GLOSSARY OF MOST COMMONLY USED TERMS IN THE MERCHANT SERVICES INDUSTRY

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1 GLOSSARY OF MOST COMMONLY USED TERMS IN THE MERCHANT SERVICES INDUSTRY Acquiring Bank The bank or financial institution that accepts credit and/or debit card payments for products or services on behalf of a merchant. Acquiring Processor Provides credit card processing, billing, reporting, settlement and operational service to the merchant on behalf of the acquiring and issuing banks. Many financial institutions hire a third party for more cost effective bankcard processing. ABA Routing Number The nine-digit number assigned to individual banks to identify them. Address Verification Service (AVS) A system used to verify the identity of the person using the credit card. The system will check the stated billing address of the card against the one on file with the issuer. The response provides an AVS code in each approved transaction result that tells you how well the two addresses match. Merchants can use AVS codes to help protect themselves from potential Chargebacks and fraud. Application Programming Interface (API) Software used by an application program to request and carry out lower level services performed by a computer s or telephone system s operating system. API allows a merchant to add payment functionality to custom built websites or online applications. Approval Code A number issued to a participating merchant by the authorization center which confirms the authorization for a sale or service. The authorization code refers specifically to one single transaction for easy tracking and reversal of the transaction if needed. Associations (Card Organizations) Visa, MasterCard or any other brand in conjunction with which Card Issuers provide Cards accepted by merchant by agreement with the acquiring bank. The Associations license member financial institutions to issue cards and/or acquire merchants sales drafts under the Association s brand name. Authorization The act of ensuring the cardholder has adequate funds available against his or her line of credit at the time the authorization was requested. 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. Automated Response Unit (ARU) Allows the manually keyed entry and the subsequent authorization of a credit card transaction over a traditional landline telephone or cell phone service. Please visit Merchant Services, Quick Links: QRG s for a printable copy. Batch A group of approved and accumulated credit card sales and credit transactions that have been captured but not yet settled. Most merchants settle or close their batches at the end of each day. Batch Deposit The electronic depositing of a batch file transmitted to the transaction processor for settlement. Glossary Of Most Commonly Used Terms 1

2 Business to Business (B2B) One business communicating with or selling goods and/or services directly to another business. This merchant category is different from retail where a business typically does business directly with consumers. Capture Converting the authorization amount into a billable transaction record within a batch. Transactions cannot be captured unless previously authorized and the goods or services have been shipped or transmitted to the consumer. This also includes funds received as deposits for goods or services. Card Associations (Bank Card Association) Payment networks that act as gateways between acquiring and issuing banks for authorizing and funding transactions, interchange settlements and fee processing. The two national and best-known Bank Card Associations are Visa and MasterCard. Card Code (CVV2) The card security code, sometimes called Card Verification Value or Code (CVV or CVC) or Credit Card ID (CCID). It is a security feature for credit or debit card transactions giving increased protection against credit card fraud. This code is often asked for by merchants to secure a transaction when the card is not present (CNP). These sales usually occur over the Internet, by mail, fax, or over the telephone. The payment gateway will compare the card code with the code on file at the card issuing bank. Results of this comparison will show in the transaction approval code. By using the card code results along with the Address Verification Service (AVS), you can make a more informed decision about whether to accept transactions. MasterCard, Visa, and Discover have a three digit code on the back signature panel of the card. American Express cards have a four digit code printed on the front side of the card above the number Card Not Present (CNP) Any number of payment transactions in which cards are not tendered. The card information is manually entered by the customer (online) or merchant over the telephone. These sales carry a higher risk and therefore are assessed a higher Interchange rate. Card Organizations Any entity formed to administer and promote Cards. The Card Organizations charge the Acquires interchange fees and assessment for submitting transactions into their systems. A substantial portion of the Discount Rate or Transaction Fees merchants pay will go towards these fees and assessments. Each Card Organization has developed Card Organization Rules that govern their Acquirers and Issuers and the procedures, responsibilities and allocation of risk for this process. Merchants are also bound by Card Organization Rules. Card Present A type of transaction in which the card is present and is typically swiped through an electronic device that reads the contents of the magnetic stripe on the back of the card. Chargeback A reversal of a credit card transaction (or a disputed portion) initiated by the card issuer at the cardholder s request. Chargebacks can occur for any number of reasons including; customer disputes, potential or actual fraud (on the part of merchants, sales associates and/or customers), processing errors and authorization issues. Chargebacks are governed by a complex set of rules and time limits that can be costly to merchants and their banks if disregarded. Check Conversion (Electronic) A check protection service by which a merchant scans a check image and converts it into an electronic transaction. Funds are debited from the customer s checking account similar to a PIN based debit transaction. Glossary Of Most Commonly Used Terms 2

