Payments Industry: Glossary of Terms*

A

ACH: Automated Clearing House. A regional organization used by member banks to electronically transfer funds between members.

American Express: Also known as AMEX. American Express is an organization that issues travel and entertainment cards and acquires transactions. It issues its own credit cards (unlike Visa and MasterCard) and has established its own relationships with businesses. All AMEX card numbers begin with the number three (3).

Account Number: A unique sequence of numbers that is imprinted, embossed and encoded on the plastic card assigned to a cardholder account that identifies the issuer and type of financial transaction card.

Acquirer: A licensed member of MasterCard and/or VISA (or its agent) which maintains merchant relationships, receives all bankcard transactions from the merchant, and initiates that data into an interchange system.

Acquiring Bank/Merchant Bank: The bank that does business with merchants enabling them to accept credit cards. A merchant has an account with this bank and each day deposits the value of the day’s credit card sales. Acquirers buy (acquire) the merchant’s sales slips and credit the tickets’ value to the merchant’s account.

Adjustments: Used to process disputes or discrepancies with other financial institutions.

Address Verification System: A method of reducing fraud in Internet transactions, and in mail order and telephone orders by using cardholder billing address information in the authorization request. The AVS checks to see that the billing address given by the customer matches the credit card. If you opt not to use AVS, VISA and MasterCard will not support your transactions and will charge you an additional 1.25% on those sales. Most merchant accounts come with AVS at no extra charge.

Affinity Card: A credit card issued in conjunction with an organization or collective group; for example, profession, alumni, retired persons association. The card issuer often pays the organization a royalty.

Annual Fee: Some issuers (banks) charge for the management of your credit card account. They sometimes provide access to a number of additional benefits as part of the charge.

Approval Code: A code issued by a card issuing bank indicating successful transaction has occurred and allows a sale to be charged to a cardholder’s account.

ATM Interchange Fee: The fee paid to the Acquirer Member by the Issuer Member for a STAR ATM Transaction as established from time to time by the STAR Network.

ATM System: The telecommunications and processing system operated by or on behalf of an Acquirer Member to process STAR Transactions initiated through the Acquirer Member’s STAR ATMs or STAR POB Terminals. The ATM System includes all elements of the processing system from the ATM or POB Terminal to the interface with the STAR Switch.

Audit Trail: Messages created as a transaction trail of processed data for recording transactions.

Authorization: The process of ensuring the cardholder has adequate funds available against his or her line of credit. The cardholder’s available credit limit is reduced by the authorized amount. A positive authorization results in an authorization code being generated, and those funds being set aside. The cardholder’s available credit limit is reduced by the authorized amount.

Authorization Code: A code that is issued by the authorizing processor to indicate approval for an authorization request.

Authorization Fee: Authorization fee The Authorization fee (actually an authorization request fee) is charged each time a transaction is sent to the card-issuing bank to be authorized. The fee applies whether the request is approved or declined. This is not the same as a Transaction fee or Per Item fee.

Authorization Only: A transaction created to reserve a specific amount against a cardholder’s available credit balance. After the authorization is made, the merchant is responsible for capturing the sale if payment is desired. Also known as “Auth Only”.

Authentication: The process by which Authentication Tokens are verified to establish the identity for a STAR Account Holder.

Automated Response Unit: (ARU) An ARU (Also known as a voice authorization, capture and deposit) allows the manual keyed entry and subsequent authorization of a credit card over a cellular or land-line telephone. With this method a merchant typically imprints their customer’s card with an imprinter to create a customer receipt and merchant copy, then process the transaction instantaneously over the phone.

Automatic Check Handling (ACH): (Also Automatic Clearinghouse) ACH is a form of epayment or electronic payment. There are two ways payments can be transferred: (1) by wire transfer, or (2) through an automated clearinghouse. Wire transfer is an e-payment system that is designed to handle high-dollar, time-crucial payments, usually between large banks. ACH is designed to be an e-check or electronic check. Unlike the wire transfer, it is usually used to process higher volumes or small-dollar payments for settlement issues within 1 to 2 business days. All ACH transactions are settled pretty much the same way checks are. The clearinghouse takes all of the ACH files received daily from member banks, it then divides them by the originating bank (where the check was either cashed or deposited) and the paying bank (the bank where the check was drawn), then it totals the accounts, and credits or deducts the accounts accordingly. (Federal Reserve Automatic Clearing House System – merchant has to maintain an account at a bank that is a member – allows auto debit or credit of merchant account through Woodforest and FDR).

Average Ticket: The average size of a merchant bankcard transaction for a specific time period. This term is generally used in pricing decisions and calculations.

AVS: See Address Verification Service.

B

Bank Routing Number: The first nine digits that appear across the bottom of a personal check; or the second group of numbers that appear across the bottom of a business check. The Bank Routing Number identifies the financial institution.

Bankcard: A financial transaction card (credit, debit, etc.) issued by a financial institution.

Back-end Processor: The entity that receives authorized/captured transactions for processing through interchange to the cardholder’s banks for the billing out of transactions on cardholder’s statement.

Bad Credit: A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. “Bad Credit” can result in being denied future credit.

Balance Transfer: The process of moving an unpaid credit card debt from one issuer to another.

Bank Account: Bank account number for the merchant to which funds will be deposited.

Bank Identification Number: The 6 digits on the credit card assigned by the Federal Bureau of Standards that identify the card issuing institution.

Bankcard: A payment card issued by a bank and accepted by merchants. The credit card is the most common form of a bank card.

Batch: The total of captured (sales) transactions (dollars) waiting to be settled. Multiple batches may be settled throughout the day.

