Merchant Account Glossary

WEB

A debit of a consumer account pursuant to an authorization via the Internet.

Voice Authorization

An authorization code that has been obtained by calling the cardholder’s Issuer or Issuing Bank, rather than processing the credit or debit card transaction via a retail point-of-sale terminal or payment gateway. Also referred to as a Voice Auth.

Visa Electron

A debit and credit card brand owned by Visa and operated primarily outside of North America. Visa Electron requires that all funds be available at the time of a purchase and cannot be overdrawn.

Virtual Terminal

A feature included in many Payment Gateway products that allows a merchant to manually key in Card Not Present credit and debit card transactions. Also referred to as VT. A virtual terminal may be used as a point-of-sale to process credit cards and also as a user interface to allow the merchant to perform tasks such as, batch uploads, manual recurring bills, credits, voids, authorizations, and captures.

Verified by Visa

Visa’s name for the 3-D Secure Protocol. 3–D Secure is an XML-based protocol used to better authenticate online credit card and debit card transactions. The protocol ties the financial authorization of the transaction to an online authentication of the cardholder’s identity. The authentication is based on a three domain model: the Acquirer Domain (the Acquiring bank and the merchant that are charging the card), the Issuer Domain (the Issuing bank of the cardholder), and the Interoperability Domain (the system provided by the Card Association to support the protocol). Hence 3-D. A transaction using 3-D Secure redirects to the website of the cardholder’s Issuing bank to authorize the transaction. The Issuing bank authenticates the cardholder’s identity by requiring the entry of a password tied to the credit card. Visa offers the protocol under the name Verified by Visa, MasterCard as MasterCard SecureCode, and JCB International as J/Secure.

Verification Code

A security measure for credit and debit cards. Also referred to as V-Code or V Code or CSC or Card Code Verification (CCV). Verification Code is meant to better identify the credit card and validate that it is being used by the actual cardholder, thus increasing protection against fraud. The first code is called Card Verification Code 1 (CVC1). It is encoded within the magnetic strip of the card and validated when the card is swiped in Card Present transactions. Also referred to as Card Verification Value 1 (CVV1). The second code is called Card Verification Code 2 (CVC2) and is a 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2).

Verification

Verifies routing and account number and that account is open.

Universal Cardholder Authentication Field

A method used by MasterCard to generate the Accountholder Authentication Value used in 3-D Secure. Also referred to as UCAF.

Unique Descriptor

A descriptor is the information that appears in a cardholder’s billing statement to clearly identify the source of a credit or debit card transaction. A Unique Descriptor is a descriptor that is unique to the individual merchant, as opposed to a Generic Descriptor that is operated by a Payment Services Provider and is used by many different merchants. A Unique Descriptor is one of the benefits of a direct merchant account, and allows a cardholder to more easily identify the source of the transaction and contact the merchant with any questions.

UA

Unavailable Funds – funds are in the bank but not credited to the account.

Truncation

In ACH it normally refers to stopping or truncating a paper check as in POS or lockbox check truncation and turning that paper check into an electronic item.

Transaction Fee

An amount that is charged to a merchant by a merchant service provider as a fee for processing a credit or debit card transaction. The transaction fee is a mark up of the interchange fee that an acquirer or acquiring bank pays to an issuing bank or credit card issuer as a fee for processing a credit or debit card transaction. The issuing bank deducts the interchange fee from the settlement amount sent to the acquiring bank. The acquirer then passes this fee plus a mark up onto the merchant and deducts it from the settlement of the credit or debit card transaction. Also referred to as a Trans Fee. In some cases, Transaction Fees may be applied to actions performed by the merchant other than sales, such as refunds, credits, voids, or authorizations.

Transaction Code

A number assigned to a credit or debit card transaction in order to track it through a merchant or merchant service provider’s point-of-sale system or payment gateway. Also referred to as a Transaction Number or Transaction ID. Transaction Codes are useful because it allows a quick and easy way to identify individual transactions and link them to the key information involved in the sale, such as cardholder name and address, authorization code, AVS and CVV2 results, sale amount and date, and card number.

Third Party Processor

Any processor that participates in a relationship within the ACH processing flow – usually as an Originator of transactions for clients.

Telephone-Initiated Entry

(TEL) is an entry initiated through a telephone authorization for a one time debit for collection of funds for payment of goods and services. A TEL is valid only when there is an existing relationship between the parties or if no existing relationship, the consumer initiates the telephone call.

Tel

A debit of a consumer account pursuant to an oral authorization via telephone.

BTerminal

A point-of-sale system used in Retail and Card Present credit and debit card transactions. Most terminals are equipped with a card reader to swipe the magnetic strip on a credit or debit card. Most terminals are also equipped with a keypad allowing card numbers and additional information such as Address Verification and CVV2 to be entered and authenticated in Card Not Present transactions and transactions where the magnetic strip on the card is worn or unreadable.

Switch

A debit card brand in the United Kingdom. Switch is owned by Maestro, a debit card brand owned by MasterCard.

Solo

A debit card brand in the United Kingdom. Solo cards require that all funds be available in the cardholders account in order for an authorization to be approved, thus there is no line of credit function.

Soft Descriptor

A descriptor is the information that appears in a cardholder’s billing statement to clearly identify the source of a credit or debit card transaction. A Soft Descriptor is a descriptor that can be modified on a per transaction basis. Also referred to as a Dynamic Billing Descriptor or a Dynamic Descriptor or a Soft Billing Descriptor. Soft descriptors can be used to better identify purchases from different brands, store locations, or sales URLs that our operated by a single merchant. Soft descriptors can also be used to better identify purchases in a recurring billing or installment billing by specifically identifying the time period being paid for or product being purchased. Soft descriptors can also be used to better authenticate cardholder identification by providing a specific descriptor tied to a transaction that can then only be identified by having access to the cardholder’s billing statement.

