The ABCs of Merchant Processing: A Glossary

  • 3D Secure

    3D Secure (3-domain structure), also known as a payer authentication, is a security protocol that helps to prevent fraud in online credit and debit card transactions. This additional security was initiated and created by Visa and MasterCard and it is branded as ‘Verified by Visa’ and ‘MasterCard SecureCode’ respectively.

  • ACH

    (Automated Clearing House)
    A U.S. financial network used for electronic payments and money transfers. Also known as “direct payments,” ACH payments are a way to transfer money from one bank account to another without using paper checks, credit card networks, wire transfers, or cash.

  • ACH Fee

    Fee paid for an electronic transfer of funding either to or from your bank account to cover processing fees

  • Acquirer

    The financial institution that establishes and maintains the merchant account, receives transactions from the merchant, and initiates the interchange via VISA/MasterCard. The acquirer must be a licensed member of MasterCard or VISA. Also called the acquiring bank.

  • Address Verification Service (AVS)

    AVS is a tool utilized by merchant processing companies to assist in combating credit card fraud. The AVS checks the billing address submitted by the card user with the cardholder’s billing address on record at the issuing bank. This is done as part of the merchant’s request for authorization of the credit card transaction. The credit card processor sends a response code back to the merchant indicating the degree of address matching, depending on which the credit card transaction may be accepted or rejected. AVS is usually utilized for online or card not present transactions.

  • Anti-Money Laundering

    Anti-money laundering (AML) refers to a set of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.

  • Approved Monthly Volume

    Approved monthly volume is the monthly volume limit that has been placed by your merchant services provider for your merchant account. Please note that T1 Payments does not cap our MID’s and if you need more volume, please just notify customer support and we will quickly review your account and increase your monthly processing volume.

  • Authorization

    When a credit card transaction is processed the merchant processor contacts the card issuing bank either via a credit card terminal or a payment gateway to ensure there is enough available credit for the credit card transaction to be completed.

  • Average Ticket Size

    Average ticket size is referring to the average dollar amount of each credit card transaction. The average ticket size is reviewed during the underwriting process to ensure it is aligned with the actual goods and services being sold.

  • Basis Points

    A “basis point” is 1/100th of a percentage point, or 0.01%. In decimal format, one basis point would look like, 0.0001. One basis point would equal $0.10 for every thousand dollars. Ten basis points would equal $1.00 for every thousand dollars of sales. When considering rates, a rate of 1.75% would be 10 basis points less than a rate of 1.85%

  • Batch

    Batch card processing, also known as batch out, is where the merchant processes all its pending payments at a time agreed with the account provider, ordinally at the close of business. Each individual customer bank then pays the balance to the merchant in what is referred to as ‘settlement’ which can take up to a few days.

  • Bitcoin

    Bitcoin is a cryptocurrency which is not managed by a bank or agency but in which transactions are recorded in the blockchain that is public and contains records of every transaction that takes place. The cryptocurrency is traded by individuals with cryptographic keys that act as wallets.

  • Card Brand Association

    Payment networks such as VISA® or MasterCard® (and others) that act as a gateway
    between acquirers and issuers for authorizing and funding transactions

  • Card Issuer

    A credit card issuer is any financial institution that issues, or causes to be issued, credit cards. Consumers often think that their credit cards are issued by MasterCard or Visa; they are not. Those companies are credit card transaction processors, not card issuers.

  • Card Not Present (CNP)

    Card not present means the credit card is not physically present at the time of the transaction. These types of transactions are online, mail order, telephone orders, mobile payments, and electronic payments. Card not present transactions are considered higher risk than card present transactions.

  • Card Present

    A card present transaction is where the credit is present at the time of purchase and swiped or imprinted at time of sale.

  • Card Reader

    A card reader is a device that can read the encoding or chips in plastic cards. Card readers today are very common at the point of sale. For chip cards, this term refers to the area of a chip-enabled terminal where consumers either insert their card for a contact chip card transaction or tap card to initiate a contactless chip card transaction.

  • Cardholder

    The owner of the credit or debit card that is being used to make a purchase

  • Chargeback

    A demand by a credit-card provider for a retailer to make good the loss on a fraudulent or disputed transaction. The transaction is disputed by the cardholder or issuer and Charges can be disputed for many reasons. A cardholder may have been charged by a merchant for items they never received, a merchant could have duplicated a charge by mistake, a technical issue may have caused a mistaken charge, or a cardholder’s card information may have been compromised.

  • Chargeback Fee

    The fee charged for processing a chargeback on your account

  • Chargeback Period

    The chargeback period is the number of days, from the transaction’s processing date or endorsement date, during which the issuer may initiate a charge-back. Most banks give 18 days (six months), but some banks allow for a period of up to two years.

  • Clearing

    Clearing is the third step in processing a credit card. After the acquirer receives the batch, it sends it through the card network, where each sale is routed to the appropriate issuing bank. The issuing bank then subtracts its interchange fees, which are shared with the card network, and transfers the remaining amount through the network back to the acquirer.

