UNDERSTANDING YOUR MERCHANT TERMINOLOGY

Address Verification Service (AVS):

The process of validating a cardholder's given address against the issuer's records to determine accuracy and deter fraud. This service is provided as part of a credit card authorization for mail order/telephone order transactions. A code is returned with the authorization result that indicates the level of accuracy of the address match and helps secure the most favorable interchange rates.

Adjustment:

An adjustment is initiated by EMG to correct a processing error. The error could be a duplication of a transaction or the result of a cardholder dispute. The acquirer debits or credits the merchant DDA account for the dollar amount of the adjustment.

Audio Response Unit (ARU):

This is an electronic authorization and capture product where the merchant uses a touch-tone telephone to process transactions.

Authorization:

The process of verifying the credit card has sufficient funds (credit) available to cover the amount of the transaction. An authorization is obtained for every sale. An approval response in the form of a code is sent to a merchant's POS equipment (usually a terminal) from a card-issuing financial institution that verifies availability of credit or funds in the cardholder account to make the purchase. Also see Point-of-Sale.

Authorization Response:

An issuing financial institution's electronic message reply to an authorization request, which may include:
Approval -- transaction was approved
Decline -- transaction was not approved
Call Center -- response pending more information; merchant must call the toll-free authorization phone number.

Authorization Code:

A code that a card-issuing bank returns in an electronic message to the merchant's POS equipment that indicates approval of the transaction. The code serves as proof of authorization.

Auto Close:

A terminal feature that allows an end-of-day batch closing to occur automatically at a specified time, without having to be initiated by the merchant.

Automated Clearing House (ACH) File:

A file with instructions for the exchange and settlement of electronic payments passed between financial institutions. It represents debits and credits to be deducted from or added to an account automatically as they occur.

Average Ticket (Average Sale):

The average dollar amount of a merchant's typical sale. The average ticket amount is calculated by dividing the total sales volume by the total number of sales for the specified time period.

Bankcard:

A credit card issued by a Visa- or MasterCard-sponsored financial institution. (American Express, Discover, Diners Club, JCB, etc., are issued directly from their respective operations, rather than through banks.)

Batch:

The accumulation of captured credit card transactions in the merchant's terminal or POS awaiting settlement.

Capture:

The submission of an electronic credit card transaction for financial settlement. Authorized credit card sales must be captured and settled in order for a merchant to receive funds for those sales. Also see Settlement.

Cardholder:

Any person who holds a payment card account (bankcard or otherwise); a person that uses a credit card to purchase goods and services.

Card-Issuing Bank:

An EFT Network Member-Bank that runs a credit card or debit card "purchasing service" for their account holders. An example is Citibank and the Citibank Visa Card that they issue.

Card Not Present:

A transaction where the card is not present at the time of the transaction (such as mail order or telephone order). Credit card data is manually entered into the terminal, as opposed to swiping a card's magnetic stripe through the terminal.

Chargeback:

A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder. Typical cardholder disputes involve product delivery failure or product/service dissatisfaction. Cardholders are urged to try to obtain satisfaction from the merchant before disputing the bill with the credit card issuer.

Close Batch:

The process of sending the batch for settlement.

Code 10 Authorization:

If a merchant suspects a card is fraudulent at the time of the transaction, the merchant can call their voice authorization phone number and ask for a code 10. The voice operator will instruct the merchant how to proceed.

Commercial Cards/Corporate Cards:

Credit or charge cards issued to businesses to cover expenses such as travel and entertainment and procurement. Includes the multiple payment card brands of purchasing cards, business cards, corporate cards, and multi-utility fleet cards. Visa and Master Card now have special procedures for passing billing information back to the card-issuing bank so that it can be displayed on cardholder statements; this is a program for promoting the use of credit cards for business purchases by providing purchase tracking to business users. New regulations require that this billing information be passed back with the transactions; otherwise, a higher pass-through fee will be incurred.

Credit Reversal:

Nullification of an authorized transaction (sale) that has not been settled. If supported by the card issuer, a reversal will immediately "undo" an authorization and return it to the open-to-buy balance on a cardholder's account. Some card issuers do not support reversals.

DDA Account:

This is the merchant's Demand Deposit Account, otherwise known as the merchant's home town bank account.

Debit Card:

Payment card whose funds are withdrawn directly from the cardholder's checking account at the time of sale (online debit on a Debit Network) or after batch settlement (off-line debit on a Credit Card Network).

Discount Rate:

The percentage of sales amounts that the bankcard acquirer card-issuer charges the merchant for the settlement of the transactions.

Edit Rejects:

The rejection of a sales draft by Visa or MasterCard before a transaction processes through interchange, but after it has been paid by the acquirer.

Electronic Date Capture (EDC):

Process of electronically authorizing, capturing, and settling a credit card transaction.

Fleet cards:

Private label credit cards designed mainly for repairs, maintenance, and fueling of business vehicles.

Footer:

Text printed at the bottom of a sales draft. A merchant can customize the footer (i.e., Have a Nice Day, No Refunds, Thank You for Shopping with Us, etc.).

Interchange:

The standardized electronic exchange of financial and non-financial data associated with sale and credit data between merchant acquirers and card issuers on various types of MasterCard and Visa transactions.

Interchange Fee:

A fee paid by an acquirer to an issuer for transactions entered into interchange. The interchange fee is a percentage applied, according to Visa/MasterCard regulations, to the dollar value of each transaction. There are multiple categories of interchange, and Visa and MasterCard each have their own criteria for their own categories. A transaction must meet the specified criteria for a category in order for that category's rate to be applied. Each transaction is evaluated individually, so various interchange rates may apply within one batch of merchant transactions.

