Merchant Account Glossary of Terms

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1 Merchant Account Glossary of Terms From offshore merchant accounts to the truth behind free merchant accounts, get answers to some of the most common and frequently asked questions. If you cannot find an answer to your question below, please contact us. PCI Compliance The Payment Card Industry, which includes MasterCard and Visa, require: banks, online merchants and Member Service Providers (MSPs) to protect cardholder information. This is done by adhering to a set of agreed upon security standards. The Payment Card Industry security standard (PCI) includes MasterCard's Site Data Protection (SDP) program and Visa's Cardholder Information Security Program (CISP). ACH (automated clearinghouse) 1. A form of electronic payment. ACH is designed to be an "electronic check." It is typically used to process high volumes of relatively small-dollar payments for settlement within one or two business days. 2. The networks of participating organizations that use the ACH network settle and clear electronic debit transactions through the automated clearinghouse. Acquiring Bank A financial institution that provides merchant accounts. A merchant account allows you to accept credit cards. All merchant accounts must be sponsored by a bank that is a member of the card associations (Visa & MC). They are responsible for depositing the funds into your checking account. Address Verification System Address Verification System will compare the cardholders billing address with the entered billing address. AVS compares the zip code and street number. Approval Code or Authorization Code The 6-digit code returned to the merchant upon approving a transaction. Authorization & Settlement Authorization is the process of checking for available credit in the card holder's credit card account. A positive authorization reduces the cardholder's available credit and reserves the funds for settlement. Settlement actually deducts the funds from the card holder's account. Bank Card A Visa or MasterCard credit card. It is called a bank card because it is issued by a bank, unlike an American Express or Discover card, which is issued directly. Batch A collection of transactions that have been made in a single day. Rather than batching several times during the day, most terminals and real-time processors collect all of the transactions and submit a batch at the end of day.

2 Batch ID Once a batch is settled, it receives a batch ID. Every transaction in the batch shares this ID. If a transaction does not have a batch ID associated with it, the transaction has not been settled. Capture An action in which an electronic credit card sale transaction is submitted for financial settlement. Authorized credit card sales must be captured and settled in order for a merchant to receive their funds. Card Holder The owner of the purchasing credit card is referred to as Card Holder. Charge Back A charge disputed by the credit card holder, resulting in chargeback fees against the merchant. If the cardholder is successful in his dispute, the disputed funds are debited from the merchant account. Funds are often taken out during the period that the dispute remains unresolved, pending its resolution. Clearing The process of exchanging financial transaction details between an acquirer and an issuer to facilitate posting of a cardholder's account and reconciliation of a customer's settlement position. Clearing and settlement occurs simultaneously. Credit card The plastic card bearing an account number assigned to a cardholder. Credit cards are issued with a set credit limit and expiry date. Currency conversion A process where the currency involved in the transaction itself is converted into the currency of settlement or the currency of the issuer, so the transaction can be authorized, cleared and reported. CVC2 (card validation code 2) & CVV2 (card verification value 2) VISA and MasterCard implemented a security feature known as "CVV2" and "CVC2". These are the three-digit numbers printed on the back side of the card (signature panel) to the far right. The three-digit code helps validate that the cardholder has the card in his/her possession, and the account is legitimate. You can include the code in your transaction and expect to receive a "match" or "no match" response. If you are using a shopping cart, make sure it is capable of collection these numbers. You are also not allowed to store these numbers. American Express may also have a four-digit security code that should be on the front of the card above the account number. Discover Card also has a three-digit code very similar to Visa/MC in the same location. Debit card The plastic card used to complete a bank account withdrawal from a cardholder's bank account. Unlike a credit card, debit card purchases are deducted automatically from the cardholder's account.