Batch Close: The process of sending a batch to the financial institution for settlement.

Batch Fee: A batch fee (also known as a batch header fee) can be charged to a merchant whenever the merchant “settles” their terminal. Settling a terminal, also known as “batching”, is when a merchant sends their completed transactions for the day to their acquiring bank for payment. Some providers perform this automatically. It is recommended to close a batch every 24 hours or a higher rate will be assessed by Visa or MasterCard.

Batch Processing: Data processing and data communications transmission in which related transactions are grouped together and transmitted for processing, usually by the same computer and under the same application.

Basis Point: Discount rates are expressed as basis points. For instance, 1 basis point is expressed as .0001 or .01%.

Business Day: A day on which a Federal Reserve Bank to which a Member may send applicable items for presentment is open for business, other than a state bank holiday.

Bill Backs: A bill back is a relatively new price model and a variation on interchange plus pricing. It has some variations but the basic concept is that the merchant pays interchange on the statement that the transactions took place and then pay all other fees, like dues, fees and assessments, etc. on the next month’s statement. It requires a great deal of time to research the actual cost per transaction with the bill back system. Some merchants feel this form of pricing is very misleading.

BIN: See Bank Identification Number (VISA) Buckets – qualified, mid-qualified, non-qualified.

Business Card (Business Credit Card): Usually issued to corporate executives or business owners in order to keep business expenses separate from personal charges more easily.

C

Commercial Cards: A general name for cards typically issued for business use and may include Corporate Cards, Purchase Cards, Business Cards, Travel and Entertainment Cards.

Compliance: A process where Visa or MasterCard resolves disputes between members arising from violations of the operating regulations and verification by the member that a financial loss has occurred.

CPS: see Custom Payment Service.

Capture Date: The date on which a transaction is processed by an acquirer.

Card Issuer:
1) The financial institution or retailer that authorizes the issuance of a card to a consumer (or another organization), and is liable for the use of the card. The issuer retains full authority over the use of the card by the person to whom the card is issued.
2) Any bank or organization that issues, or causes to be issued, bankcards to those who apply for them.
3) Any organization that uses or issues a personal identification number (PIN).

Card Verification Code (CVC): A unique value calculated from the data encoded on the magnetic stripe of a MasterCard card, validating card information during the authorization process.

Card Verification Value (CVV): A unique value calculated from the data encoded on the magnetic stripe of a VISA card, validating card information during the authorization process.

Cardholder: The person to whom a financial transaction card is issued or an additional person authorized to use the card The person to whom a financial transaction card is issued or an additional person authorized to use the card.

Cash Advance: An amount advanced by a bank teller (or ATM) to a bankcard holder against the cardholder’s line of credit.

Cash Back: An optional feature of a Purchase whereby all or part of the Purchase is returned as cash to the Cardholder.

Chargeback: A transaction that is challenged by a cardholder or card issuing bank and is sent back through interchange to the merchant bank for resolution.

Chargeback Period: The number of calendar days (counted from the transaction processing date) during which the issuer has the right to charge the transaction back to the acquirer. The number of days varies according to the type of transaction from 45 to 180 days.

Check Verification: A service provided in which a merchant accesses a national negative file database through their terminal/register to verify or authorize the person has no outstanding bad check complaints at any of the member merchants. This is not a guarantee of payment to the merchant.

Chip: A small square of thin semiconductor material, such as silicon, that has been chemically processed to have a specific set of electrical characteristics such as circuits storage, and/or logic elements.

Clearing Account: An account at the clearing bank that will receive a member’s credit or debit for net settlement.

Clearing Bank: A bank designated by the member to receive the member’s daily net settlement advisement. The clearing bank will also conduct funds transfer activities with the net settlement bank and maintain the member’s clearing account. This bank may be the member itself.

Compliance: The procedure a VISA or MasterCard member may use to resolve a dispute between members when no chargeback reason code applies. The challenging member must prove financial loss due to a violation of MasterCard and/or VISA rules by the other member.

Counterfeit Card: A plastic card which has been fraudulently printed, embossed or encoded to appear to be a genuine bankcard, but which has not been authorized by MasterCard or VISA or issued by a member. A card originally issued by a member but subsequently altered without the issuer’s knowledge or consent.

Credit: Transaction done on a sale processed in a prior batch and is used to issue credit to the cardholder on the return of purchased goods or services. This transaction will go through interchange to the cardholder’s bank. Discounting is not charged when a credit is issued, but is charged on the sale that was previously processed.

Credit Card: A plastic card with a credit limit used to purchase goods and services and to obtain cash advances on credit for which a cardholder is subsequently billed by the issuer for repayment of the credit extended.

Credit Account: A bank access account which provides for the advance of cash, merchandise or other commodity, in the present, in exchange for a promise to pay a definite sum at a future date, usually with interest.

Credit Deposit: The value of the credit card purchases deposited in a merchant's bank account after the acquirer's fees are deducted.

Credit Limit: The maximum amount the cardholder may owe to the issuer on the card account at any time.

Credit Card Number: A unique number assigned to a credit card.

Credit Card Processor: A company that performs authorization and settlement of credit card payments, usually handling several types of credit and payment cards (such as Visa, MasterCard, Discover and American Express). Merchants desiring to sell their products to cardholders generally retain the services of one or more credit card processor who handles the credit cards that the merchant wishes to accept. When a merchant retains the services of a credit card processor, it is issued a Merchant Identification Number.