  • Credit Card

    A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay them for the amounts plus the other agreed charges

  • Credit Card Association

    A credit card association is a group of card-issuing banks or organizations that set common transaction terms for merchants, issuers, and acquirers. Some major associations are Visa, MasterCard, American Express and Discover.

  • Credit Limit

    A credit limit is the amount of money that can be charged to a credit card.

  • Cross Border Fees

    A cross border fee is charged to a merchant when a customer uses a credit card as payment for purchases or services from an issuing bank not located in the same country as the merchant’s processing account.

  • Cryptocurrency

    A form of currency based on mathematics instead of printed money.

  • Currency Converter

    Many companies are now going global and in order for merchants to successfully process international payments an IP enabled currency converter is recommended to be added on website that will detect the customers location and convert all prices along with the checkout procedure in the customers local currency. Without a currency converter a merchant will see a higher rate of declines because the card issuing banks are declining more transactions if the transaction is not sent in the local currency.

  • Currency Converter Fee

    A currency conversion fee is the former name for what has come to become known as a foreign transaction fee. Credit card transaction processors, such as Visa and MasterCard, charge the fee for any transaction that involves a foreign bank. The bank that issues a credit card may also tack on an additional fee. A merchant can prevent their customers from being charged a currency converter fee by utilizing a currency converter on their website.

  • CVV2

    CVV2 is the three- or four-digit code (depending on the type of card) listed on a credit card that is used when making card not present transactions.

  • Data Breach

    In the credit card industry, data breaches occur when hackers snatch credit card information that could be used to commit fraud or identity theft. Increasingly, data breaches occur at computing choke points through which many thousands of pieces of financial data must pass.

  • Descriptor

    A 20-25-character description used on a card statement by the issuing bank to identify the merchant with whom each transaction took place. The descriptor includes the merchant’s name and phone number and can be modified to reflect what product or service was purchased. A descriptor can help protect a merchant from a chargeback resulting from a customer dispute, provided the descriptor clearly identifies what was purchased and from whom. Each merchant’s descriptor is unique to their business and merchant account.

  • Discount Rate

    Discount rate is the rate charged by credit card processors for processing credit and debit card transactions.

  • Dues and Assessments

    Dues and assessments is the second fee associated with interchange and are paid directly to the Card Associations for the use of the Card Brand, and the ability to process credit and debit card transactions of the Visa, MasterCard, and Discover payment networks.

  • E-Commerce Platform

    An e-commerce platform is a software application which allows the business owner to manage their online sale operations. Some of the most popular platforms include Shopify, Woo-Commerce, Big Commerce, Ecwid and Volusion.

  • Encryption

    In credit card terms, encryption is the process of encoding credit card information for secure transmission through credit card processing networks or across the Internet.

  • Ethoca

    Ethoca helps prevent chargebacks and reduce card not present fraud by closing the information gap between the card issuers and merchants, making this valuable information securely available in real-time.

    Ethoca Alerts is the first service that leverages Ethoca’s global network of card issuers and online merchants. Ethoca’s direct-from-source card issuer data is used by merchants to stop the fulfillment of goods and services tied to fraudulent accounts on orders they are actively processing. Ethoca Alerts significantly reduces the time it takes for merchants to be alerted of confirmed fraud from the current three to six weeks, to minutes, hours, or days.

  • Ethoca, Verifi, and TC 40’s Fees

    Real-time alerts between the merchant and issuer, to resolve fraud and non-fraud disputes before they become a chargeback.

  • Foreign Transaction Fees

    Please see cross boarder fees as well. Sometimes this fee is called a foreign exchange fee. It once was called a currency conversion fee. Foreign transaction fees are charged by U.S. transaction processors such as Visa and MasterCard. The card issuing bank may choose to pass that fee along to consumers. Most do, and some tack on their own fees. In recent years, as travel credit cards have become more popular, more issuers have dropped foreign transaction fees, particularly from their travel cards. The easiest way to not have your customers charged a foreign transaction fee on their purchases if you are processing payments globally is to use an IP enabled currency converter on your website and send credit card payments in their local currency.

  • High Ticket

    The high ticket is always requested on any merchant processing application and refers to the highest dollar amount that a merchant expects to charge in a single transaction. The higher the high ticket is for a business the higher risk the business poses in merchant processing.

  • High- Risk Merchant Account

    A high-risk merchant account is a payment processing account for businesses considered to be of high risk to the banks. As high-risk businesses are more prone to chargebacks, they come with the need for paying higher fees for merchant services.

  • Interchange

    Interchange is the fee paid to the card brands for the cost of accepting credit cards. Every time you accept a credit card, you pay a fee to a credit card processor. That fee has three parts: interchange, assessments, and processor markup.

    Interchange is the largest part, and it goes to the banks that issue cards to customers. It is also non-negotiable; Visa and Mastercard set the interchange rates for accepting their cards. Additionally, they publish those fee tables, which include dozens of interchange categories.

  • Keyed Transaction

    A credit card transaction that is not swiped in a credit card terminal at the time of sale. Keyed in transactions are online transactions or MOTO transactions where the credit card is not present at the time of purchase.

  • Limit Exceeded

    A response code from the customers card issuing bank when processing online transactions that the customer does not have enough available credit on their card for their credit card transaction to be approved.