3 Decline Database A private database containing declined credit card numbers, fraudulent credit card numbers, stolen credit card numbers and previous charge-back credit card numbers. Once a credit card number has been placed within our decline database it can never be used with any Instabill merchant. Discount Rate The small percentage of each transaction an acquiring bank charges you for the right to use your merchant account Electronic funds transfer (EFT) A paperless transfer of funds initiated by transmission from a terminal, computer or telephone. In House Credit Underwriting This is where the merchant account provider (ISO/MSP) writes the merchant accounts within their own company (in house). Integrated Fraud Management The process of checking card validity by comparing it to previous purchases, AVS report, internal decline database and fraudulent shopper behavior patterns. Internet Merchant Accounts These are special types of bank accounts that allow you to accept card payments online. Unlike traditional merchant accounts, Internet merchant accounts do not require the cardholders' signature. However, since a signature is not necessary, businesses in need of Internet merchant accounts have a higher risk profile. Internet/MOTO Merchant A merchant that takes credit cards over the Internet, phone or through the mail. Issuing Bank The bank that issues the customer the credit card and transmits funds to the seller's merchant account when the card is utilized by the customer. The issuing bank then debits the cardholder's account for the amount of the purchase. Mail Order/Telephone Order (MO/TO) Transactions initiated by the customer using the mail or telephone, rather than through retail terminals or over the Internet. Merchant A retailer or any other person or corporation that accepts credit cards. Merchant Account A special bank account used to receive the proceeds of credit card transactions. The merchant bank is responsible for debiting the funds from the customer and depositing them into the merchant account. Merchant Bank The bank that provides merchant accounts to merchants, thereby giving the merchants the ability to accept credit cards.

4 Merchant Provider A third party company providing merchants with merchant accounts. Providers generally have an established relationship with a number of banks that operate merchant accounts. Providers either have their own processing system to process or validate transactions, or they act as resellers of third parties' processing systems. MID The MID stands for a number assigned to a merchant to identify the merchant to the ISO, third-party processor and acquirer. Monthly Minimum The minimum monthly charge a merchant must pay in Discount Rate fees. If the merchant's sales for the month result in his paying Discount Rate fees greater than or equal to the agreed minimum monthly amount, no further fee is involved. However, if the merchant's sales for the month result in his paying Discount Rate fees less than the agreed minimum monthly amount, the merchant must pay the deficiency. Payment Processor A company that attends to the actual processing of a credit card transaction, to be distinguished from the merchant account bank which merely acts as the recipient of the transaction proceeds. PIN (personal identification number) A secret code that allows the issuer of a card to positively authenticate the cardholder for the purpose of approving a transaction. The cardholder enters his/her PIN into a PIN pad. The PIN is required to complete an ATM/Debit card transaction. Point of Sale Terminal (POS) The physical machine that allows a merchant to swipe a credit card through to initiate a transaction. Most common in retail environments. Prior Authorized Sale A transaction for which authorization was obtained at an earlier time. Processing Gateway The gateway will automatically collect information and pass it to your acquiring bank. The processing gateway allows for automated real-time processing. Examples of processing gateways are Cybercash and Authorize.NET. Processing Solution A terminal, software or virtual product enabling the merchant to transact with his merchant account and payment processor, for the purpose of verification and approval of transactions. Real-Time Processing Credit card processing completed online, while the customer is still visiting the website. Recurring Transactions A transaction in which a cardholder has given a merchant permission to periodically charge the cardholder's account such as your Internet provider.

5 Referral The message displayed on the POS terminal when an electronic attempt for authorization is denied and must be authorized by calling the Voice Auth. Center. Reserve A portion of a merchant's funds in his merchant account that are held by the merchant account provider as security for future contingencies, including chargebacks. Usually only required from certain high-risk merchants. Secure Socket Layer (SSL) A secure web protocol designed to ensure cardholder information is safe during the ordering process. Settlement The process by which transactions with authorization codes are sent to the processor for payment to the merchant. Smart Card A plastic card containing a computer chip that can store electronic "money." It's similar in function to a prepaid calling card but is available for all purchases. TID (terminal ID) The number assigned to a credit card transaction device (such as a POS terminal). It identifies the merchant's equipment to the processor and bankcard data transport networks. A TID is also used for payment gateways and other software applications. Transaction Fee A per-transaction charge, expressed in dollar and cent terms that a merchant provider or processor charges merchants for each transaction processed. Travel and Entertainment Card Credit cards that typically require payment in full each month, such as American Express, Discover Card, Dinners, etc. Virtual Terminal Processing (VT) The credit card processing completed on line, by the merchant. The customer makes an order and leaves his credit card details with the merchant (for example phone order). Later on the merchant process the orders manually. Void The reversal of an approved transaction, one that has been authorized but not settled. Settled transactions require processing of a credit in order to be reversed. A void does not remove any hold on the customer's open-to-buy.