Credit Card Terminal: A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key in credit card information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment that only processes credit cards but may also allow related transactions including gift cards and check verification to be performed. A credit card terminal is generally plugged in to a power supply and connected to a telephone line. Some terminals may be powered by batteries, communicate over the Internet or through the cellular phone networks. When a credit card is processed (either swiped through the magnetic stripe reader or keyed in to the keypad), it contacts the network to verify if the credit card can be authorized. The best known credit card terminals consist of a modem, keypad, printer, magnetic stripe reader, a power supply and a memory card. They have had the same basic design since the 1980s. There is a wide range of memory capacities and additional features like built-in printers and debit card pinpads that may affect the cost of a credit card terminal.

Credit History: A partial profile of your financial life given within a particular time frame (usually measured in years). It shows the extent to which you pay your bills on time and how much you may owe particular parties. Credit card issuers use this information to decide whether to provide customers with credit cards.

Credit Limit: The maximum amount of credit a cardholder has available to spend on their credit card.

Custom Payment Service (CPS): Visa’s regulations for the information that must be submitted with each transaction. Transactions must meet CPS criteria in order to qualify for lowest transaction processing fees available. Similar to MasterCard’s Merit system.

Customer Code: A 17 character alphanumeric field that is used with Purchase Card transactions. The code is typically defined by the customer (cardholder) and used for accounting or project tracking purposes.

D

Database: A collection of data organized and designed for easy access, for example, a collection of customer names and addresses.

Data Encryption: The process of encoding messages or information in such a way that only authorized parties can access it. Encryption does not of itself prevent interference, but denies the intelligible content to a would-be interceptor.

D & B Duns Number: Dun & Bradstreet Data Universal Numbering System. A unique 9 digit code that identifies and links more than 57 million companies worldwide.

DDA: Demand Deposit Account.

Debit: A charge to a customer’s bankcard account. A transaction, such as a check, automated teller machine (ATM) withdrawal, or point-of-sale (POS) debit purchase that debits a demand deposit account.

Debit Access Fee: The amount the merchant pays per month to have access to all debit networks that the bank belongs to.

Debit Card: An ATM Bankcard requiring a PIN Code which is used to purchase goods and services and to obtain cash. The transaction will debit the cardholders personal deposit account.

Debit Transaction: A bankcard used to purchase goods and services and to obtain cash, which debits the cardholder’s personal deposit account A bankcard used to purchase goods and services and to obtain cash, which debits the cardholder’s personal deposit account.

Decline / Declined: Response of a transaction denial meaning that the issuing bank will not authorize the transaction.

Demand Deposit Account: A standard checking account held by the merchant into which funds are deposited as a result of processed credit transactions.

Deposit: Process of transmitting a batch of transactions from the merchant to the acquiring institution in preparation for settlement. Also known as release.

Deposit Account: An Access Account, other than a Credit Account, maintained by a Member for processing transactions. Deposit Accounts include checking, NOW, savings, share draft, and such other depository accounts as are legal under Applicable Law.

Deposit Credit: The value of the credit card purchases deposited in a merchant's bank account after the acquirer's fees are deducted.

Digital Certificate: Online identification that authenticates a consumer, merchant and a financial institution. Digital certificates are used to encrypt information exchanged in secure electronic transactions.

Digital Receipt Infrastructure: (DRI) Utilizing this infrastructure enables consumers and organizations to prove that electronic transactions and events actually took place. In legal terms, these serve as a digital trail, as opposed to a paper trail.

Digital Signatures: An electronic signature, which cannot be forged. Instead it is generated from a computed digest of the text that is encrypted and sent with the text message. The recipient decrypts the signature and retrieves the digest from the received text. If the digests match, the message is authenticated and proved to be from the sender.

Discount Fee: Fee paid by the merchant to the merchant bank for processing the merchant’s credit card sales (transactions). These fees are set by the Acquirer and are based on the interchange the Acquirer pays as well as merchant profitability. The amount is paid by the merchant for processing all daily credit card transactions.

Discount Rate: A percentage calculated on the amount charged to the merchant by the acquiring bank for processing a transaction.

Discover Card: All credit card numbers begin with a “6”.

Doing Business As (DBA): Refers to the specific name and location of the merchant establishment where credit card purchases are made.

E

E-Check: The electronic equivalent of a paper check.

Early Termination Fee: An early termination fee is a charge levied when a party wants to break the term of an agreement or long-term contract. They are stipulated in the contract or agreement itself, and provide an incentive for the party subject to them to abide by the agreement. Such a fee can be charged by some providers if the merchant ends the contract before the end of the contract term.

EBT: An electronic system that allows state welfare departments to issue benefits via a magnetically encoded payment card, used in the United States.

E-commerce: E-commerce (Electronic Commerce or EC) is the buying and selling of goods and services over the Internet. This includes the transmitting of funds or data, over any electronic network. These business transactions occur either as business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business.

EDC: A Point of Sale (POS) terminal is utilized for submitting credit card transaction information to a merchant account provider. The point-of-sale terminal reads the information encoded in the magnetic stripe of bankcards, then electronically authorizes and captures transaction data, eliminating the need for a paper deposit.

EDI: This is an electronic communication method that provides standards for exchanging data via any electronic means. It includes the electronic communication of business transactions, such as orders, confirmations and invoices.

EFT: A transfer of funds between accounts by electronic means as opposed to paper-based payment methods. EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, and point-of-sale (POS) transactions. EFT can originate from a telephone or electronic terminal, or from a computer or magnetic tape.

Electronic Authorization: Obtaining authorization for use of a credit card by electronic means, as via computer equipment and telephone line.

