Merchant Account Glossary of Terms

 ABA Routing Number

This is a nine digit number that appears on all checks (usually the first nine digits printed on the bottom of the check) along with the account number. The ABA (American Banker’s Association) Routing Number is also sometimes called the Transit Routing Number. This number identifies the associated bank. When you send a bank wire or an ACH transaction from one bank to another, you need both the ABA number and the account number.

 

  ACH/Automated Clearing House/Automatic Check HandlingMoney can be transferred between banks through a WIRE TRANSFER (transaction is completed the same day) or through an ACH (transaction is completed in a couple of days). An ACH can be thought of as an electronic payment between two banks. The transaction is initiated by a business to debit an account by submitting an ACH file. This file contains all the bank numbers and account numbers to debit, along with the amounts. This file is submitted for processing nightly and passes through networks controlled by the Federal Reserve. ACH payments are not guaranteed, that is, they may bounce and they must clear the same way a check must clear. ACH is useful as an alternative or in addition to accepting credit cards.

 

 

Acquiring BankThe acquiring bank has a relationship with both Visa and MasterCard and with the merchant's personal or business bank. Sometimes referred to as the clearing bank where credit card transactions are cleared through. The acquiring bank is responsible for clearing transactions between the time they are charged to a cardholder and then deposited into the merchant's bank account. In other words the acquiring bank is the banking entity that actually makes the deposits into a bank account when credit cards are processed.   

The acquiring bank has a relationship with both Visa and MasterCard and with the merchant's personal or business bank. Sometimes referred to as the clearing bank where credit card transactions are cleared through. The acquiring bank is responsible for clearing transactions between the time they are charged to a cardholder and then deposited into the merchant's bank account. In other words the acquiring bank is the banking entity that actually makes the deposits into a bank account when credit cards are processed.   

 

ATM Debit Card

An ATM (Automated Teller Machine) debit card looks the same as a credit card. When swiped through a POS terminal, the card holder is prompted to enter a PIN (Personal Identification Number) via a PIN pad. This initiates an instant debit transaction from the customer's bank account. Funds are authorized in real time. If there are not sufficient funds in the customer's account to cover the amount, the transaction is declined.

 

 

  Authorization 

This is the process of verifying the amount of available funds on a credit or debit card. This process is initiated at the time the transaction is entered or swiped through a POS terminal. When a merchant processes a credit card transaction the issuing bank sends a response to the acquirer bank and then to the merchant. This process takes only a second or so. A transaction may be either approved or declined by the issuing bank. If the transaction is approved or authorized, the funds are available and will be withdrawn from the customers account and put into the merchant's bank account. If authorization is not given, the transaction is a declined.

 

Authorization Code This is the approval response code from the issuing bank returned to the merchant at the time of authorization. This is usually a six to seven digit number and is stored by the POS terminal or software as well as printed on the receipts or sales drafts. For voice authorization, the merchant should make note of the authorization code since this code serves as proof of approval.  

 

   Authorization Only

Authorization Only (Auth Only or Verify) is a special type of sale transaction. It authorizes a transaction amount on a customer’s credit card but does not settle the transaction until closed/forced. The purpose of an auth only transaction is to reserve an amount against a card holder's available credit limit for a limited period of time. For example, a merchant may request an auth only approval for equipment rental where the final transaction amount is not known. The merchant will request an auth only for the expected final rental amount. When the equipment is returned the merchant will then close/force the transaction for the final amount. One caveat is that if an auth only transaction is not settled within 24 hours, then the transaction may be downgraded to a different rate category and a surcharge fee may be added. However, the benefits of using an auth only transaction by a merchant usually outweigh any additional costs involved.

 

 
Average Ticket Size

This is the average dollar amount for all credit card transactions. This information is requested when setting up a new merchant account.

 

AVS/Address Verification System AVS stands for the Address Verification Service. AVS is cardholder information that is required on all manually entered/card not present credit transactions. When the credit card account number is manually entered instead of swiped, the system prompts for the billing zip code and address. The address and zip code are checked against the billing address and zip code on record with the issuing bank. The result is either a match, a partial match or no match. It is then up to the merchant’s discretion to request additional identity verification, accept the transaction as is or decline to complete the transaction. The merchant should realize that completing the transaction with either a partial match or no match will cause a surcharge fee to be added. This fee will also be added if the AVS information is not entered.   

AVS/Address Verification System AVS stands for the Address Verification Service. AVS is cardholder information that is required on all manually entered/card not present credit transactions. When the credit card account number is manually entered instead of swiped, the system prompts for the billing zip code and address. The address and zip code are checked against the billing address and zip code on record with the issuing bank. The result is either a match, a partial match or no match. It is then up to the merchant’s discretion to request additional identity verification, accept the transaction as is or decline to complete the transaction. The merchant should realize that completing the transaction with either a partial match or no match will cause a surcharge fee to be added. This fee will also be added if the AVS information is not entered.   