3 Check Guarantee A service provided by a third party vendor who guarantees a customer s payment by check for a specified amount. Stipulations require that the merchant follow correct authorization procedures. Code 10 Authorization Request If the POS device reads Lost or Stolen Card, Pick up Card or a similar message, the merchant should call the authorization center for a Code 10 Authorization. The operator will ask questions to determine if the card is valid. Credit Card Processors Merchant service providers that handle the details of processing credit/debit card transactions between merchants, issuing banks, and merchant account providers. Today the majority of credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Credit Card Terminal A stand alone piece of electronic equipment that allows a merchant to swipe or key enter credit/debit card information as well as additional information required to authorize and process a transaction. Credit card terminals can process via telephone lines, IP, Bluetooth or wireless connection. Demand Deposit Account (DDA) A checking account with a financial institution. The DDA number (with a copy of the check) is required by processors for debiting and crediting a merchant s account. Daily Discount Method The qualified processing fees related to the discount rate are deducted from the merchant s settlement account on a daily basis. Additional fees associated with processing transactions are then deducted monthly along with creation of the monthly statement. Doing Business As (DBA) The name an individual, company or organization chooses to conduct business under other than their legal or registered name. Downgrades Occurs when the merchant does not meet the Visa /MasterCard requirements for a transaction and, as a result, the transaction is moved to a lower level and more costly rate of Interchange pricing. e-commerce (ECI) Consists of the buying and selling of products or services over electronic systems, such as the Internet and other computer networks (electronic commerce). Electronic Benefit Transfer (EBT) An electronic system that allow a government benefit recipient to authorize the transfer of their benefits from a federal, state or local government account to a merchant account to pay for products and services received. Electronic Funds Transfer (EFT) A transfer of funds between one account and to another by electronic means rather than conventional paper based payment methods. EFT transaction can originate from a telephone, IP or electronic terminal, or from a computer or magnetic tape. Electronic Ticket Capture (ETC) A system that reaches out and "grabs" sales ticket information electronically. As the customer swipes or key enters a credit or debit card through a terminal the account information contained on the magnetic strip is read by the computer system and merged with the sales information. This information is then encoded and electronically sent to the processing system when the merchant closes the batch of transactions at the end of the day. Glossary Of Most Commonly Used Terms 3

4 Encryption The technique of scrambling data automatically in the terminal or computer before data is transmitted for security/anti fraud purposes. Face-To-Face (Card Present) Transactions that take place with the cardholder and merchant face to face. The cardholder typically swipes the card in a terminal. This type of transaction has the ability to qualify for a lower Interchange rate as it is considered low risk. Federal Tax ID Number (TIN) A number assigned by the federal government to a business for tax purposes. This is a required number for approval of a merchant processing account, unless operating as sole proprietors in which case a Social Security Number would be used. This number (TIN) along with the Tax Filing Name (TFN) must be validated with the Internal Revenue Service (IRS) for 1099K reporting purposes. Fleet Card Payment card designed mainly for fueling, maintenance and repairs of corporate motor vehicles. Fleet cards are normally used to provide specialized detailed reporting to businesses. Forced Transaction The after the fact entry of a transaction resulting from a referral (call to Authorization Center) message or a downtime interruption of service from a Network. The code given at the time of the call enables the merchant to manually enter the transaction and the approval code into the electronic draft capture (EDC) batch. Gateway Facilitates the transfer of information from an electronic connection between one network and another. A payment gateway automates the payment transaction between the consumer and the merchant to their payment processor through secure Internet connections. Gift Card A reusable, stored value card that enables merchants to offer customers an electronic alternative to paper gift certificates. Google Wallet A Google App coverts your phone to a smart, virtual wallet that securely stores your payment cards, offers, and more on your phone and online. For more information go to: Interchange The domestic and international systems operated by Visa U.S.A., Inc. (Visa ) MasterCard Worldwide (MasterCard ) DFS Services LLC (Discover Network ), and American Express Company, Inc. (American Express ) for authorization, settlement and the passing through of Interchange and other fees, as well as other monetary and nonmonetary information related to credit card activities. Interchange rates vary widely based on card type, transaction amount, risks and retail sector. Interchange is assessed on all Visa and MasterCard branded cards, even PIN based debit cards. In certain circumstances Interchange flows in reverse, such as following a Chargeback. For a more detailed explanation please go to and use the search feature. Interchange Fee The amount paid by the merchant bank to the Cardholder's bank on each transaction. MasterCard and Visa independently establish interchange fees for their respective networks. Glossary Of Most Commonly Used Terms 4