Electronic Banking: A form of banking in which funds are transferred through an exchange of electronic signals between financial institutions, rather than an exchange of cash, checks or other negotiable instruments.

Electronic Benefits Transfer: It refers to US government payment cards holding a balance of government benefit funds.

Electronic Bill Payment (E-pay): A feature of online, mobile and telephone banking, allowing a customer of a financial institution to transfer money from their transaction or credit card account to a creditor or vendor. It is an alternative to paper checks for paying bills. Consumers can use PCs, telephones, screen phones or ATMs to send electronic instructions to their bank or bill payment provider to withdraw funds from their accounts and pay merchants.

Electronic Check Acceptance or ECA: An electronic check, also known as an eCheck, is a form of digital payment that serves the same function as a physical check. When a merchant accepts an electronic check payment, the merchant receives the specified funds directly from a customer's checking account. The system captures banking information off a paper check and converts it into an electronic item processed through the Automated Clearing House network.

Electronic Commerce (E-commerce): E-commerce (Electronic Commerce or EC) is the buying and selling of goods and services over the Internet. This includes the transmitting of funds or data, over any electronic network. These business transactions occur either as business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business.

Electronic Data Capture: A Point of Sale (POS) terminal is utilized for submitting credit card transaction information to a merchant account provider. The point-of-sale terminal reads the information encoded in the magnetic stripe of bankcards, then electronically authorizes and captures transaction data, eliminating the need for a paper deposit.

Electronic Data Interchange: This is an electronic communication method that provides standards for exchanging data via any electronic means. It includes the electronic communication of business transactions, such as orders, confirmations and invoices.

Electronic Funds Transfer (EFT): A transfer of funds between accounts by electronic means as opposed to paper-based payment methods. EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, and point-of-sale (POS) transactions. EFT can originate from a telephone or electronic terminal, or from a computer or magnetic tape.

EMV: EMV, or EuroPay, MasterCard and Visa, is a microchip-based technology designed to reduce fraud at the point-of-sale. Banks are beginning to issue payment cards with these embedded chips, which also support contactless payments.

Encryption: The technique of scrambling data automatically in the terminal or computer before data is transmitted for security/anti-fraud purposes. Encryption: Encryption is the process of disguising a message (using mathematical formulas called algorithms) in such a way as to hide its substance, a process of creating secret writing. Used as a data security technique for credit cards where their machine-readable data is scrambled and must be decoded before it can be processed.

eProcessingNetwork: Internet credit card and check processor (www.eprocessingnetwork.com).

Expired Card: A credit card on which the embossed, encoded, or printed expiration date has passed.

F

FDR: This is a company, First Data Resources, which settles or clears the transactions between the merchant and the cardholder.

Federal Reserve System: The central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors or Federal Reserve Board (FRB), partially presidentially appointed Federal Open Market Committee (FOMC), 12 regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks, and various advisory councils.

Financial Institution: Any organization in the business of moving, investing or lending money, dealing in financial instruments, or providing financial services. Includes commercial banks, thrifts, federal and state savings banks, saving and loan associations, and credit unions.

First Data Resources: This is a company, FDR, which settles or clears the transactions between the merchant and the cardholder.

Force Transaction: A sale transaction for which a merchant received a voice authorization or authorization only. A force is done so that the previously authorized transaction can be settled and the merchant can receive funds. It may also be known as post authorization or prior sale.

Fraudulent Transaction: A transaction not authorized by the cardholder of a bankcard. These transactions may be categorized as lost, stolen, not received, issued on a fraudulent application, counterfeit, fraudulent processing of transactions, account takeover, or other fraudulent conditions. Conditions are defined by the card company or the member company.

Fraudulent User: An individual who is not the cardholder or designee who uses a credit card (or credit card number) to obtain goods or services without the cardholder’s consent.

Front-end Processor: A company/vendor that provides communication and data processing services for authorization of card payments and the transfer of data between merchants’ point of sale equipment to the back-end clearing and settlement processor.

Funding: Refers to the payment to a merchant for his submitted deposits.

Funds Transfer System: A wire transfer network, ACH, or other communication system or clearing house or association of banks in which First Data’s Clearing/Funding Bank is a member and through which a payment order by a bank may be transmitted. It includes: SWIFT, CHIPS, Fedwire, the National Association of Clearing House Associations, MasterCard and VISA.

H

Holdback: This is a fee, also known as a reserve, which is held back from a merchant’s credit card transactions to cover possible charge backs, and other disputed charges that a merchant may confront. Generally, the hold backs are returned to the merchant after a period of time.

I

Interchange: The domestic and international systems operated by VISA and MasterCard for authorization, settlement and the passing through of interchange and other fees, as well as other monetary and non-monetary information related to bankcard activities. It refers specifically to the exchange of information, transaction data and money among banks and is very standardized so banks and merchants worldwide can use them.

Interchange Fee: A fee charged by banks that covers the cost of handling and credit risk inherent in a bank credit or debit card transaction. VISA and MasterCard establish interchange fee rates. Interchange fees are usually paid to the bank funding a transaction and thus bearing the risk.

Issuer/Issuing Bank: This is a bank or financial institution that offers card association branded payment cards directly to consumers. The name is derived from its practice of issuing payment to the acquiring bank on behalf of its customer.

Imprint: An imprint can be electronic (by swiping the card through a card reader) or manual (by obtaining a physical imprint using an imprinter). One of these methods is always required to prove the card was present at the time of the transaction.

Independent Sales Organization (ISO): This is an organization licensed by VISA that processes merchant’s credit card transactions in exchange for a percentage of the sales or transaction fees. A term for a company that is sponsored by an acquiring bank to solicit and sometimes support merchants.