RTN

Routing Number – the 9 digit number assigned to a bank.

Return Reason Codes

Or R Codes are rejections of original ACH entries by the RDFI.

Return Entry

The return of an original entry that either could not be posted or was not able to be identified by the RDFI – closed account, NSF, wrong account number, etc.

Return

The return of a debit item by an RDFI when there is NSF or UA (bounced check).

Retrieval Request

A request from a cardholder’s Issuer or Issuing Bank to a merchant’s Acquirer or Acquiring Bank for specific details of a credit card transaction between the two parties. Retrieval Requests can occur for many different reasons, such as a cardholder dispute, a processing error at the point-of-sale, or an inquiry into suspected fraud. The Acquirer is usually asked to provide information such as cardholder name, card number, date of the transaction, transaction amount, authorization number, merchant name, merchant location, and cardholder signature (if available).

Recurring Payment Authorization

An individual or company authorizes the periodic debit of their account for the same period and amount.

Recurring Billing

The practice of charging a cardholder each month for a membership, subscription, or service. Also referred to as Rebilling or Rebills. Many payment gateways and merchant service providers offer automated recurring billing features and services that allow merchants to process recurring credit card transactions for membership and subscription sales without having to retain sensitive cardholder data.

Receiver

The individual or company that holds an account to which an ACH entry is sent.

Rebill Email

An email sent by a merchant to a cardholder prior to a card not present recurring or subscription credit card transaction. Also referred to as a Rebilling Confirmation Email. Most often used in ecommerce or internet credit card processing of recurring, subscription or installment billing. A rebill email is a useful tool to the merchant, allowing the merchant to better confirm a cardholder’s email address, to provide the cardholder with the merchant’s contact information, refund policy, and terms and conditions, and to allow the cardholder a quick and easy way to contact the merchant with questions or cancel the sale, subscription, or membership.

RDFI

Receiving Depository FI – the FI (bank) receiving debits or credits for its Receivers.

RCK

Refers to returned check. Represents the electronic check process for electronic representment of NSF checks. Electronic check representment.

Qualified Security Assessor

A designation conferred by the Payment Card Industry Security Standards Council on individuals or organizations validating that they are qualified to conduct PCI Compliance audits. Also referred to as QSA or PCI QSA or Payment Card Industry Qualified Security Assessor.

Pre-Notification

or Prenote is an ACH entry with no value that is sent to an RDFI to verify account information prior to sending a live entry.

PPD

A debit or credit of a consumer’s account entry pursuant to an authorization.

Positive Pay

Verifies consumer name, routing and account number and that account is open.

Point-Of-Sale

A credit card terminal or other system, like a cash register or software or a Payment Gateway, that is used by merchants to authorize and accept credit card transactions as payment.

PIN Secured

A debit card transaction that has been authenticated by the provision of the cardholder’s Personal Identification Number at the time of sale by being keyed into the point-of-sale system or credit card terminal, often via a PIN Pad. Also referred to as PIN Secured Debit. Debit card transactions that have been PIN Secured often cost the merchant less in processing fees because there is typically no discount rate applied, only a transaction fee charged by the debit card’s network. Debit card transactions that have not been PIN Secured are treated as credit card transactions and thus are typically charged a discount rate in addition to the transaction fee.

Personal Identification Number

A number, usually 4 digits, used as a code to identify a cardholder and authenticate a transaction. Also referred to as PIN. Personal Identification Numbers are most often used in ATM transactions and in retail or card present debit card transactions.

Payment Gateway

A point-of-sale system used to accept electronic payments on a website. Also referred to as a Gateway. Payment Gateways securely transfer credit card data from the merchant or the merchant’s shopping cart to the acquirer or acquiring bank or Front End Processor. Many Payment Gateways also have a feature called a Virtual Terminal that allows the merchant to key in credit card data from phone or mail order credit card transactions.

Payment Card Industry Security Standards Council

An independent body originally formed by Visa, MasterCard, American Express, Discover, and JCB to formulate and manage the continuing development of the Payment Card Industry Data Security Standard. Also referred to as PCI Security Standards Council or PCI SSC.

Payment Card Industry Data Security Standard

A security standard for technical and operational requirements for processing credit card payments. Also referred to as PCI Data Security Standard or PCI DSS.

Payment Card Industry Compliance

A certification process that validates that a merchant or merchant service provider is operating under and adhering to the standards of the PCI DSS. Also referred to as PCI Compliance. Compliance is certified by Qualified Security Assessors who have been themselves certified by the PCI SSC.

Original Entry

A debit or credit ACH transaction directed to an account at an RDFI.

Originator

An individual or a company that initiates an ACH transaction.

Order Verification Email

An email sent by a merchant to a cardholder following a card not present credit card transaction. Also referred to as a Order Confirmation Email. Most often used in ecommerce or internet credit card processing. An order verification email is a useful tool to the merchant, allowing the merchant to better confirm a cardholder’s email address, get an entry into the cardholder’s email inbox as opposed to being tagged as spam or junk mail (this is helpful for future email communications), and to provide the cardholder with the merchant’s contact information, refund policy, and terms and conditions.

One Time Payment Authorization

An individual or company authorizes a one-time debit of their account. The authorization is usually a written authorization but in some instances a recorded telephonic authorization may be used.

ODFI

The Originating Depository Financial Institution, the bank that initiates an Electronic funds transfer through the ACH Network on behalf of the Originator.