 

Batching/SettlingThis is the process of submitting the merchant’s transactions (batch) to the processor for settlement. The batch or settlement process is what enables the merchant to receive payment for the processed transactions. Once the transactions in a batch have been closed/settled the transaction amount can no longer be modified.   

 

 Business TypeThis is another question that is typically asked on a new merchant application. Your business type should be one of the following: Retail, Restaurant, Hotel, Mail Order / Telephone Order, Internet.

·         Retail – A face-to-face scenario where the card is swiped through a POS terminal or other card reader device. (The account number can be manually entered, AVS information will be requested.)

·         Restaurant – A face-to-face scenario where the card is swiped through a POS terminal or other card reader device, food is served and a tip can be added after the transaction is processed. (The account number can be manually entered, AVS information will be requested.)

·         Hotel – A face-to-face environment that sell lodging and hospitality services.

·         Mail Order / Telephone Order (MOTO) – A scenario that is not face-to-face with the consumer. The transactions are manually entered, not swiped.

·         Internet – When the credit card information is obtained from the internet via a web page the business type is considered to be Internet.

 

 

Card HolderAn individual or business representative who has established an account with a credit or debit card issuer. A cardholder is authorized to initiate a transaction. 

 

There are three methods of card verification being used in the industry today; CID (Card Identification number), CVC2 (Card Validation Code) and CVV (Card Verification Value). This information is usually requested when the transaction is an internet order or when the transaction was manually entered.

 

CID is requested when the card type is either an AmericanExpress or Discover. The CID on the AmericanExpress card is a four-digit number on the front of the card near the upper right corner. The CID on the Discover card is a three-digit number on the back of the card near the signature area.CVC2 is requested when the card type is MasterCard. The CVC2 is a three-digit number on the back of the card near the signature area.CVV2 is requested when the card type is VISA. The CVV2 is a three-digit number on the back of the card near the signature area.

The merchant should realize that there is an increased chance of a chargeback when the code is not given or when it does not match the code on record with the issuing bank.

 

 

  Chargeback

A chargeback is initiated by the issuing bank on behalf of the cardholder. A settled credit card transaction is billed back to the merchant due to a cardholder dispute. A typical dispute could involve problems associated with product delivery or product/service dissatisfaction.

 

 

  Contactless Card Reader (Proximity Reader)

A device that transmits data read from a card waived or passed in front of the device.

 

  

Debit Card
When a credit card transaction is processed the cardholder’s account is debited after the transaction is settled. When a debit card transaction is processed the cardholder’s account is debited immediately. Since the debit transaction amount is deducted there is not a balance to be paid off and there are no interest charges. A debit card can be processed as an offline debit or Signature transaction. The cardholder’s PIN does not have to be entered for this type of transaction. The other type is referred to as an online debit or PIN based transaction. An internal or external PIN pad is required for this type of transaction.

   E-CommerceThis is the process of buying and selling merchandise or services over the Internet.  

 

Encryption

This is the translation of data into a secret code. Encryption is the most effective way to achieve data security. To read an encrypted file you must have access to a secret key or password that enables decryption.

 

 

  Factoring

This is an e-commerce term that is applied to companies that offer to process transactions through their credit card processing account instead of having the merchant establish their own account. This is offered in exchange for a percentage of the transaction. This is also known as credit card laundering. This practice is illegal and can result in heavy fines.

 

 

  Issuing Bank

This bank maintains the consumer’s account. The issuer pays out to the merchant’s account when a credit/debit purchase is made. The issuing bank sends the consumer a monthly billing statement.

 

 

  Independent Sales Organization (ISO)

The company that processes the merchants credit card transactions in exchange for either a percentage of the sales or a transaction fee.

 

 

  Merchant Identification Number (MID)

A unique account number assigned to the merchant by the credit card processor.

 

 

  Merchant Bank

The merchant bank places funds equal to the transaction amount into the merchant’s account. In exchange the bank has the right to collect the debt owed by the consumer.

 

 

  Mail Order/Telephone Order (MOTO)

This is the type of business that transacts sales via mail or over the telephone.

 

 

  PIN

This is four to sixteen digit confidential Personal Identification Number used to identify the person authorized to submit a debit card for payment.

 

 

  PIN Pad

This is either an internal device within the terminal or an external device attached to the terminal used to capture and transmit the consumer’s PIN.

 

 

  POS

POS is a Point Of Sales electronic device that can process credit, debit and other types of transactions.

 

 

  Recurring Fee

A recurring fee is one that is billed at the same time each month.

 

 

  Settlement

This is when the acquirer bank credits the merchant’s account with the transaction amount and the bankcard entity (such as Visa or MasterCard) credits the acquirer and debits the issuing bank for the transaction.

 

 

  Setup Fee

This is a fee charged to the merchant for establishing their account.

 

 

  Swipe

This is the action of sliding a bank card through a card reader.

 

 

  Transaction FeeThis is a fee charged to the merchant for each completed transaction.