Interbank Card Association: Unique four digit identification number assigned by MasterCard to identify its members.

Interchange Plus Pricing: A credit card processing pricing structure that separates the components of processing costs allowing for transparent reporting and interchange optimization often leading to lower costs when compared with other forms of pricing (tiered or bundled). Some providers offer merchant account services priced on the “interchange plus” basis. These accounts are based on the “interchange” tables published by both Visa Interchange and MasterCard Interchange.

Internet Commerce: A term that pertains to all commercial transaction activity on the Internet.

Introductory Rate: Various credit card companies offer a low introductory rate that switches to a higher variable or fixed rate in order to attract customers. It may be described as a special offer, or discount. The introductory rate for some cards may be very different to the actual standard rate and may be specified for a short period of time.

L

Level 2 or Level 3 Processing – Purchasing Cards: Visa and MasterCard have created a specialized type of credit card used primarily by government agencies and businesses. Level 2 credit card processing refers to a more detailed transaction designed to support business-to-business (B2B) payment processing. Many businesses and government offices require that their vendors accept detailed transactional information along with the sale. In addition to simplifying the B2B transaction, providing Level 2 data along with the sale allows access to lower interchange rates. Level 3 data takes everything one step further. Most merchants will never have the opportunity to accept Level 3 cards, but if you’re processing in a B2B-heavy industry or if you accept a lot of Government cards, then having Level 3 data acceptance may help reduce your interchange costs even further. Often times, Level 3 interchange rates are up to a full 1.00% lower than their standard counterparts. Increasingly, corporations and government agencies are relying on this form of payment to compensate their service providers and suppliers.

Local Review: Refers the ability for a merchant to review, from their terminal, the contents of a batch either before or after settlement. This may also be referred to as a batch report).

M

MICR Number Method: A check authorization procedure that uses the bank routing/transit numbers, checking account numbers and check number encoded along the bottom of the check. MICR = Magnetic Ink Character Recognition. Checks are swiped for verification of funds.

Magnetic Information Character Recognition (MICR): Imprinted banking numbers (routing/transit number, checking account number, check number) at the bottom of the check.

Magnetic Stripe: A stripe (on the bankcard) of magnetically encoded cardholder account information affixed to a plastic card. It contains customer and account information necessary to complete electronic financial transactions.

Mail Order / Telephone Order (MOTO): A transaction where a cardholder orders goods or services from a merchant by telephone, mail or other means of telecommunication, and neither the card nor the cardholder is present at the merchant outlet. Defined as a merchant that keys in more than 50% of their transactions without getting manual imprints.

Manual Entry: Credit card information that is entered by terminal keypad or keyboard as opposed to swiping the card through a card reader.

MasterCard: All MasterCard numbers begin with a “5”.

Member: A financial institution which is a member of VISA USA and/or MasterCard International. A member is licensed to issue cards to cardholders and/or accept merchant drafts.

Merchant: A retailer, or any other person, firm, or corporation that, according to a Merchant Agreement, agrees to accept credit cards, debit cards, or both, when properly presented. This entity contracts with merchant banks or ISO’s to originate transactions.

Merchant Account: An account that is established by a merchant to receive payment via credit cards.

Merchant Acquirer: A member that has entered into an agreement with a merchant to accept deposits generated by bankcard transactions; also called the acquirer or acquiring bank.

Merchant Agreement: The written contract between merchant and acquirer who detail their respective rights, responsibilities and warranties.

Merchant Bank: A bank that has an agreement with a merchant to accept (acquire) deposits generated by bankcard transactions.

Merchant Category Code: A code assigned by an acquirer to a merchant to identify the merchant’s principle trade, profession or line of business. This four digit code is also known as the Sic Code.

Merchant Number: A number that numerically identifies each merchant to the merchant processor for accounting and billing purposes. Also called the Merchant ID (MID) or Merchant Identification Number.

Merchant Service Provider (MSP): This is a bank or other firm that provides processing for credit card transactions in exchange for a percentage of the sales or transaction fees. Most MSP’s provide merchant accounts.

Member Service Providers: This is an organization licensed by MasterCard that processes merchants’ online credit cards.

Merit: MasterCard’s requirements for obtaining favorable interchange rates. This would be similar to CPS requirements by Visa.

Mid-Qualified Rate: This reflects the amount of activity that was hand keyed into a terminal, or voice authorized, or not processed by closing the terminal within 24 hours. This activity is assessed a higher discount rate (an additional 1% typically).

Monthly Minimum: This is the minimum amount of fees merchants must pay each and every month. Most MSP’s charge $25. If the month’s sales do not make the monthly minimum the merchant account holder is required to make up the difference.

Monthly Minimum Fee: The monthly minimum fee is a system established to ensure that merchants pay a minimum amount in fees each month to cover costs from the provider to maintain the account and to create minimal profits. If a merchant’s qualified fees do not equal or exceed the monthly minimum they will be charged up to the monthly minimum to satisfy their minimum fee requirements. Sometimes there are fees that are charged that are not a part of the monthly minimum, such as statement fees. It is industry standard to charge a monthly minimum.

Multiple Transaction Processing (Multi-Trans): Electronic communications process where multiple authorization requests and responses are exchanged during a single phone connection with the third-party transaction processor.

N

NACHA: National Automated Clearing House Association is a national organization that establishes the standards, rules, and procedures for electronic payments.

NAICS Code: This refers to the North American Industry Classification System. Common industry definitions for Canada, Mexico and the United States. This system is replacing the SIC Code system.