NTR

Negotiated Transaction Rate – the fee for a transaction.

NSF Check

A paper check that has been returned by the banking system due to non-sufficient Funds. These can be electronically represented through the ACH Network using Electronic Check Representment.

Non-Recurring Payment Authorization

An individual or company authorizes the debit of their account for a varying period and/or amount. Notification must be sent 10 days before the effective date with the amount to be debited.

Non-Qualified

The discount rate a merchant pays on any transaction that fails to qualify for either a Qualified Discount Rate or a Mid Qualified Discount Rate. Also referred to as Non Qual or the Nons. In the Card Present environment, card that is keyed into a point-of-sale system rather than having its magnetic strip wiped through a card reader can be Non-Qualified. Certain rewards and business cards have additional required fields, like a purchase order number, that must be filled to get a Qualified Discount Rate. If batch settlement is delayed, it can cause transactions in the batch to be charged at the Non-Qualified rate.

NOC

Notification of Change is an advice from an RDFI to an ODFI that entry information requires corrections and includes the correction details.

NACHA

The National Automated Clearing House Association is the chief rules making and interpretation body of the ACH. NACHA is the cooperative governing body for 36 regional ACH associations.

Mid-Qualified

The discount rate a merchant pays on any transaction that fails to qualify for a Qualified Discount Rate. Also referred to as Partially Qualified or Mid Qual or Mids or the Mids. In the Card Present environment, a card that is keyed into a point-of-sale system rather than having its magnetic strip swiped through a card reader is considered Mid Qualified. In the Card Not Present environment, a Mid Qualified can be caused by the use of a business or rewards card. The Acquirer or Acquiring Bank is charged a higher Interchange Fee for these types of cards, and passes the cost onto the merchant.

MICR

Magnetic Ink Character Recognition

Merchant Plug In

A software module used to ask for 3D-Secure verification from an issuing bank. Also referred to as MPI. The Merchant Plug In reads the account number of the credit card and sends a query to the cards issuer or issuing bank to determine if the card is participating in 3D-Secure. If the card is participating, the issuer will respond by returning a web address for the Issuer’s Access Control Server or ACS.

Merchant Category Code

A four digit number assigned to a merchant by Visa and MasterCard to identify the merchant’s transactions by business type. Also referred to as MCC. In some cases, Issuers or Issuing Banks may decline a credit card transaction based on the Merchant Category Code.

Merchant Account

An agreement by an Acquiring Bank or Acquirer to provide a line of credit for the purpose of accepting payment via credit card. Often governed by a Merchant Processing Agreement providing the terms under which the merchant accepts sales and receives settlement in exchange for fees paid to the Acquirer and / or the Merchant Service Provider.

Merchant

A dealer in commodities or goods and services they do not produce themselves. In credit card processing, the merchant is the party accepting payment from the cardholder in exchange for goods and services. In order to accept credit cards as payment, a merchant must have a Merchant Processing Agreement with a Merchant Service Provider to authorize, capture, and settle transactions via an Acquirer or Acquiring Bank that has extended the merchant a line of credit called a Merchant Account. Merchant is a widely used term in the credit card processing industry, which in fact is also referred to as Merchant Services.

Member Support URL

A website operated by a merchant that is devoted to customer service and support. Also referred to as a Member Help Site. The use of the term Member derives from the common use of these sites by merchants who provide membership or subscription services. A Member Support URL is often used in a merchant’s descriptor as a way to identify the charge and to provide a fast and easy way for the cardholder to contact the merchant. A Member Support URL can also be used in a merchant descriptor provide a more discreet identifier for the credit card transaction.

Member Help Site

A website operated by a merchant that is devoted to customer service and support. Also referred to as a Member Support URL. A Member Help Site is often used in a merchant’s descriptor as a way to identify the charge and to provide a fast and easy way for the cardholder to contact the merchant. A Member Help Site can also be used in a merchant descriptor provide a more discreet identifier for the credit card transaction.

MasterCard SecureCode

MasterCard’s name for the 3-D Secure Protocol. 3–D Secure is an XML-based protocol used to better authenticate online credit card and debit card transactions. The protocol ties the financial authorization of the transaction to an online authentication of the cardholder’s identity. The authentication is based on a three domain model: the Acquirer Domain (the Acquiring bank and the merchant that are charging the card), the Issuer Domain (the Issuing bank of the cardholder), and the Interoperability Domain (the system provided by the Card Association to support the protocol). Hence 3-D. A transaction using 3-D Secure redirects to the website of the cardholder’s Issuing bank to authorize the transaction. The Issuing bank authenticates the cardholder’s identity by requiring the entry of a password tied to the credit card. Visa offers the protocol under the name Verified by Visa, MasterCard as MasterCard SecureCode, and JCB International as J/Secure.

Mail Order Telephone Order

A credit card transaction when the card is not swiped through a point-of-sale terminal and the merchant does not obtain a sales draft signed by the cardholder. Also referred to as Card Not Present or CNP, keyed, or MoTo, for Mail Order / Telephone Order. Merchant service providers charge higher rates and fees for Mail Order Telephone Order credit card processing because the transactions are assumed to carry a higher risk of chargeback for fraud or cardholder dissatisfaction. There is higher risk of fraud because in the Mail Order Telephone Order environment it is more difficult to connect the cardholder to the sale. When the card is swiped and a sales draft is signed, it is easier for the merchant to validate that the card and the cardholder were present at the time of the sale and that the cardholder did in fact authorize the purchase. There is a higher risk of cardholder disputes for dissatisfaction with the merchant’s product or service because when the cardholder is signing a sales draft and leaving with the product in hand, they are less able to hold the merchant liable for deceptive practices or failure to make delivery. The Acquirer or Acquiring Bank is charged a higher Interchange Fee for these types of cards and transactions, and passes the cost onto the merchant.