Issuing Financial Institution:

The financial institution that extends credit to a cardholder through bankcard accounts. The financial institution issues a credit card and bills the cardholder for purchases against the bankcard account. Also referred to as the cardholder's financial institution.

Manual Close:

A batch close that must be initiated by the merchant on a daily basis, as opposed to an auto close at a pre-set time.

Merchant:

Customer of a processor/acquirer.

Merchant Identification Number (MID):

This number is generated by a processor/acquirer and is specific to each individual merchant location. This number is used to identify the merchant during processing of daily transactions, rejects, adjustments, chargebacks, end-of-month processing fees, etc.

Magnetic Stripe:

A strip of magnetic tape affixed to the back of credit cards containing identifying data, such as account number and cardholder name.

Mail Order/Telephone Order (MOTO):

Credit card transactions initiated via mail, email, or telephone. Also known as card-not-present transactions.

Network:

Company and system used to authorize and capture credit card transactions.

Non-Qualified Transaction Fees (Non-Qual):

Bankcard sales transactions that do not meet set Visa/MasterCard criteria for that particular merchant and are processed at a higher interchange rate. An example of this is a merchant that is retail (card present) that processes a card-not-present transaction (or manually enters card data rather than swiping the magnetic stripe through the terminal). The merchant will pay the difference between what they should have paid on retail and what they actually qualified for (card not present). This difference is called a non-qualified interchange fee.

PC Software:

A software program that is designed to perform a specific function on a computer system. Examples would be accounting systems, manufacturing systems, order entry and fulfillment, ticketing, reservations, etc. The application is either purchased or built by the merchant, and must be interfaced with a credit card authorization system in order to provide on-line transaction processing.

Private Label Cards:

Credit, debit, or stored-value cards that can be used only within a specific merchant's store. Also referred to as proprietary cards.

Point of Sale (POS):

A location where credit card transactions are performed with the cardholder present, such as a retail store. The card is read magnetically, and the cardholder's signature is obtained as insurance against the transaction. This is the most secure form of credit card commerce.

POS Terminal:

Equipment used to capture, transmit, and store credit card transactions at the point of sale. Examples are Verifone terminals.

Procurement/Purchasing Cards:

Charge cards used by businesses to cover purchasing expenses, such as raw materials or office supplies.

Real-Time Processing:

Real-time processing means that when a website's customer conducts an online purchase, the check or credit card information is conveyed to the Processor at that exact time so that an authorization can be requested and received at that moment. Real-time processing always implies that a Secure Payment Gateway is being utilized, whether proprietary or third party.

Reserve Account:

One method that ACH Processors use to mitigate risk is to require that merchants maintain a reserve account at the Processor's Sponsoring Bank. This allows the Processor to issue a hold on funds in this account when fraud has been detected or an excessively large number of returns are received. Merchants with good credit and history can usually meet the expectations of ACH Processors for covering returns and are not always required to keep a reserve account. In cases where a reserve is required, the minimum reserve balance in the account is set at about 20% of the anticipated processing volume. New merchants are usually allowed to build up their reserve by sending in transactions which are not withdrawn until the minimum reserve balance is achieved; after that, the merchant is allowed to withdraw the excess funds for transfer to their hometown bank.

Rewards Cards

Each time a merchant swipes a rewards card, it can process at either a mid-qualified or a non-qualified rate. The mid-qualified rate applies to traditional rewards cards that are swiped at a retail setting. The non-qualified rate applies to all rewards cards that are keyed in by manually entering the data into the Point of Sale (POS) system. A rewards card works the same way as any other credit card. When key-entering a card, always enter the Address Verification System (AVS) information into your POS system. This helps prevent fraudulent activity, and will result in less chargebacks and identity theft issues.

Sales Draft (Ticket):

A form showing an obligation on the cardholder's part to pay money (i.e., the sales amount) to the card issuer. This is the piece of paper that is signed when making the purchase. Sales draft data can be captured electronically and sent to be processed over the phone lines. Also see Electronic Data Capture.

Secure Payment Gateway:

Secure Payment Gateway companies help other Processors conduct secure business on the internet using Secure Socket Layer (SSL) technology.

Settlement:

The process of sending a merchant's batch to the network for processing and payment. For non-bankcards, the issuer pays the merchant directly (less applicable fees) and then bills the cardholder. For bankcards, the acquirer pays the merchant (less applicable fees) with funds from Visa/MasterCard. The bankcard issuer then bills the cardholder for the amount of the sale. Also see Capture.

Shopping Cart Software:

These applications typically provide a means of capturing a client's credit card information, but they rely on the Software Module of the Secure Gateway Provider (in conjunction with the Secure Payment Gateway) in order to conduct secure credit card transactions online. Any given shopping cart can work with any given Secure Gateway Provider, the only requirement being that some computer code be written or provided to communicate with the Secure Gateway of choice, and that this code be integrated into the Shopping Cart Application.

Software:

A POS Terminal Application or PC or Internet Application that runs transactions and associated administration.

Smart Card:

A credit-type card that electronically stores account information in the card itself utilizing chip technology rather than a magnetic stripe.

Terminal:

Equipment used to capture, transmit, and store credit card transactions.

Terminal Software:

Programming that determines the characteristics and features of the terminal.

Terminal Identification Number (TID):

A unique number assigned to each POS terminal.