Net Payment: Payment to the merchant for sales drafts less credits minus the appropriate discount fees.

Net Revenue: This is the discount income less interchange expense.

Net Settlement: The settlement, through an actual transfer of funds, of the net effect of a series of financial transactions involving customers of two or more banks.

Non-Bank: In a payment system, a financial institution not offering retail banking services.

Non-Qualified Rate: Charged on anything not qualified or mid-qualified as well as on business cards and manually keyed foreign cards. This activity is assessed the maximum discount rate.

O

Originator: A financial institution that initiates a wire transfer or automated clearing house (ACH) payment.

Original Draft: The original copy of the forms and signature used in the transaction. The original draft is also referred to as the “Hard Copy”.

Outlet: One location of a chain.

Over Limit: This refers to a cardholder’s account that has gone beyond its credit limit with a transaction. (Their outstanding balance is over their credit limit.)

P

Per Transaction Fees: This refers to fees paid by a merchant to a merchant bank or other contracted entity on a per transaction basis.

PIN (Personal Identification Number): The confidential individual number or code used by a cardholder to authenticate card ownership for ATM or POS terminal transactions.

PIN Authorization Request: A procedure enabling the issuer to validate cardholder identity by comparing the PIN to the account numbers.

Pin Pad: This devise is a small keypad at a point of sale on which someone making a purchase using a credit or debit card types his or her PIN to confirm the purchase. It is used in conjunction with a terminal when processing debit sales to insure authorized usage. The pin pad will ask for the customer’s secret 4 digit # during the sale (Pin #).

PIN Verification: A procedure utilized by or on behalf of the Issuer Participant to verify the identification of the Cardholder as a result of the use of the PIN upon receipt of a Transaction request.

Paper: This term refers to the physical sales slips, credit slips, cash disbursement slips and other print indicating use of a card or a card account. Paper may also referred to as “media.”

Payment Gateway: Primarily an e-commerce application service provider service that authorizes payments for e-businesses and online retailers. It may also be used for traditional retail businesses. It is the equivalent to a physical point of sale terminal located in most retail outlets. The gateway has 2 components generally: a) The virtual terminal that allows a merchant to securely login and key in credit card numbers or; b) The connection of a website’s shopping-cart to the gateway by API to allow for real time processing from a merchant’s website.

Payment Service Provider / PSP: A third party that facilitates and helps merchants in the accepting of payments, also known as a PSP. The payment service provider (PSP) offers businesses online services for accepting electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, and bank transfer based on real-time online banking.

Payment System: A set of instructions and procedures used for the transfer of ownership and settlement of obligations arising from the exchange of goods and services.

Plastic (Card): This is a generic term used to identify any of the credit cards and member cards issued to cardholders.

Plural Interface Processing / PIP: This is a facility that allows the processing of American Express directly through the AMEX Network. With PIP AMEX authorization fees are eliminated.

Point of Sale (POS): The location of a merchant establishment where the customer makes a purchase and payment for products or services is received.

Point-of-Sale System: An electronic computerized network operated by a main computer that accepts financial data at or near a retail selling location and transmits that data to a computer or authorization network for reporting activity, authorization and transaction logging. A point of sale system generally comprises a computer, monitor, cash drawer, receipt printer, customer display and a barcode scanner). The majority of retail POS systems also include a debit/credit card reader.

POS Terminal: An electronic device utilized in a merchant location that is connected to the bank’s system or authorization service provider via telephone lines. The POS Terminal is designed to authorize, record and forward data by electronic means for every sale.

Posting: The process of adding any purchases, refunds, payments or other transactions the cardholder has made. The post date is generally a day or more after the transaction date.

Prepaid Cards: A reloadable or non-reloadable debit card that allows the holder to only spend up to the amount that has been pre-deposited into the account.

Presentment: This term refers to a clearing record that an acquirer presents to an issuer through interchange. This may be done initially (as a first presentment), or after a chargeback (as a re-presentment).

Primary Account Number (PAN): The PAN is 14, 15 or 16 digit number that appears on the primary account holder's credit card. Often, the primary account number is also simply called the account number. It is the number that is embossed and/or encoded on a plastic card that identifies the issuer and the cardholder account.

Principle Bank Identification Number / PRIN: This term refers to a set of numbers identifying the issuing bank within the Merchant ID number.

Prior Authorization: An authorization requested before a transaction takes place. The approved authorization may be held for a specific period of time before a card is present or not.

Prior Authorized Sale: A transaction for which authorization was obtained at an earlier time. A preauthorization is a temporary hold placed on a credit or debit card. It is not an actual charge, although it does temporarily make the hold amount unavailable until the settlement or transaction clears. Companies usually use pre-authorizations to help secure payment. For example, hotels often place holds on cards to prevent the cardholder from maxing out the card prior to the actual purchase.

Processor: An organization that processes the merchant’s batch and is connected to VISANet and or Banknet. This entity provides authorization and/or clearing and settlement services on behalf of a member.

Processing Bank: This is the bank that processes a transaction once a credit card number is entered into the system.

Q

Qualification: Qualified, mid-qualified and non-qualified rates are set entirely by credit card processors through something called tiered pricing. Visa and MasterCard have no influence in determining how various processors qualify transactions under tiered pricing. In reality, there are more than just three (qualified, mid-qualified and non-qualified) credit card processing rates. There may actually be hundreds of different rates between Visa and MasterCard called interchange fees. Interchange fees are the basis for all credit card processing charges, and they remain exactly the same regardless of which processor a business uses. A processor uses tiered pricing to route hundreds of interchange fees to its own qualified, mid-qualified and non-qualified rates.

