EDUCATION - TERMS 101

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1 EDUCATION - TERMS 101 ACH (Automated Clearing House): A processing organization networked with others to exchange (clear and settle) electronic debit/credit transactions (no physical checks). ABA Routing Number: This 9-digit number is assigned by the American Bankers Association and is used to identify individual banks. When performing an ACH transfer from one bank account to another, this number is used to assist the electronic routing of funds. Application Fee: This is a fee for processing the paperwork and setting up a merchant account. Access Number: An access number is a telephone number used by the modem in a computer to communicate with an Internet Service Provider allowing for online access. Acquiring Bank: This is the status of a Visa/Master Card member bank that establishes and maintains the merchant relationship and processes merchant transactions. Address Verification Service (AVS): AVS is a tool for merchants to reduce the risk associated with card not present transactions, such as mail order, telephone order or e-commerce transactions. The billing address given by the customer is passed in the transaction and it is checked against the billing address on file at the customer's card issuing bank. Annual Fee: A fee charged to Merchants, for the right to have a merchant account with a specific provider. Arbitration: The procedure a member can use to resolve a chargeback-related dispute between two members. MasterCard or Visa resolves the dispute between members and decides responsibility for the fines that may be assessed to the participating members. Authorization: This is a process where an issuing bank or authorized agent approves a transaction for the specified amount. This process takes place by the merchant before the transaction is completed. Authorization Code: This code is given by the credit card issuer and authorizes a specific transaction. This number should be saved for future reference. Authorization Fee: A communication charge for each transaction (Sale, Credit, Void), and each time a merchant closes a batch of transactions. Automated Response Unit (ARU): An ARU allows the manual keyed entry and subsequent authorization of a credit card over a cellular or land-line telephone. A business typically imprints their customer's card with an imprinter and then processes the transaction instantaneously over the phone. Average Ticket Size (AVT): The average Visa/MasterCard dollar amount of each transaction the merchant anticipates processing or actually processes over time.

2 Back End: When the term back end is used, it's referring to the capabilities of the processor. Many processors will have multiple back ends that allow for different services and capabilities. The back end is connected to the front end (which is merchant facing) enabling the acceptance of credit and debit cards. Bankruptcy Notification Service: This service is a joint effort between MasterCard and Visa. Bankruptcy filings and cases are gathered from all the bankruptcy courts and sent to the credit bureau for account numbers. Bankruptcy information is routed daily to appropriate members. Basis Points: 1/100th of a percentage point is a basis point. In merchant processing terms there are three distinct categories: Qualified, Mid-Qualified, and Non-Qualified. Concerning the discount rate, there is an increase of basis points from Qualified to Mid-Qualified and an increase from Mid-Qualified to Non- Qualified. Batch Processing: The credit card transactions remaining on a merchant's terminal are stored in an "open" batch. They will remain there unless the merchant "batches out". Once the merchant batches out, the daily sales are submitted for processing, and the batch is now "closed" or "settled". Business Financials: Business Financials are a set of reports including a: Profit and Loss Statement, Balance Statement, and Statement of Cash Flow. Card Issuer: The financial institution or company that has provided a card to a cardholder. Card Present: A transaction evidenced by the action of swiping a card through a terminal or by an imprinted and signed credit card draft. Cardholder: The person who the credit card is issued to and whose name is embossed upon the face of the card. Cash Advance: A transaction in which only a bank or financial institution can submit, for cash to a cardholder. The transaction is posted against the cardholder's bankcard account. Interest fees for cash advances are charged from the day of the transaction. Charge-Off: The situation in which the issuer is faced with a delinquent loan of such severity that it must absorb the amount of the debt, at least temporarily, in order to clear the amount from its ledgers. The issuer may still attempt to collect some or the entire amount owed through a recovery process. Chargeback: A chargeback is the result of an action taken by a cardholder who disputes a credit card transaction through their credit card issuer. The card issuer initiates a chargeback against the merchant's account and the funds are withdrawn unless the chargeback is reversed. Checklister: A system that acts as the gatekeeper of merchant processing. Applications are entered into the system, checked for completeness, and are summarized to quickly determine the status of a file. Contingent Liability: Contingent Liability refers to a situation created when a merchants processes transactions before the

