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Glossary of Terms

May 5th, 2011


If you are new to the payment processing world the list of terms below may come in handy.  We have carefully compiled this list to include a number of commons words and phrases used in the credit card processing industry.  Refer to the definitions below when completing your merchant application or if you have general questions about payment processing fundamentals.  If you still have questions after reviewing the terms below feel free to contact Parallel Solutions here.

Glossary of Terms

Auth Only:
A transaction in which the merchant does not intend to charge the cardholder until a later time, if at all. See PRIOR AUTHORIZATION.

Authorization Center:
A department that electronically communicates with a merchants request for an authorization on credit card transactions to the cardholder’s bank and transmits the authorization via voice authorization or electronic point of sale equipment.

Authorization Code:
The numerical or alphanumerical code sent by the card issuer, given to a sales transaction as verification that the sale has been authorized. The authorization code is always included on the merchant sales draft.

Average ticket:
The average size of a merchant’s bankcard transaction. Generally used in pricing decisions and calculations.

AVS (Address Verification System):
In 1996, VISA/MasterCard headquarters introduced a new regulation requiring all businesses that manually key in the majority of their credit card transactions to have a special fraud prevention feature on their credit card processing equipment. This feature is referred to as an address verification system; it matches the street number and zip code of the cardholder with the information given to the merchant. This allows the merchant to verify that the person requesting the goods or services is the person who owns the cards.

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 POS terminal. Batch fees are charged to encourage a merchant to submit his or her transactions at one time, rather than throughout the day.

Batch fee:
A fee incurred for settling each batch from the terminal.

Card Validation Code:
A unique encrypted 3-digit value that is encoded in the magnetic stripe and printed on the back of a MasterCard and Visa. It is used as an additional means of Cardholder validation during the authorization or referral process.

Chargeback:
A fee charged by a merchant services provider against a merchant account for transactions that are successfully challenged by a credit card holder. After a charge is disputed and adjudicated in the cardholder’s favor, the transaction total and chargeback fee are deducted from the merchant account. CIF (cost, insurance, and freight): A term indicating that a quoted price includes the cost of the goods, insurance, and transportation charges.

Credit:
Commonly referred to as a “Refund,” this is a transaction that transfers money from the merchant to the cardholder’s account.

Debit:
A charge to the customers bankcard account.

Debit Card:
A financial instrument used by consumers in place of cash. Unlike a credit card, debit card purchases are deducted automatically from the cardholder’s account, like a check. Visa and MasterCard now offer debit cards through banks and other financial institutions. Requires a PIN (Personal Identification Number) for use.

Decline:
Either the processing network or the cardholder’s bank has refused to complete a Sale, Refund or PreAuth. The cardholder’s account balance was not changed. This is often due to there being a problem between the cardholder and his bank, and bank policies rightly leave us out of such private conversations.

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

Domain:
A designation for particular location on the Internet. A domain, for example “Merchantstorez.com,” contains files that make up the content of Web pages under that address. Merchantstorez.com/intro.htm and MerchantWorkz.com/report3.htm are different Web pages located within the same domain. Domain names are associated with IP addresses.

E-commerce:
The processing of economic transactions, such as buying and selling, through electronic communication. E-commerce often refers to transactions occurring on the Internet, such as credit card purchases at Web sites. See also Internet commerce.

FDIC (Federal Deposit Insurance Corporation):
The federal program that protects consumers by providing insurance for bank deposits in the event that a bank becomes insolvent. All funds from PPI merchant accounts, including credit, debit (ATM) and EFT transactions are FDIC insured throughout the entire transaction process from authorization and settlement through ACH deposit into the merchant’s bank account

Gateway:
An application that accepts transactions from online merchant storefronts and routes them to a financial institution’s processing system.

Mail Order/Telephone Order (MO/TO):

A “card not present” account is also called a Mail Order – Telephone Order (MOTO) account. This is the account used by mail order companies, anyone accepting phone orders or any other system where the merchant can’t physically see the card and/or the cardholder. Currently this is the type of account used for Internet Businesses accepting credit cards online.

Manual Entry:
Credit card information that is entered via terminal keypad or keyboard instead of swiping the card through a card reader.

Monthly Minimum:

The monthly Minimum fees are the fees incurred from the qualified fee the merchant is charged on each transaction.  If account activity does not generate the monthly minimum, the account holder must make up the difference. To calculate take your Monthly Minimum fee divided by your qualified rate: $25.00/2.15%=$1,162.79 that is how much a month you need to process monthly not to pay that additional $25 a month. If your qualified fees only total $15.00 for the month then we subtract that from the $25.00 and you pay the difference of $10.00 for the month.

Non-Qualified Rate:
A fee that applies to all retail, mo/to, internet items without an AVS match, AVS Request, delayed or incomplete transactions/batches/batch settlements for foreign cards, business cards and or corporate cards.

Recurring Fees:
Regular, usually monthly, charges for maintaining a merchant account. Recurring fees include the discount rate, transaction fees, statement fee, and monthly minimum.

Retrieval Request:
A request to a merchant for documentation concerning a transaction, usually a cardholder dispute or suspicious sale/return. A Retrieval Request can lead to a CHARGEBACK.

Shopping Cart Program:
A software package that runs as part of a Web site to collect and record purchasing decisions by a visitor. Shopping cart programs are stored on Web servers.

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.

Truncation:
An anti theft mechanism in which the complete credit card number and expiration date does not appear on the sales receipt. The last four digits of the credit card number will appear on the sales receipt.

 




One Comment so far:
  1. You’ve got great insights about credit card processing, keep up the good work!


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