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ACH (Automated Clearing House)
A method of electronic payment typically used to process a group of
transactions that are each for relatively small amounts. ACH transactions
function like "electronic checks" that are settled (paid) within one or two
business days using procedures that are similar to the way that paper checks
are settled.
Acquiring Bank
A financial institution that provides credit card processing accounts for
merchants. Also referred to as a merchant bank or an acquirer, the bank
receives funds from a cardholder when a credit card transaction is completed,
and then deposits the payment amount, less any fees, into the merchant's
business checking account.
AVS (Address Verification System)
A fraud prevention feature built into most credit card transaction processing
equipment that runs an automatic check in order to verify that the billing
address given by the customer matches the billing address for the credit card
that is presented for payment.
Bankcard
A piece of plastic with a magnetic strip, more commonly known as a "credit
card", that is used by the holder to leverage a pre-established line of
credit with a bank, and is widely accepted as payment for goods and services
by merchants operating under a standard set of rules for the authorization of
its use and for the settlement of all transactions.
Batch
A merchant's collection of credit card transactions over a period of time,
usually one full day, that are saved for submission to the acquiring bank all
at once, usually at the end of each day. Batch fees are charged by acquiring
banks as a way of encouraging merchants to submit transactions in a group,
rather than one at a time throughout the day.
Batch Close
The process by which a merchant gathers all of the credit card transactions
that have occurred over a specified period of time, usually one full day, and
submits them to the financial institution acting as the acquiring bank for
settlement.
Capture
The submission of a customer's credit card transaction information to the
merchant account provider or the credit card processor, through the use of a
POS (point of sale) device or by way of real-time transaction processing
software, for settlement.
Cardholder
The person or company with an active credit card account that enables them to
leverage a pre-established line of credit with a bank, and by which
transactions for purchases can be processed.
Card Issuer
The financial institution that establishes a line of credit with a cardholder
and issues the credit card that is used for the purchase of good and services.
Chargeback
An amount that is charged by the acquiring bank and deducted from a merchant
account for any transactions that are successfully disputed by a credit card
holder as being unauthorized or fraudulent.
Credit
More commonly referred to as a "refund", this is a transaction initiated by
the acquiring bank that transfers money out of the merchant account and back
into the credit card holder's account.
Debit Card
A financial instrument that resembles a credit card in appearance, but is
used by consumers in place of cash. Unlike a credit card, all debit card
purchases are deducted automatically from the cardholder's bank account, much
like a check.
Discount Rate
A percentage-based fee, usually falling somewhere between two and ten
percent, that is paid to the acquiring bank or ISO for the time and expense
involved in the handling of any electronic transaction.
EDC (Electronic Data Capture)
The use of a POS terminal for submitting credit card transactions to an
acquiring bank or to any other credit card processor. For online credit card
processing or for orders that are phoned in, proprietary software takes the
place of the POS terminal.
EFT (Electronic Funds Transfer)
A method of transferring money from one bank account to another, using any of
a wide variety of electronic methods currently available.
Gateway
A computer-based application that takes the transactions from online merchant
storefronts and then routes them to a financial institution's processing
system.
Holdback
A portion of the revenue generated from a merchant's credit card
transactions, which is held in reserve by the acquiring bank to cover
possible future disputed charges, fees and other expenses. After a
predetermined time, holdbacks are released and deposited into the merchant's
checking account, usually with no interest accumulated.
ISO (Independent Sales Organization)
A firm or an organization that enables a merchant to process online payments
or other credit card transactions, usually in exchange for transaction fees
or for a percentage of the total sales.
Issuing bank
The bank that maintains the consumer's credit card account and must pay out
to the merchant's account in a credit card purchase. The issuing bank then
bills the customer for the debt.
Merchant Account
A specialized bank account established between a merchant and a financial
institution in order to process credit card purchases. By establishing a
merchant account, the financial institution agrees to pay the merchant for
valid credit card purchases in exchange for the right to collect on the debt
owed by the consumer.
Merchant Bank
A financial institution that provides credit card processing accounts for
merchants. Also referred to as an acquiring bank or an acquirer, the bank
receives funds from a cardholder when a credit card transaction is completed,
and then deposits the payment amount, less any fees, into the merchant's
business checking account.
Merchant Services Provider
A bank, an ISO, or any other firm that provides the various services required
for the processing of a merchant's credit card sales.
Monthly Minimum
The minimum amount that will be charged to a merchant by a merchant services
provider in any given month. If the merchant account activity does not
generate the monthly minimum, the account holder is automatically charged the
difference.
MO/TO
Mail order and telephone order. A high risk type of merchant account with a
unique set of rules that are much more restrictive than the rules that govern
retail merchants, because this type of account allows a merchant to accept
credit card payment without the cardholder's signature.
POS (Point of Sale) Terminal
An electronic device used for verifying and processing credit card
transactions. If the credit card is available, the merchant can swipe the
card through the terminal, or the card numbers can be manually keyed in.
Recurring Fees
Regular, most often monthly, charges that are incurred when maintaining an
active merchant account. Recurring fees include the discount rate,
transaction fees, statement fees, and the monthly minimum.
Real-Time Authorization
The authorization or approval of a credit card transaction at the same time
that the customer is making the purchase, with no delays for the processing
of data.
Real-time Processing
The immediate verification and processing of a credit card transaction
following a purchase made by the customer, usually taking less than five
minutes before the purchase is finalized.
Reserve Account
A portion of the revenue generated from a merchant's credit card
transactions, which is held in reserve by the acquiring bank to cover
possible future disputed charges, fees and other expenses. After a
predetermined time, reserves are released from these accounts and deposited
into the merchant's checking account, usually with no interest accumulated.
Representment
A follow-up transaction originated by the merchant in order to recover funds
that were previously charged back to the merchant, by the card holder and/or
the card issuer, as being unauthorized or fraudulent.
SET (Secure Electronic Transaction)
A standardized global security protocol, being developed by the credit card
companies and several major banks for online credit card purchases, that
combines 1,024-bit encryption with digital certificates.
Settlement
The process of completing all necessary funds transfers so that the merchant
involved in a credit card transaction is paid for their goods or services.
Setup Fees
The initial costs that are incurred by a merchant in the process of
establishing a merchant account with an acquiring bank or other merchant
services provider, including application fees, software licensing fees and
equipment purchases.
Swipe Discount Rate
The lower discount rate that is charged by an acquiring bank or merchant
services provider for any transactions that occur during which both the
credit card and the cardholder's signature are available for visual
inspection by the merchant.
Ticket Size
The actual monetary value of the goods or services purchased in a single
credit card transaction.
Transaction Fee
The pre-determined and customary charge that is incurred for each individual
credit card transaction a merchant processes, and collected by the merchant
account provider or the ISO.
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