Maestro

A debit card brand owned by MasterCard. Used primarily in the European Union, Latin America, and India.

Luhn Algorithm

A formula used to validate credit card numbers. Also referred to as Luhn formula or modulus 10 or mod 10 algorithm.

Lockbox Check Truncation

Also called Accounts Receivable Truncation System (ARTS) is the process of turning checks received in the mail by a biller into electronic items.

Laser

An Irish debit card brand. Several different financial institutions issue and acquire Laser cards in the Republic of Ireland.

Japan Credit Bureau

A Japanese credit card brand. Also referred to as JCB or JCB International.

J/Secure

JCB International’s name for the 3-D Secure Protocol. 3–D Secure is an XML-based protocol used to better authenticate online credit card and debit card transactions. The protocol ties the financial authorization of the transaction to an online authentication of the cardholder’s identity. The authentication is based on a three domain model: the Acquirer Domain (the Acquiring bank and the merchant that are charging the card), the Issuer Domain (the Issuing bank of the cardholder), and the Interoperability Domain (the system provided by the Card Association to support the protocol). Hence 3-D. A transaction using 3-D Secure redirects to the website of the cardholder’s Issuing bank to authorize the transaction. The Issuing bank authenticates the cardholder’s identity by requiring the entry of a password tied to the credit card. Visa offers the protocol under the name Verified by Visa, MasterCard as MasterCard SecureCode, and JCB International as J/Secure.

Issuing Bank

A card association member bank or financial institution that issues credit or debit cards to cardholders. Also referred to as an Issuer because the member bank issues or sends payments from credit cards that are acquired by other member banks (Acquiring banks or Acquirers).

Issuer Decline

A decline is response from a cardholder’s issuing bank that payment information is either incorrect and or that funds are not available. When a transaction is declined, authorization and capture do not occur and there is no settlement of funds from the cardholder to the merchant. An Issuer Decline is a decline where the issuing bank or issuer of the cardholder’s credit card or debit card is declining the transactions for a reason other than invalid payment information or unavailable funds. Some examples of issuer declines are declines due to the Merchant Category Code, or declines due to the location of the acquiring bank.

Issuer Access Control Server

In a transaction in which the cardholder is participating in Verified by Visa the Web address of the Issuer ACS is returned to the merchant server. If the cardholder is not participating, the ACS returns an attempted authentication message and returns the transaction to the merchant server. The merchant can then either decline or proceed with a standard authorization. Most banks outsource ACS to third parties. For example, Arcot, Cardinal Commerce, Cyota, One Bridge, Total Systems.

ISO 8583

An international standard for systems that exchange electronic transactions made by cardholders of credit cards, debit cards, ATM cards, and charge cards. ISO 8583 is the standard used by the Visa and MasterCard card associations to conduct authorizations or credit card transactions on their respective networks.

ISO 7812

An international standard governing magnetic stripe identification cards such as credit cards, debit cards, ATM cards, and charge cards.

ISO 7810

An international standard defining the size, shape, and physical characteristics of identity cards. There are four card sizes: ID-1, ID-2, ID-3, ID-000. ID-1 is commonly used for credit cards, debit cards, ATM cards, and charge cards.

Internet Initiated Entries

(WEB) a consumer authorizes a Receiver or Merchant to debit their account via the internet.

Interchange

A fee that an acquirer or acquiring bank pays to an issuing bank or credit card issuer as a fee for processing a credit or debit card transaction. The issuing bank deducts the interchange fee from the settlement amount sent to the acquiring bank. The amount of the interchange fee is set collectively by the members of the card associations, both issuing and acquiring banks. Interchange is the largest component of the fee charged to a merchant for processing a credit or debit card sale.

Geo-IP Address Match

Comparing the IP address of the customer or cardholder in an online transaction to the billing address listed for the credit card or bank account. If the IP address does not match the billing address for the credit card, it is an indication of fraud. For example, if a transaction from a credit card with a billing address in New York state originates from an IP address in Vietnam, then it is likely that the sale is unauthorized or that the credit card number has been stolen.

Funding

Payment by a merchant service provider to a merchant for credit card transactions processed by the merchant processor’s point-of-sale system or payment gateway. Also referred to as Settlement. Funding can be for the full amount of the sale with discount rates, transaction fees, and reserves taken at the end of each billing period, or funding may be less discount rates, transaction fees, and reserves. Funding can occur daily, within two business days, or weekly or twice a week.

Front End Network

A platform that authorizes and captures credit card transactions. Captured transactions are sent to the Back End Network for settlement. Also referred to as the Front End Processor or Front End. Some examples of Front End credit card processing networks are Vital, Global Payments, Chase Paymentech, FDMS Omaha, FDMS Nashville, Elavon.

FRB

Federal Reserve Bank

Foreign Transactions

A debit or credit card transaction where the acquirer or acquiring bank is located in a different country, jurisdiction, or card association region than the cardholder’s issuer or issuing bank. Some issuing banks charge their cardholders an additional fee for foreign transactions called a Foreign Transaction Fee. Some issuing banks do not charge a foreign transaction fee

Forced Authorization

A transaction that has been captured without an authorization. Also referred to as a Forced Capture. A forced authorization can occur when a sale is authorized on one network and captured on another or when an authorization has fallen off due to delay in capturing.

FMS

Financial Management Service

FI

A financial institution.

Electronic Check Representment

An ACH Network service that allows for the electronic representment of a returned paper check marked non-sufficient funds (NSF). Provided that certain guideline are fulfilled the check can be collected electronically.