3 date a cardholder receives the goods or services purchased. Travel agencies and mail order / telephone order merchants pose contingent liability risks to the bank. Corporate Resolution: A document used by a corporation that designates individuals to allow them to act as signers on behalf of the company. Credit Card: A plastic card having a magnetic strip, issued by a bank or business authorizing the holder to buy goods or services on credit. Also called charge card. Credit card fraud: Credit card fraud is a kind of fraud where a merchant (business, service provider, seller, etc.) is "tricked" into releasing merchandise or rendering services, believing that a credit card account will provide payment for goods/services. The merchant later learns that they will not be paid, or the payment they received will be reclaimed by the card's issuing bank. Credit Card Processing: Obtaining immediate authorization of a credit card purchase when ordering online. The card processing company notifies the merchant, and the merchant confirms or denies the order with the customer. Credit card processors: Merchant services providers that handle the details of processing credit card transactions between merchants, issuing banks, and merchant account providers. Web site operators usually must first establish their own merchant account before contracting for credit card processing services. Credit card terminal: A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card's information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment for processing credit, debit and gift cards. A credit card terminal typically must be plugged in to a power supply and connected to a telephone line. Credit Report: A credit report is run on every signing principal on the merchant account application and is used to make approval decisions. CVV2: (Card Verification Value2) Also known as the Security Code is a three digit number printed on the back of Visa, MasterCard and Discover. This code helps aid in reducing fraud in a card-not-present environment and helps validate a genuine Visa / MasterCard credit card. Data Capture: The collection, formatting and storage of information in computer memory. Some point-of-sale terminals perform data capture functions. See EDC terminal. Debit Networks: A multitude of companies that honor card transactions by debiting the cardholder's checking account for the purchase amount. Debit Networks are smaller than their credit based counterparts and are more numerous. Deposit Account: An account used by a customer to make deposits and withdrawals at a financial institution.

4 Direct Mail Merchant: Indicates merchants that submit actual sales drafts for payment (paper merchant) through the mail for payment. Direct Marketing: Direct Marketing is a scenario where a merchant solicits business to people who did not ask to be solicited, otherwise known as "junk mail". Direct Marketing is often confused with "Mail Order / Telephone Order". A merchant that sends catalogs or brochures to their prior customers or current subscribers is not a direct marketer. A merchant that sends catalogs or brochures to everyone is a targeted area IS considered a direct marketer. Discount Rate: A percentage of each transaction that the merchant is charged by the Merchant Service Provider for facilitating a credit card transaction. Doing Business as (DBA): The DBA is the name the public sees, whether on a physical storefront or on the web. If the merchant has another business, then we would need a separate application for both. Downgrades: A downgrade 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 of interchange. The merchant pays a higher rate for downgrades. E-Commerce: e-commerce stands for Electronic Commerce. E-Commerce is the process of buying or selling goods or services via the internet. This is most commonly done though a merchant's or service provider's website and usually involves an online catalog and shopping cart. Payments are processed with an online gateway. EDC Terminal: Also referred to as Electronic Data Capture terminal. A point-of-sale device that reads information encoded in the bankcard's magnetic stripe, performs authorization functions, stores transaction data and batches and transmits that data to the acquirer for processing. EFTS: Electronic Funds Transfer System-An electronically-based system that eliminates the need for paper (such as a check) in the movement of funds, e.g., ATM withdrawal or a pay-by-phone transaction. Electronic Ticket Capture (ETC): An ETC system reaches out and "grabs" sales ticket information electronically. Buyer information is contained on the magnetic strip on the back of the credit card. The merchant "swipes" the card through a terminal, and the buyer information is "read" by the computer system and merged with the sales information. It then processes the ticket just as if the merchant was making a manual deposit at a bank. This action is normally done in "batches" of tickets, such as at the end of the day. Electronic Transactions Association (ETA): ETA is the association for the electronic payments industry and serves the needs of organizations who offer transaction processing products and services. Embossing: The process of printing data, in the form of raised characters, on the bankcard. Provides identification of the card and allows the imprinting of sales drafts.