5 Level 3 (Level III) Processing Of the three different levels of credit card processing (Level I, II and III); Level 3 provides the lowest transaction processing rate. To qualify for Level 3 transactions much more detailed information is required. At the current time this information can only be entered using a computer software system. Level 3 transactions are generally made with government purchase or corporate purchase cards. Mail Order/Telephone Order (MO/TO) A category of card not present transactions involving purchases made through mail order or telephone sales. In this type of transaction, the merchant typically has a credit card terminal or computer and manually keys in the required card information. Interchange rates for these transactions are higher due to increased risk. Merchant Account Allows an approved business to accept credit and debit cards, gift cards and other forms of payment for products and or services through a written contract with a merchant acquirer. This is also widely known as a payment processing or credit card processing account. Merchant Acquirer or Merchant Provider A financial institution, member bank or member ISO that has the ability to enter into an agreement with a merchant to seek approval of their business to accept credit and debit cards and other forms of payment for goods and or services. Merchant Category Code (MCC) A universal four digit merchant classification code that identifies the merchant by the primary type of business conducted. The MCC describes the merchant s product, service, or nature of business. Merchant Discount Rate A percentage rate and/or amount charged to a merchant for processing its qualifying daily credit card and non-pin debit card transactions. Merchant Identification Number (MID) This unique number is assigned by the merchant s processor as a means of identification. The MID number is also used for accounting and billing purposes. It is not to be confused with a merchant Terminal Identification Number (TID). Merchant Processing Agreement (MPA) The legally-executed agreement between the merchant, bank and the processor. The agreement discloses the processing rates and other associated fees and binds the merchant to obey the Operating Regulations established by the card brand organizations. (See Merchant Services Program Guide) Merchant Services Program Guide An integral part of your Merchant Processing Agreement (MPA) that contains operating procedures and the general terms, which together with the MPA and the Schedules thereto constitute the complete Merchant Processing Agreement. All merchants must be given a copy of the Program Guide or directed where to view and/or print said guide. A copy of the Program Guide is available on this website under Merchant Services, Quick Links, Guidelines. Misuse Fee A fee charged when an authorization is given and either not settled or reversed within certain timeframes. National Automated Clearing House Association (NACHA) An association that promotes electronic payments (payment, check conversion financial electronic interchange international conversion, interchange, payments, and electronic benefits transfer) through the establishment of industry rules, standards and procedures for the exchange of ACH items. Glossary Of Most Commonly Used Terms 5