EFT

Electronic Funds Transfer is the transfer of funds from one bank account to another bank account utilizing the ACH Network.

Effective Date

The date an exchange of funds takes place.

ECP

Electronic Check Presentment

Dynamic Descriptor

A descriptor is the information that appears in a cardholder’s billing statement to clearly identify the source of a credit or debit card transaction. A Dynamic Descriptor is a descriptor that can be modified on a per transaction basis. Also referred to as a Dynamic Billing Descriptor or a Soft Descriptor or a Soft Billing Descriptor. Dynamic descriptors can be used to better identify purchases from different brands, store locations, or sales URLs that our operated by a single merchant. Dynamic descriptors can also be used to better identify purchases in a recurring billing or installment billing by specifically identifying the time period being paid for or product being purchased. Dynamic descriptors can also be used to better authenticate cardholder identification by providing a specific descriptor tied to a transaction that can then only be identified by having access to the cardholder’s billing statement.

Dynamic Currency Conversion

A financial service that converts a credit or debit card purchase from an outside currency to the currency in which the card has been issued. A cardholder can purchase a good or service priced in an outside currency and have the conversion to the currency their card is issued in at the time of the sale rather than seeing the conversion from one currency to another later on in their billing statement. Also referred to as DCC or Cardholder Preferred Currency (CPC). Dynamic Currency Conversion is controversial because the service provider can provide a currency conversion at the point of sale that has a profit margin built into it, resulting in a higher conversion fee than what might be charged by the issuing bank. Also, some issuing banks will charge their cardholders foreign transaction fees on these sales. Taken together, these fees can substantially raise the purchase price and the cardholder may not be aware of the increased cost until well after the purchase.

Dues and Assessments

A fee charged by the card associations for processing a credit or debit card transaction. If the card used in the purchase is a Visa card, the dues and assessments are charged by Visa, if a MasterCard is used, then MasterCard charges the fee. Dues and Assessments are the second largest component of the fee charged a merchant for processing a credit or debit card sale.

Discover Card

A credit card issued by Discover Bank. Discover debit cards are also issued by other issuing banks. Although they can sign merchants up to accept Discover Cards (for which they are paid a fee by Discover), when processing Discover Card sales merchant service providers are in effect only passing the transactions onto the Discover Network for clearing. Discover settles the sales, adjudicates all chargeback disputes and sends funding and a separate merchant processing statement directly to the merchant.

Discount Rate

A percentage of each sale that is charged to a merchant by a merchant service provider as a fee for processing a credit or debit card transaction. The discount rate is a mark up of the interchange fee that an acquirer or acquiring bank pays to an issuing bank or credit card issuer as a fee for processing a credit or debit card transaction. The issuing bank deducts the interchange fee from the settlement amount sent to the acquiring bank. The acquirer then passes this fee plus a mark up (discount rate) onto the merchant and deducts it from the settlement of the credit or debit card transaction.

Direct Payment

The collection of funds from consumer or business accounts. This normally would be used to collect payments for monthly dues as in: health club membership, rent, phone, utility bills, newspaper bills, trash collection, mortgage payments, lease payments, etc.

Direct Deposit

The disbursement of funds to consumer accounts. Includes payroll, interest, trust disbursements, expense payments, dividends, pension payments, etc. This is the most widely used ACH service.

Diners Club International

A charge card company. Also referred to as Diners Club. The first charge card company, cardholders could purchase, primarily meals at participating restaurants, and were required to pay the balance in full at the end of each month. Early competitors were American Express and Carte Blanche. Eventually purchased by Citibank and formed an agreement with MasterCard so that Diners Club cards now have a MasterCard logo and acceptance rights. Diner’s Club International also owns enRoute, a Canadian credit card.

DFI

A depository financial institution (a bank).

Descriptor

The information that appears in a cardholder’s billing statement to clearly identify the source of a credit or debit card transaction. The acquiring bank provides merchants with data fields with character limits that allow the merchant to provide identifiers and contact information. Operating with a descriptor that is both clear and easy to identify and that allows the cardholder to quickly get into contact with the merchant is a key component of successful merchant credit card processing. Some examples of descriptors are: Unique, Soft, and Member Help Site or Member Support URL.

Decline Code

A number used by acquiring banks to identify the reason for a decline. Acquirers use many different systems of decline codes. The information provided by a decline code can help a merchant to decide if and how to attempt to re-authorize the transaction and capture the sale.

Decline

A response from a cardholder’s issuing bank rejecting an acquirer request for authorization of a credit card transaction. When a transaction is declined, authorization and capture do not occur and there is no settlement of funds from the cardholder to the merchant. Declines can be caused by insufficient funds or balance unavailable or invalid card information and many other reasons.

Debit Card

A small plastic card issued to a cardholder that allows the use of a bank account held by the cardholder with the issuer or issuing bank of the card. The card can be used to make purchases from and payments directly to merchants or to withdrawn funds from the bank account via ATM or cash advance or cash back transactions. Debit cards often carry card association marks and can be used in a similar manner to credit cards, but are subject to different rules, rates and fees, and security measures. Merchant processing authorizations, captures, and settlements of debit cards can have different effects on available balances than merchant processing of credit cards.

Credit Card ID

A security measure for credit and debit cards. A 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as CCID or Card Verification Value 2 (CVV2) or Card Verification Code 2.

Credit Card Association

An organization or entity owned by a collection of banks that licenses, sets terms and rules, and oversees the operations of credit card programs. Also referred to as Card Associations, or the Card Associations when referring to Visa and MasterCard. Banks that are members of the association are often referred to as Member Banks. Member banks can issue credit cards and acquire credit card transactions from fellow member banks and other card associations. Visa and MasterCard are both credit card associations.