Qualified Rate: The qualified rate of a tiered pricing structure is the lowest possible rate a business will pay. Since it is the lowest, the qualified rate is often what a processor advertises, and it is often used to make pricing appear artificially low. It is, however, usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Non-Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified. Processors typically route only consumer non-reward credit cards and debit cards to the qualified rate tier.

Qualified Retail Discount Rate: This is a charge on all swiped bankcard transactions that are electronically authorized and closed in a daily batch.

R

Rates and Fees: A Merchant Account will have a variety of fees, some periodic, others will be charged on a per-item basis, or according to a specified percentage. Some fees are set by the merchant account provider, but the majority of the per-item and percentage fees are passed through the merchant account provider to the credit card issuing bank according to a schedule of rates called interchange fees, which are set by Visa and MasterCard. Interchange fees vary depending on card type and the circumstances of the transaction. For example, if a transaction is made by swiping a card through a credit card terminal it will be in a different category than if it were keyed in manually.

Reason Code: A code used to provide additional information to the receiving clearing member regarding the nature of a chargeback, subsequent presentment, fee collection, funds disbursement, or request for a source document.

Receipt: A hard copy description of the transaction that took place at the point-of-sale, containing: the date, merchant name/location, a truncated account number, type of account accessed, amount, reference number, and an action code.

Recurring Billing: This is also referred to as Recurring Transaction. It is a transaction charged to the cardholder (by granting prior permission) on a periodic basis for recurring goods and services, i.e., web hosting, club memberships etc.

Recurring Transaction: This is also referred to as Recurring Billing. It is a transaction charged to the cardholder (by granting prior permission) on a periodic basis for recurring goods and services, i.e., web hosting, club memberships etc.

Reference Number: A twenty-three (23) position number assigned by the acquiring member and used to identify a transaction.

Refund: Issuance of a credit to a cardholder account, usually as a result of a returned product return or to correct a billing error.

Remittance Information: Information required by the biller to post customer bill payments effectively.

Request Auth: This is a submission request transaction for Authorization Only.

Residual Income: A sales agent, or other type of agent, receives a portion of the fees charged to a merchant on a periodic basis.

Retail Merchant: Specifically refers to a merchant that offers goods and/or services in the retail industry. This would not include a mail/phone merchant, a recurring services merchant, or similar businesses.

Retrieval Request: This is a formal request to a merchant for documentation concerning a transaction, usually a cardholder dispute, or a suspicious sales or return. A retrieval request can lead to a chargeback, or can be settled between the merchant and the customer.

Revenue Sharing: Sales and other agents may receive a portion of the overall profit generated by a merchant according to a prior agreement between parties.

Reversal: An online financial transaction used to negate or cancel a transaction that has been sent through interchange in error.

RTF: Real Time Fraud.

S

SAFE: MasterCard’s: System to Avoid Fraud Effectively. As the central repository for fraud data within MasterCard, SAFE supports fraud prevention programs and security efforts. All MasterCard issuers are required to report fraudulent transactions to SAFE at least monthly. SAFE then generates reports for both issuers and acquirers, which include peer group, country, worldwide and basis point information. SAFE serves as the data feeder for other security and risk management programs like RiskFinder and various merchant audit programs.

Sale: a transaction done against a credit card for the purchase of goods or services. This transaction will go through interchange to the cardholder’s bank. Merchant will pay discounting accordingly.

Sales Draft: Paper documentation of a transaction. Also called a sales slip, charge slip, a receipt, or hard copy.

Security Compliance Review: A review that is based on an approved checklist and that is performed by a Member’s or Processor’s Approved Auditor to verify the Member’s or the Processor’s compliance with these Rules.

Service Charge: A factor in reference to some credit card’s finance charges. This is fee charged for a particular service often in addition to a standard or basic fee. This may include such things as a concert venue that may charge a service fee in addition to the initial price of a ticket in order to cover the cost of security.

Settlement: The step in the clearing process when the acquirer credits the merchant account with the amount of a credit card purchase, and the bankcard association (such as Visa and MasterCard) credits the acquirer and debits the card issuer for the transaction. As the sales transaction value moves from the merchant to the acquiring bank to the issuer, each party buys and sells the sales ticket. Settlement is what occurs when the acquiring bank and the issuer exchange data or funds during that function.

Settlement Statement: A document issued to the merchant, indicating the sales and credit activity, billing information, discount fee and chargebacks (if any) occurring during a particular time frame (one week, one month).

Setup Fee: A fee that is charged by a merchant services provider for establishing a merchant account.

Shopping Cart Software: Shopping cart software allows the cardholder to select items from an online store and place them in a virtual shopping basket or shopping cart. The shopping cart remembers which items are selected while the cardholder views other items within the virtual storefront, keeps a running total, and may calculate taxes and shipping. The items in the shopping cart are eventually ordered if the cardholder chooses.

Smart Card: A plastic card resembling traditional credit or debit cards that contains a small microprocessor; a chip that is capable of storing significantly more information than a magnetic stripe.

Standard Industry Code (SIC): Note: This system is being replaced by the NAICS Coding system. It is a 4-digit numbering system used to categorize businesses by industry type.

Start Up Kit: Supplies shipped to new merchants including sales slips, credit slips, batch header tickets, return envelopes, VISA/MasterCard decals, merchant plastics, imprinter slugs and instructional materials.

Statement: A statement is a record, typically sent to the account holder every month, summarizing all the transactions in an account throughout the time from the previous statement to the current statement. It is generally prepared by a financial institution, and is usually mailed to the customer.