6 Payment Application Data Security Standards (PA-DSS) The Payment Card Industry Data Security Standard is a worldwide information security standard assembled by the Payment Card Industry Security Standards Council (PCI SSC). The standard was created to help organizations that process card payments prevent credit card fraud through increased controls around data and its exposure to compromise. The standard applies to all organizations which hold, process, or pass cardholder information from any card branded with the logo of one of the card brands. For complete information please go to: Payment Gateway An e Commerce application service that authorizes payments for e businesses and online retailers. It is the equivalent of a physical Point of Sale (POS) terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant. Payment Card Industry (PCI) Data Security Standard (DSS) Often shortened to PCI. Established for securing payment card information, failure to adhere to the standard (by any party that handles card information, including merchants and ISOs) can result in hefty fines. For complete information please go to: Payment Card Industry Pin Entry Device (PCI PED) A standard developed by the five major global payment brands to standardize data and device security requirements, testing methodology, and approval processes for PIN Entry Devices (PED). Requirements are primarily concerned with device characteristics impacting the security of the PIN PED used by the cardholder during a financial transaction. For complete information please go to: Payment Processor A company that provides the processing of credit card transactions. Payment processors are to be distinguished from issuing banks which act as the recipient of the transaction proceeds. Through connections to various card associations payment processors provide authorization and settlement services to the merchant banks merchants. Personal Identification Number (PIN) The confidential individual number or code used by a cardholder to authenticate card ownership for ATM or point-of-sale pin debit transactions. PIN Debit Card A plastic card that provides the cardholder electronic access to his or her bank account, also known as a bank card or check card. PIN debit cards are processed at the point of sale by entering in a Personal Identification Number (PIN) into a device specifically designed to encrypt the PIN to guard against fraud. Debit cards may also be processed as a credit card where the cardholder would sign for the transaction instead of entering their PIN. PIN Pad The device, if external, that is attached to a terminal, into which a cardholder enters a PIN to verify the identity of the cardholder. If an internal pin pad the cardholder uses the number pad on the terminal device. Point Of Sale (POS) The location at which a payment card transaction occurs, usually by way of a device such as a credit card terminal or cash register. Point Of Sale (POS) Terminal A device placed in a merchant location that is connected to a bank s system or an authorization service provider via telephone, IP or wireless connection designed to authorize, record, and forward data by electronic means for each sale. Glossary Of Most Commonly Used Terms 6

7 Pre-Authorization Used primarily in situations where the cardholder wants to obtain advance approval or verification that sufficient funds are available to make a subsequent purchase. Quick Reference Guide (QRG) Reference material used to assist the merchant in completing or understanding products and/or services related to the credit card processing industry. The most common QRG is the one supplied for operating a credit card terminal. Please go to Merchant Services, QRG for a printable form of some of the most common Quick Reference Guides we provide. Reserve Account A fund established and managed by the processor to protect against actual or contingent liability arising from Chargebacks, adjustments, fees and other charges due to or incurred by the processor. Reserve accounts are typically only required for very high risk/high ticket merchants. Response Code A number provided by the card issuing bank to a merchant either verifying that a particular transaction was accepted or explaining why it was declined. Retrieval Request/Transaction Documentation Request A request by the issuer (bank) of a credit card, on behalf of the consumer, to the acquirer for documentation related to a card transaction in question. Merchants are then notified by the acquirer to produce documents to support the transaction. Self Assessment Questionnaire (SAQ) A self-validation tool for merchants and service providers who are not required to do on-site assessments for PCI DSS compliance. The SAQ includes a series of yes-or-no questions for compliance. For more information please click this link. Settlement The crediting and debiting of accounts between financial institutions and merchants. When funds have been deposited or credited to the merchant s deposit account, the transaction or batch of transactions is closed and settled. Shopping Cart A software application needed for e-commerce and online transaction processing when a consumer has the option of purchasing more than one item at a time from a merchant s website. The software incorporates various e Commerce tools linking Internet storefronts to sales management payment systems and payment platforms. Smart Card A payment card with a built in microprocessor (chip) that stores information. Smart cards can be used for stored value cards, credit cards and loyalty. Transit Routing Number The nine digit bank code used in the United States that appears on the bottom of checks. This code is used by the Automated Clearing House (ACH) to process direct deposits and other automated transfer of funds. Triple Data Encryption Standard (3DES or TDES) A highly secure encryption system that encrypts data 3 times using three 64 bit keys, for an overall encryption key length of 192 bits. All point of sale (POS) pin entry devices (PEDs) must be using TEDS as of July 01, Glossary Of Most Commonly Used Terms 7

8 Truncation The practice of removing a data segment. Federal law requires electronically processed credit or debit card receipts to include no more than the last five digits of the card number, and to delete the expiration date. The law applies to the receipts the customer is given. Value Added Resellers (VAR) A company that adds some feature(s) to an existing product(s) then resells it (usually to end users) as an integrated product or complete turn key solution. Virtual Terminal An Internet based portal used for processing card transactions. Brick and mortar merchants may use an online payment gateway to process card transactions online without a POS terminal or card processing software. Online merchants must have an online payment gateway to enable their business for e- Commerce. Voice Response Unit (VRU) The system that allows credit card authorization through a touch tone telephone. Please visit Merchant Services, Quick Links: QRG s for a printable copy. Wireless Fee A fee charged by a wireless service provider to administer communication services for use of a portable point of sale terminal (POS). Glossary Of Most Commonly Used Terms 8