5 Encryption: The method used to scramble financial information for security purposes. For example, all Personal Identification Numbers (PIN's) are encrypted when transmitted for authorization. Face-To-Face: In a face-to-face environment, transactions take place with the cardholder and merchant face-toface. The cardholder either swipes the terminal or signs an imprinted sales draft. This type of transaction has the lowest discount rate as it is considered low risk. Front End: When the term front end is used, it's referring to the connection between the merchant and their processor. The front end delivers the capabilities of the back end to the merchant. Full Business Name: The full name of a business, which directly corresponds to a Federal Tax ID Number. When submitting an application to Ballistic Merchant Services a merchant must use their full business name. Gateway: This is a service which connects the shopping cart with the card processor. Essentially, the gateway accepts the data in the shopping carts format, translates it to the card processor's format and sends it to the card processor. It then does approximately the same thing, but in reverse, when it returns the authorization and other codes to the shopping cart. Global Payment Systems: The primary data transport communications facility that links all MasterCard customers and MasterCard data processing centers into a single on-line financial network (also called a packetswitching network.) Global Payment Systems separates communications processing from financial applications to transmit messages over a single communications network. Guarantor: A personal guarantor is somewhat like a co-signer. The guarantor agrees to personally guarantee any processing losses Ballistic Merchant Services incurs as a result of doing business with the merchant. A personal credit report may be ordered for review by our underwriters. Holdback: A portion of the revenue from a merchant's credit card transactions, held in reserve by the merchant account provider to cover possible disputed charges, chargeback fees, and other expenses. After a predetermined time, holdbacks are turned over to the merchant. Note: Merchant account providers almost never pay interest on holdbacks. Independent Contractor/Independent Sales Organization (IC/ISO): This is an acronym for a registered sales representative, people that have been contracted by a company to sell its merchant processing services. Integrated Point of Sale (IPOS): This acronym refers to conventional terminals that are "smarter" and more sophisticated in that they may be set-up to communicate with like terminals owned by the same merchant -even if they are located at different locations and with different merchant numbers. Interchange: The exchange of transactions between clearing members for Visa and MasterCard transactions, according to the associations operating rules and regulations. During this process transactions are routed to the appropriate card issuing bank

6 Internet Merchant Account: A Merchant Account is a relationship between a retailing company and a Merchant Bank, which allows the retailer to accept credit card payments from customers via the Internet. Keyed: A transaction is "keyed" when the information from a credit card is manually typed into a terminal or computer. A transaction is keyed because either the card is not present at the time the transaction is entered or the equipment being used to process the transaction can't read the card. Magnetic Stripe: A stripe (on the bankcard) of magnetically encoded cardholder account information. Magnetic Stripe Reading Terminal: A point-of-sale terminal which reads the encoded information from the magnetic stripe when the bankcard is swiped through the terminal "slot." The terminal automatically transmits account and transaction information to the authorizing agent. MATCH - Member Alert to Control High-Risk Merchants: As a way to control high-risk Merchants, MATCH is an alert system that uses an electronic bulletin board to track businesses and people when their merchant account has been reported "terminated" by an acquiring bank. Merchant Account Provider: Merchant account providers give businesses the ability to accept debit and credit cards in payment for goods and services. This can be face-to-face, on the telephone, or over the internet. Merchant Accounting System: The accounting system that transfers electronic funds from the Interchange to the merchant's bank account via the Automated Clearing House (ACH) and sends the merchant monthly statements concerning the merchant's credit card transfers. Merchant Accounts: A merchant account allows a business to accept credit cards, debit cards, gift cards and other forms of payment cards. This is also widely known as payment processing or credit card processing. Or an arrangement with a commercial bank or card issuer that permits a business to accept credit card payments and deposit those payments, less charges, to its bank account MID - Merchant Identification Number: This is the number that the FDC assigns to a merchant to identify them along with the credit card processors that they use. It is not to be confused with a merchant processing account number or Terminal Identification Numbers (TIDs). Monthly Volume (MV): With Visa and MasterCard transactions, a merchant account is approved to process up to a maximum dollar volume. American Express, Discover, and any other card processing volumes are not included into the calculated monthly volume. This is a major consideration for the underwriter of the file and can determine the type of documentation that will be required for the file. Off-line: An operating mode in which terminals are not connected to a central computer. Responses are governed by guidelines, set by the issuer, which are housed in the terminal or in a supporting device. Off-Line Transaction Processing: Capture of order and credit card information for later authorization and transaction processing through a traditional card swipe terminal or through a computer.