Statement Fee: A statement fee is a monthly fee correlated with the monthly statement that is sent to a merchant at the end of every month. This statement shows recorded information regarding how much processing was done by the merchant during the month and what fees were incurred as a result.

Stored-Value Card: A stored-value card is a payments card with a monetary value stored on the card itself, not in an external account maintained by a financial institution. Stored-value cards differ from debit cards, where money is on deposit with the issuer, and credit cards which are subject to credit limits set by the issuer. It is a credit-card-sized device, implanted with a computer chip, with stored money value. A reloadable stored-value card can be reused by transferring value to it from an automated teller machine or other device.

Support Documentation: The information necessary via forms to effect chargeback processing, and any additional material that may pertain to a dispute.

Surcharges: These are generally generated as a result of mid and non-qualified transactions and refers to any additional charges to a merchant’s standard processing fees.

T

T & E: An abbreviation for the Travel and Entertainment industry. American Express is considered to be a T&E Card.

T & E Merchant: This refers to an airline, car rental company, or hotel whose primary function is to provide travel-related services.

Telephone Bill Payment: A service that permits a customer to pay bills electronically. The customer gives a corporation the authority to debit his or her account for a specific amount or within a specified range of amounts.

Third-Party Processing: Processing of transactions by service providers acting under contract to card issuers or acquirers. First Data is a third-party processor.

Transaction: Any occurrence that causes a change in an organization’s financial position or net worth, resulting from normal activity. This may include advance of funds, purchase of goods at a retailer, or when a borrower activates a revolving line of credit. These are activities affecting a deposit account carried out at the request of the account owner. A credit card purchase by a card holder is an example of a transaction.

Transaction Date: The actual date on which a transaction occurs. It is used in recording and tracking transactions.

Transaction Fees: This refers to service costs charged to a merchant on a per-transaction basis.

Terminal Capture: Refers to a sale that will be registered within the terminal only until the sale is processed for deposit. The merchant is required to do a deposit on the terminal for terminal capture applications. If for any reason the sale deleted from the terminal before the deposit is processed the merchant will not the funds from the transaction.

Terminal Id (TID): In the payment card industry, a number provided to a merchant by a credit card processor to identify a terminal when that merchant retains the services of that credit card processor. It may also be called the terminal number. A credit card processor may assign several terminal IDs to a given merchant’s terminals. However, that merchant has a single merchant ID with the processor.

Terminated Merchant File (TMF): A merchant account will be terminated if excessive chargebacks occur. The merchant is stripped of their merchant account and the ability to accept credit card orders. The merchant is then placed on the TMF match list that all Merchant Service Providers can access. The file lists the business owner’s name, social security number, business name, and business address and can prevent the offending merchant from getting another merchant account. The listing on the TMF is never removed.

Transaction Identifier: A unique 15 character value that VISA assigns to each transaction and returns to the Acquirer in the authorization response. VISA uses this value to maintain an audit trail throughout the life cycle of the transaction and all related transactions, such as reversals, adjustments, confirmations, and chargebacks.

Transaction Processor: A facility that validates and authorizes credit card purchases. Processors may also service the actual accounts on behalf of the issuers, emboss cards, and mail cards to cardholders.

Transaction Type: A specific type of financial transaction explaining detailed activity that is generally submitted to the clearing system.

U

UCommerce: A term that is short for Universal Commerce, UCommerce is the intersection of online, kiosk, and in-store payment enablement that incorporates social media and near-field communications. With UCommerce, the mobile device is at the center of the user experience, a significant future trend.

User Authentication: The process of validating that a user is who the user represents himself or herself to be.

V

It is never e.

Validation Code: Refers to a unique 4 character value that VISA offers as part of the CPS/ATM program in every authorization response. This ensures that key authorization fields are preserved in the clearing or settlement record.

Variable Interest Rate: This refers to variable-rate cards whereby the APR changes when interest rates or other economic indicators change. It may also be known as the floating rate.

Verified By Visa (VBV): The Visa system designed to authenticate card holders. It is a global solution designed to make eCommerce transactions more secure in general. It helps ensure that payments are made by the rightful owner of the Visa account in order to build consumer confidence in online shopping. It is also designed to reduce other fraud as fraudulent users will not generally know the pass phrase or PIN associated with the card.

Visa: Visa International Service Association including all of its subsidiaries and affiliates. All Visa card numbers begin with the number “4”.

Visa PAS (Payment Authentication Service): According to Visa’s PAS, cardholders must authenticate themselves by verifying their identity with a password when buying from a Web storefront.

Voice Authorization: This is an interactive communication between an issuer and an acquirer as an approval response obtained through their authorizing processors, or stand-in processing, through telephone, facsimile, or telex communications.

Void: The reversal of a transaction that has been authorized, but not settled. Settled transactions require processing of a credit or return in order to be reversed.

Void Transaction: Transaction that is done on a sale that is contained in an open batch. This voids the sale and does not go through interchange to the cardholder’s bank. The process does not remove the authorization that was obtained when the sale was initially run. It removes the transaction from the batch of transactions to be settled. The merchant will not pay discounting when a void is issued.

* Sources: First Data, the Global Leader in electronic commerce around the world. Every day, First Data makes payment transactions secure, fast and easy for merchants, financial institutions and their customers. Whether the payment is by debit or credit, gift card, check or mobile phone, online or at the point of sale, First Data helps you maximize value for your business; and Wikipedia, a free online encyclopedia and the largest and most popular general reference work on the Internet. It is ranked among the ten most popular websites.Wikipedia is owned by the nonprofit Wikimedia Foundation.