Credit Card

A small plastic card issued to a cardholder that allows the use of a credit line granted to the cardholder by the issuer or issuing bank of the card. The line of credit can be used to make payments to merchants or get cash advances on the credit line. Credit cards typically provide access to a revolving line of credit which allows the cardholder to make a minimum payment on the balance each month for which the issuer charges an interest payment, rather than being required to pay the balance in full.

Credit

An exchange of goods or services between one party and another when the parties have agreed to defer payment for or the return of the goods or services to a later date. Merchant services is a way for merchants to outsource the provisioning of credit and lines of credit to their customers to credit card associations and issuers. In exchange for charging a transaction fee and discount rate on the amount of the sale, the card association makes immediate, or near immediate payment, on behalf of the customer to the merchant. The card association

Corporate Payments

Business to business ACH Network collection and disbursement of funds. The Federal government is mandating this form of payment for corporate taxes and payments to government vendors.

Consumer Credit

An exchange of goods or services between one party and another when the parties have agreed to defer payment for or the return of the goods or services to a later date when the party receiving the goods or services is an individual (consumer). A credit card is a form of consumer credit.

Consumer Account

A bank account of a natural person for personal not commercial purposes

China UnionPay

A domestic credit card association in the People’s Republic of China. Also referred to as CUP. UnionPay credit cards are usually affiliated with either Visa or MasterCard. UnionPay debit cards are not affiliated with Visa or MasterCard.

Check Truncation

Stopping or truncating a paper check by turning it into an electronic item at the Point of Sale (POS) or in lockbox check truncation.

Check Guarantee

Protects merchants against various contingent liabilities for immediate orders

Check 21

Federal legislation enacted to permit electronic image transfer of all types of paper checks, including business, third-party, government, cashiers, and personal.

Chargeback Reason Code

A number used by issuing banks to identify the reason for a chargeback. Each card brand uses a different system of reason codes. Reason codes provide the rational behind the chargeback (technical, clerical, cardholder dissatisfaction, fraud, etc.) and the required media that the merchant and acquiring bank must provide in order to dispute the chargeback.

Chargeback

A return of funds by the cardholder’s issuing bank. It reverses a previous authorization and settlement of funds from a cardholder’s line of credit or bank account balance. US Federal Reserve Regulations afford this right of reversal to US credit card and debit cardholders. Card Association and bank network rules also provide this right to cardholders in the United States and internationally. Cardholders can initiate chargebacks for a variety of reasons: fraudulent use of the card, unauthorized use, unauthorized or unrecognized charges, failure to deliver, dissatisfaction with products or services, and for an extended period of time after the sale, from 3 months to 2 years.

Charge Card

A card that allows short term loans to the cardholder, primarily in order to make payment on purchases. Most charge card issuers require payment of the loan in full at the end of each month. Unlike a credit card, there is no line of credit. American Express is an example of a charge card. Credit cards are often referred to as charge cards and vice versa, as the difference between the two is not often recognized by the general public. If issued to a large business or organization, charge cards are sometimes referred to as purchasing cards.

CCD

A debit or credit by an organization of it’s own or another organization’s bank account

Cash Concentration

Companies that have decentralized units use the ACH to concentrate cash into a centralized bank account – replaces wire transfer.

Cardholder

One who possesses a card and especially a credit card. The cardholder is the individual or organization to whom a credit line or bank account has been issued by the Issuing bank. The cardholder uses a credit or debit card to access the available balance of the credit line or the cash balance of the bank account in order to make payments to merchants or to get cash advances.

Card Verification Value 2

A credit card security measure consisting of 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2) or Card Verification Code 2 (CVC2).

Card Verification Value 1

A security code encoded within the magnetic of a credit card and validated when the card is swiped in Card Present transactions. Also referred to as CVV1 or Card Verification Code 1 (CVC1).

Card Verification Value

A security measure for credit and debit cards. Also referred to as Card Security Code (CSC) and Card Code Verification (CCV) and Card Verification Value (CVV or CV2). Card Verification Value is meant to better identify the credit card and validate that it is being used by the actual cardholder, thus increasing protection against fraud. The first code is called Card Verification Code 1 (CVC1). It is encoded within the magnetic strip of the card and validated when the card is swiped in Card Present transactions. Also referred to as Card Verification Value 1 (CVV1). The second code is called Card Verification Code 2 (CVC2) and is a 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2).

Card Verification Code 2

A credit card security measure consisting of 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2) or Card Verification Code 2 (CVC2).

Card Verification Code 1

A security code encoded within the magnetic of a credit card and validated when the card is swiped in Card Present transactions. Also referred to as CVC1 or Card Verification Value 1 (CVV1).

Card Verification Code

A security measure for credit and debit cards. Also referred to as CVC and Card Security Code (CSC) and Card Code Verification (CCV) and Card Verification Value (CVV or CV2). Card Verification Code is meant to better identify the credit card and validate that it is being used by the actual cardholder, thus increasing protection against fraud. The first code is called Card Verification Code 1 (CVC1). It is encoded within the magnetic strip of the card and validated when the card is swiped in Card Present transactions. Also referred to as Card Verification Value 1 (CVV1). The second code is called Card Verification Code 2 (CVC2) and is a 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2).