  • Match

    Member Alert to Control High Risk Merchants (MATCH) is mandatory system for U.S. acquiring (processing) banks. It is a database that includes information reported by processing banks about merchants and their owners whose merchant accounts have been terminated for cause. Please see TMF for more info

  • Merchant

    A merchant is anyone who is involved in business or trade.

  • Merchant Account

    A merchant account is a type of bank account that allows businesses to accept payments in multiple ways, typically debit or credit cards. A merchant account is established under an agreement between an acceptor and a merchant acquiring bank for the settlement of payment card transactions.

  • Merchant Category Code

    Merchant category code or MCC code is a four digit code that is assigned to every merchant from their merchant provider based upon the types of goods or services they are selling Every transaction processed by the card networks (such as Visa and MasterCard) is assigned a merchant category code (MCC). The MCC code also assists in determining if the merchant is processing transactions utilizing best case practices determined for that MCC.

  • Merchant Identification Number

    A merchant ID is a unique code provided to merchants by their payment processor. Often abbreviated as MID, this code is transmitted along with cardholder information to involved parties for transaction reconciliation. Merchants receive a MID when they open a merchant account with an acquiring bank.

  • Merchant Processing Agreement (MPA)

    The agreement between the merchant and their payment processor which lists terms, rules, rates, and fees.

  • Merchant Statement

    A daily or monthly report sent to merchants from their payment provider with a reporting of all transactions and fees, but most high-risk merchant processors provide daily reporting to merchants.

  • Monthly Minimum Fee

    The monthly minimum fee the merchant will be charged to have their merchant account.

  • MOTO

    (Mail Order Telephone Order) are credit card transactions that are taken over the phone and manually keyed into the virtual terminal or credit card terminal by the merchant. This type of credit card transaction is a card not present transaction.

  • Payment Gateway

    A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.

  • Payment Gateway Fee

    A payment gateway has a monthly fee and a per transaction fee for the use of the payment gateway

  • Recurring Payments

    Recurring payments is also referred to as AutoPay, means the consumer has given permission for a retailer or merchant to deduct payments for goods or services each month from the consumer’s bank account or to automatically charge his credit card in the amount due each month.

  • Retrieval Fee

    A retrieval fee is charged when a customer’s issuing bank requests a copy of all sales documents to substantiate a transaction

  • Retrieval Request

    A retrieval request occurs when a credit card issuer or the cardholder asks a merchant for a copy of a transaction ticket. If a cardholder or issuers disputes a transaction, the request is the first step taken to resolve the matter.

  • Rolling Reserve

    A rolling reserve is a risk management strategy to protect the merchant and its banks from potential loss due to chargebacks. A portion of the credit card volume processed will be secured to cover for the potential business risk relating to chargebacks. Acquiring banks calculate the rolling reserve amount based on a certain percentage of each transaction (for example, between 5-15% on every transaction). Rolling reserves are kept on hold for a defined period of time and will be released at the end of this period.

  • Secure Socket Layer (SSL)

    Secure Socket Layer (SSL) provide security to the data that is transferred between web browser and server. SSL encrypt the link between a web server and a browser which ensures that all data passed between them remain private and free from attack.

  • Shopping Cart

    A shopping cart is connected to a merchant’s website and is a piece of software that facilitates the purchase of a product or service. It accepts the customer’s payment and organizes the distribution of that information to the merchant, payment processor and other parties.

  • TC 40’s Fee

    When a customer makes a fraud claim, their card-issuing bank generates a TC40 data claim. This claim is sent to your acquirer, any other issuing banks, and credit card brands including Visa and MasterCard

  • TC- 40

    TC- 40’s is used as a tool in chargeback mitigation. Every time a cardholder claims fraud, issuers file a TC-40 claim for that transaction. These claims are then reported to the card brands and out to all issuers and to the merchant’s acquirer.

  • TMF (Terminated Merchant File)

    The Terminated Merchant File list is also known as the MATCH (Merchant Alert To Control High-Risk) list, the Terminated Merchant File or TMF list is a list compiled and managed by MasterCard, of merchants whose accounts have been terminated in the past 5 years for any of a variety of reasons, but usually for cause. Some of the reasons a merchant may be placed on the TMF include money laundering, bankruptcy, violation of standards, excessive chargebacks, or data breach.

  • Transaction Fee

    A transaction fee is charged for every transaction by the merchant account provider. The transaction fee is separate from the gateway fee.

  • Underwriting

    Underwriting involves conducting research and assessing the degree of risk of each applicant or entity before assuming that risk. This check helps to set fair rates to adequately cover the true cost associated with boarding a merchant. If the risk is deemed too high, an underwriter may refuse to allow the owner to open a merchant account.

  • Verifi

    Verifi is an end-to-end payment protection and risk management solutions. Verifi’s patented collaboration platform enables the sharing of near real-time data between cardholders, merchants, and issuers to resolve disputes, save sales, prevent fraud, and stop chargebacks.

  • Virtual Terminal

    A virtual terminal is a web-based software application that allows for merchant to process payments right from their computer.

  • Wire Transfer

    Wire transfer, bank transfer or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office.