proving that the transaction was valid and the proper procedures were followed.

Recurring Payments

An arrangement in which a customer agrees to allow an merchant to bill against a specific account at predetermined time intervals for a predetermined amount using credit or debit cards.

Referral (Soft Decline)

An authorization response message requesting the merchant to call to the card issuer’s voice authorization center.

Real-time (On-line) Authorization

A process of transmitting credit card information on-line to the merchant’s financial services provider to receive approval that the cardholder’s account is open, and has the appropriate credit limit to allow authorization of the transaction.

Reconciliation

A process of verifying that all funds for authorized transactions batched and submitted for settlement, were received by the merchant’s bank.

Research Fee

A fee charged by financial services providers to the merchant for requests that require extraordinary research such as chargebacks, issuing refunds, generating reports, integrations, etc.

Retrieval Request

A retrieval request occurs when a card issuer requests a copy of the transaction information document (e.g., charge slip) for a transaction. The request may be the result of a cardholder inquiry, or it may be required to initiate a chargeback or for use in investigating a credit or fraud problem.

Roll Printer

A dot matrix printer connected to a point-of-sale terminal used to print receipts and reports on carbonless roll paper (not an imprinter).

Routing Number

A nine-digit number (eight digits and one check digit) that uniquely identifies a financial institution. The routing number is printed on checks, deposit slips, etc. and is used to route all financial transactions with the appropriate bank.

Sales Draft

Evidence of a purchase of goods or services by a cardholder from a merchant using a credit or debit card, regardless of whether the form of such evidence is in paper, electronic or otherwise.

Settlement

A process in which an electronic sale transaction is settled financially between the merchant, their financial services provider, and the customer and their card issuing entity.

Settlement Account

An account at a financial institution designated by the merchant as the account to be credited for payment transactions.

Submission

The process of electronically submitting batch settlement files to the financial services provider.

Terminal Capture

The process by which a credit card settlement file is created on the merchant’s payment device or third party processors device (such as an Internet payment gateway), which captures the payment information for all authorized transactions.

Time Initiated Settlement (Auto-Batch)

The process by which a financial services provider automatically closes a settlement batch at a predetermined time.

Voice Authorization

Credit card authorization obtained by telephoning an operator.

Virtual Terminal

A secure software application accessed by a web browser over the Internet. It allows a merchant to run electronic payments from any computer with access to a web browser and is connected to the Internet.

Void

To cancel a transaction that has been authorized but not yet settled. Settled transactions require to be processed as a refund.