Card Security Code

A security measure for credit and debit cards. Also referred to as CSC or Card Code Verification (CCV). Card Security Code is meant to better identify the credit card and validate that it is being used by the actual cardholder, thus increasing protection against fraud. The first code is called Card Verification Code 1 (CVC1). It is encoded within the magnetic strip of the card and validated when the card is swiped in Card Present transactions. Also referred to as Card Verification Value 1 (CVV1). The second code is called Card Verification Code 2 (CVC2) and is a 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2).

Card Present

A credit card transaction when the card is swiped through a point-of-sale terminal and the merchant obtains a sales draft signed by the cardholder. Also referred to as CP, retail, or swiped. Merchant service providers charge a lower discount rate and transaction fee for Card Present credit card processing because the transactions are assumed to carry a lower risk of chargeback for fraud or cardholder dissatisfaction. When the card is swiped and the cardholder signs a sales draft it better validates that both the card and the cardholder were present at the time of the sale and that the cardholder did in fact authorize the purchase. This lowers the risk of fraud. There is a lower risk of cardholder disputes for dissatisfaction with the merchant’s product or service because when the cardholder is signing a sales draft and leaving with the product in hand, they are less able to hold the merchant liable for deceptive practices or failure to make delivery. In order for a transaction to be considered Card Present, the card must be swiped through the point-of-sale terminal’s magnetic strip reader. If the card’s magnetic strip is worn and unreadable or the merchant keys in the credit card number for some other reason, even if the merchant obtains a signed sales draft, the transaction will be considered Card Not Present and higher discount rates and transaction fees may apply, as well as a higher risk of chargeback.

Card Not Present

A credit card transaction when the card is not swiped through a point-of-sale terminal and the merchant does not obtain a sales draft signed by the cardholder. Also referred to as CNP, keyed, or MoTo, for Mail Order / Telephone Order. Transactions through an internet or ecommerce merchant account are considered to be Card Not Present. Merchant service providers charge higher rates and fees for Card Not Present credit card processing because the transactions are assumed to carry a higher risk of chargeback for fraud or cardholder dissatisfaction. There is higher risk of fraud because in the Card Not Present environment it is more difficult to connect the cardholder to the sale. When the card is swiped and a sales draft is signed, it is easier for the merchant to validate that the card and the cardholder were present at the time of the sale and that the cardholder did in fact authorize the purchase. There is a higher risk of cardholder disputes for dissatisfaction with the merchant’s product or service because when the cardholder is signing a sales draft and leaving with the product in hand, they are less able to hold the merchant liable for deceptive practices or failure to make delivery.

Card Code Verification

A security measure for credit and debit cards. Also referred to as CCV or Card Security Code (CSC). Card Code Verification is meant to better identify the credit card and validate that it is being used by the actual cardholder, thus increasing protection against fraud. The first code is called Card Verification Code 1 (CVC1). It is encoded within the magnetic strip of the card and validated when the card is swiped in Card Present transactions. Also referred to as Card Verification Value 1 (CVV1). The second code is called Card Verification Code 2 (CVC2) and is a 3 or 4 digit number appearing on the back of the card or on the front of the card after the card number. It is used in Card Not Present transactions to validate that the actual credit card is present and not just the credit card number. Also referred to as Card Verification Value 2 (CVV2).

Capture

When a merchant processor submits a transaction with authorization to the acquiring bank for settlement. The acquiring bank then sends the transaction and authorization to the cardholder’s issuing bank for settlement. Capture is the second part of a credit card transaction. The first part is authorization, getting the issuing bank to tell the acquirer that the card details are valid and that the sale amount is available for payment. Capture is taking the previously authorized sale amount to the issuing bank and requesting that the issuing bank make payment on it. Settlement is the act of the issuing bank making payment on a credit card transaction that has been both authorized and captured.

BOC

Back office conversion of a check previously received by a merchant at the business.

Blended Rate

A type of credit card transaction pricing in which a collection of fees are combined into one fee (usually a discount rate, hence blended rate). Most often it refers to the practice of combining the discount rate and the transaction fee into a single, blended, discount rate. The merchant is not charged a per transaction or per item fee because those costs are covered by the discount rate. This is sometimes referred to as trading pennies for points because the blended discount rate is usually higher than the discount rate plus transaction fee. This type of blended rate tends to favor merchants with a lower average ticket. A blended rate can also mean the credit card pricing practice of combining qualified, mid-qualified, and non-qualified discount rates into a single, blended, rate. In this scenario, even though the discount rate may be referred to as blended, the merchant is usually still charged a per transaction or per item fee. This type of blended rate is more common in an international merchant account.

Batch

A collection of captured credit card transactions, typically from a day’s worth of a merchant’s business, awaiting settlement. Until settlement, the batch is stored in the merchant’s point-of-sale system (terminal or gateway). At the end of the day, the batch is sent to the Back End Network, where the captured transactions are settled through the Interchange system. This method of credit card processing is sometimes referred to as batching or batch processing.

Bank Card

A small plastic card issued to a cardholder that allows the use of a credit line granted to the cardholder by the issuer or issuing bank of the card. The line of credit can be used to make payments to merchant or get cash advances on the credit line. Most bank cards conform to the ISO 7810 standard. Some examples of bank cards are credit cards, charge cards, debit cards. Bank Card is also the name of a Japanese credit card.

Bank

A financial institution devoted to borrowing and lending out money, acting as a payment agent and depositor for customers. The role as a payment agent is what comes into play in credit card processing. Just as banks make and receive payments for their customers in the form of written checks or electronic fund transfers, they also make and receive credit card payments for their customers. The banks making the payments are called Issuing banks or Issuers. The banks accepting credit card payments are called Acquirers or acquiring banks.