7 On-line: An operating mode in which terminals are connected to a central computer and have access to the data base for authorization, questions and file changes. Over the Counter: Indicates merchants that submit actual sales drafts for payment (paper merchant) to a local bank for payment. Payment Gateway: A payment gateway is an e-commerce ASP service that authorizes payments for e-businesses, online retailers, or traditional brick and mortar. It is the equivalent of a physical POS (Point-of-sale) 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 Gateway Provider: A company that provides code and/or software for an e-commerce site to enable it to transfer information from its shopping cart to the acquiring bank, and on through the rest of the credit card transaction. See also payment gateway. 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. Pin pads: This is a small box-type terminal attachment with a 10-key pad. They are used so that a cardholder may enter their PIN number and are commonly used for debit card transactions. Platform: (aka Processing Platform) A processing platform is the foundation and entire behind the scenes system and capabilities that enables debit and credit transactions to take place. Purchase Cards: Government agencies or corporations may issue their employees Purchase Cards. A Purchase Card is a credit card, but unlike a regular credit card it can only be used at certain types of merchant locations. Point of Sale (POS) terminal: A small device that allows you to slide the credit card through to make a charge. This is what most retail stores have. It is fast, easy and accurate to make a charge on a customer's credit card within seconds. This can also be known as a terminal machine. Qualified Discount Rate: This means that retail transactions are card-swiped and the merchant does an electronic batch settlement (batches-out) at the end of every day. For Keyed or Internet merchants to receive a Qualified Discount Rate they can obtain an AVS response and an order number. Refund Policy: Refund Policies depend on the merchant but are used to form the circumstances in which a refund will be given to a customer. Having a generous refund policy can help prevent a chargeback, but this does not mean refunds should be given out for every complaint. Recurring Transaction: A transaction charged to the cardholder (with prior permission) on a periodic basis for recurring goods and services, most commonly this is use for products with subscriptions i.e. online games, magazines memberships.

8 Retrieval Request: A request by the issuer to the acquirer for a copy of the actual ticket of a transaction. The initial step that the issuer takes in the event that either the issuer or the cardholder disputes a transaction. Setup Fee: An initial fee paid to the Merchant Service Provider for establishment of an account and for processing and reporting tools. Shopping Cart: When used for internet shopping, a customer can use a shopping cart as they would in a grocery store by placing items inside for eventual purchase. A shopping cart groups the chosen items so that only one online credit card transaction is needed to complete their purchases. Standard Industry Code/Merchant Category Code (SIC/MCC Code): These are four-digit, numeric codes that identify merchant business types. There are thousands of SIC codes and all of them are defined by VISA International in the Visa USA Merchant Data Manual. Statement fee: The statement fee is a monthly fee associated with the monthly statement that is sent to the merchant at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result. Swipe: This is physical act of sliding a card through the credit card processing. The machine then reads the magnetic strip on the back of the credit or debit card. An alternative way to accept the credit card, or debit card would be to manually key in the information. However, swiping a card is far more beneficial because it documents the physical presence of the card at the point of sale. All swiped transactions are face-to-face which lessons the chances of credit card fraud. Terminal Provider: A terminal provider supplies the software on which a terminal operates. Trade Reference: Trade references are the businesses that extend credit or have business relationships with an applicant. These are needed to see if an applicant makes bill payments in a timely manner and also purchases goods and services from outside sources. Ballistic Merchant Services requests Trade References from all of our MOTO merchant accounts. Terminal Identification (TID) Number: The unique number assigned to each point of sale terminal that tells the Host which merchant a transaction came from and where an authorization is to be sent.