Back End Network

A platform that settles captured credit card transactions. The captured transactions are received from the Front End Network. The transactions are settled through the Interchange system. Also referred to as a Back End Processor or Back End. Some examples of Back End credit card processing networks are Chase Paymentech, First Data Omaha, First Data Nashville, Global Payments, Nova Information Systems, RBS WorldPay, TSYS Acquiring Solutions, Pay by Touch.

Authorization-Only

A request to the cardholder’s issuing bank to authorize or hold funds or an amount against the balance for a sale. The authorization or hold will remain until the merchant settles or clears the sale, or until the cardholder removes the authorization and it disappears or “falls off”. Sometimes settlement is referred to as “Capture” or “capturing the sale”. Issuing banks have differing policies and can leave authorizations in place from anywhere to 1-5 days to 30 days to even longer.

Authorization-Capture

A request to the cardholder’s issuing bank to authorize or hold funds or an amount against the balance for a sale and then immediately after the issuing bank returns an authorization or approval to settle or “capture” the sale.

Authorization

A response from a cardholder’s issuing bank that payment information is correct and that funds are available. Sometimes referred to as an “Approval”. The issuing bank will hold the amount of the authorization unavailable to the cardholder until the merchant settles or clears the transaction. In a credit card transaction the funds are held against the cardholder’s credit limit. In a debit card transaction the funds are held against the cardholder’s bank account balance. Authorizations are a key component to credit card processing and it is very important that the merchant (and the merchant’s acquiring bank) is using them correctly and in the most efficient manner possible. How a merchant conducts and works with authorizations can affect everything from the discount rate and transaction fee paid on the sale to successful settlement of the sale to the sale being charged back to the merchant being able to win the chargeback dispute.
For ACH: refers to the authorization of an ACH transaction by a consumer or company. Most authorizations must be in writing and must be retained for a period of two years. There are 3 types: recurring, non-recurring, one-time.

Archiving

Online archiving of check images without payment processing

ARC

Account Receivable debit conversion of a mailed or drop box delivered consumer check

API Gateway

A point-of-sale system used to accept electronic payments on a website. API stands for Application Programming Interface. This is a set of protocols provided in order to build applications. Gateway is short for Payment Gateway. The term API is commonly used to distinguish this type of point-of-sale from other Payment Gateways, like a Secure Payment Page, the difference being that the API allows the Gateway to interface with the merchant’s shopping cart software and this allows the transaction to take place within the shopping cart and without the cardholder having to leave the merchant’s website to pay.

Affinity Partner

An institution or organization that lends its name to an issuing bank in order to market a credit card. The issuing bank can use the affinity partner’s mark or name on the card and in exchange the affinity partner is paid a fee or a percentage of the balance on the card. Some examples of affinity partners are retailers, sports teams, universities, and charities. American Express: A financial services company that is both the issuer and acquirer of its cards and transactions. Unlike Visa and MasterCard, in which there are card associations made up of issuers and acquirers that send sales transactions back and forth to each other, American Express is the only issuer and acquirer of its sales. Although they can sign merchants up to accept American Express (for which they are paid a fee by American Express), when processing American Express sales merchant service providers are in effect only passing the transactions onto American Express for clearing. American Express settles the sales, adjudicates all chargeback disputes and sends funding and a separate merchant processing statement directly to the merchant. Also sometimes known as “AmEx” or “Amex.”

Address Verification System

A system that verifies the numeric portions of a cardholder’s billing address. Also called AVS. The numbers in the street address and the zip code are compared to the street address and zip code on file with the cardholders issuing bank. AVS can return a variety of responses that are organized into AVS Codes. For example, Visa AVS Code Y means that the street address and the 5 digit zip code provided match what the issuer has on file. Visa AVS Code X means the street address and the 9 digit zip code provided match, while Code Z means the street address does not match but the 5 digit zip does, and Code R means the system is unavailable. In declines due to AVS failure, the authorization will stay on the cardholder’s account until the issuing bank removes it. Sometimes the authorization amount may be subtracted from the cardholder’s available balance and an online statement may show the held funds as an actual charge. These authorizations can remain on a cardholder’s account for up to 7 days or more. For this reason, merchants should avoid using $1.00 charges to verify accounts, and instead use AVS only authorizations.

Addenda Records

Records that may be attached to certain ACH entries for the purpose of carrying additional information.

Acquiring Bank

A card association member bank or financial institution that accepts credit card payments on behalf of a merchant. Also referred to as an Acquirer because the member bank accepts or acquires payments from credit cards that are issued by other member banks (Issuing banks or Issuers).

ACH Associations

Provide rules and guidelines for the efficient operation of the ACH Network. There are 36 regional ACH associations whose memberships include financial institutions and affiliates. NACHA, the National Automated Clearing House Association forms the governing foundation for the regional associations.

ACH

The Automated Clearing House is an electronic payment network which exchanges funds via Electronic Funds Transfer (EFT) throughout the U.S. fifty states and territories. Over 98% of the nation’s banks including the Federal Reserve belong to the ACH.

3–D Secure

An XML-based protocol used to better authenticate online credit card and debit card transactions. The protocol ties the financial authorization of the transaction to an online authentication of the cardholder’s identity. The authentication is based on a three domain model: the Acquirer Domain (the Acquiring bank and the merchant that are charging the card), the Issuer Domain (the Issuing bank of the cardholder), and the Interoperability Domain (the system provided by the Card Association to support the protocol). Hence 3-D. A transaction using 3-D Secure redirects to the website of the cardholder’s Issuing bank to authorize the transaction. The Issuing bank authenticates the cardholder’s identity by requiring the entry of a password tied to the credit card. Visa offers the protocol under the name Verified by Visa, MasterCard as MasterCard SecureCode, and JCB International as J/Secure.

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