There are quite a few terms you may not be familiar with when it comes to credit card processing and e-commerce. We have put together a glossary to help you better understand commonly used words, phrases, and acronyms in the credit card processing industry. If you have a word that’s not defined below feel free to contact us.
Address Verification System (AVS) – Checks to see that the billing address given by the customer matches the credit card. If you opt not to use AVS, VISA and MasterCard will not support your transactions and will charge you an additional 1.25% on those sales. Most merchant accounts come with AVS at no extra charge.
Automatic Check Handling (ACH) – ACH can also mean Automatic Clearinghouse. ACH is a form of epayment or electronic payment. There are two ways payments can be transferred: (1) by wire transfer, or (2) through an automated clearinghouse. Wire transfer is an e-payment system that is designed to handle high-dollar, time-crucial payments, usually between large banks. ACH is designed to be an e-check or electronic check. Unlike the wire transfer, it is usually used to process higher volumes or small-dollar payments for settlement issues within 1 to 2 business days. All ACH transactions are settled pretty much the same way checks are. The clearinghouse takes all of the ACH files received daily from member banks, it then divides them by the originating bank (where the check was either cashed or deposited) and the paying bank (the bank where the check was drawn), then it totals the accounts, and credits or deducts the accounts accordingly.
Acquiring Bank – A bank that provides and e-business with a credit card merchant account. The acquiring bank transfers credit card and other purchase information to a credit card association, and they in return forward it onto an issuing bank.
Authorization – This is the process where permission is granted by the card issuer (the financial institution) allowing the payment transaction to proceed. It is during this process that the issuing bank checks that the available credit on the card is not exceeded.
Batch – Is a collection of credit card transactions that are saved for submitting at the end of the business day.
Batch Close – The process of sending a batch to the financial institution for settlement.
Bank card – A plastic card that is accepted by merchants. They are used to credit an account for processing a sales transaction. The credit card is the most common form of a bank card.
Biometrics – The measurement of a living trait used to control access. Refers to the interpretation of personal traits for access control purposes in place of password or ID verification systems.
Credit card – This is a type of bank card that can be widely used all around the world as a form of payment. The credit card holder must then reimburse the credit card company for the amount of the total sales the holder had charged on that particular credit card.
Chargeback – A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder. Typical cardholder disputes involve product delivery failure or product/service dissatisfaction. Cardholders are urged to try to obtain satisfaction from the merchant before disputing the bill with the credit card issuer.
Capture – This is the submission of a credit card transaction for processing and settlement.
Cardholder – An individual or business that has established an account with a credit or debit card issuer. A cardholder is eligible to initiate a payment card transaction.
Credit card processors – They handle all of the details of processing credit card transactions.
Card Verification Value (CVV2) – Three-digit security number that is printed on the back of most Visa credit cards. Requiring this number on order checkouts can reduce credit card fraud and chargeback instances significantly when used in addition to AVS protection.
Card Verification Code (CVC2) – Numeric security code that is printed on the back of MasterCard credit cards. Requiring this number on order checkouts can reduce credit card fraud and chargeback instances significantly when used in addition to AVS protection.
Certificate Authority (CA) – This is the service a bank provides that digitally signs public keys sent to it by a web browser or by the merchant’s server software. It issues and validates digital certificates associated with SET transactions.
Discount rate – This is a fee that the major credit cards charge for handling a transaction.
Digital Cash – Two main mechanisms in that “digital coins” can be downloaded to the user’s PC from a participating bank, or the set up of a digital money account with a bank. Both (encrypted) forms of cash can be sent to merchants for payment.
Digital Certificate – Online identification that authenticates a consumer, merchant and a financial institution. Digital certificates are used to encrypt information exchanged in SET transactions. A certificate is a public key that has been digitally signed by a trusted authority (the financial institution) to identify the user of the public key.
Digital Money – The same as digital cash but can also involve the use of software-based secure credit card transactions.
Digital Signatures – An electronic signature, which cannot be forged. Instead it is generated from a computed digest of the text that is encrypted and sent with the text message. The recipient decrypts the signature and retrieves the digest from the received text. If the digests match, the message is authenticated and proved to be from the sender.
Digital Wallet – Software that provides the equivalent of a wallet for electronic commerce. A digital wallet, or e-wallet, holds digital money that you purchase similar to travelers’ checks. A wallet may also hold your credit card information along with a digital certificate that identifies you as the authorized cardholder.
E-commerce – The processing of buying and selling via the Internet.
Electronic Wallet (E-Wallet) – Software, residing as a plug-in in the Web browser, that enables a cardholder to conduct online transactions, manage payment receipts and store digital certificates. Like your real wallet, your digital wallet stores your credit card number and shipping details. This wallet initiates the data encryption in a SET transaction.
Electronic Data Interchange (EDI) – The electronic communication of business transactions, such as orders, confirmations and invoices.
Electronic Funds Transfer (EFT) – The transfer of money initiated through an electronic terminal, automated teller machine, computer, telephone, or magnetic tape. EFT also applies to credit card and automated bill payments.
Electronic Data Capture (EDC) – To use a Point Of Sale (POS) terminal for submitting credit card transaction information to a merchant account provider.
Encryption – Scrambling of an electronic message (usually e-mail) in a way that only the sender and receiver can read the message.
Factoring – When used in e-commerce, the term is applied to companies that offer to process credit card transactions through their own merchant account rather then having the merchant purchase their own, in exchange for a percentage of the transaction. This is an illegal practice and will result in heavy fines. Also known as credit card laundering.
Gateway – See payment gateway.
Holdback – Also referred to as a reserve. This is a fee held back from a merchant’s credit card transactions to cover any possible charge backs, and other disputed charges that a merchant may encounter. Usually, after a time, the hold backs are returned to the merchant.
Issuing Bank – Also known as an “Issuer”. This is the bank that maintains a consumer’s credit card account and will pay out to a merchant’s account when the consumer makes a credit card purchase. At the end of the month the issuing bank will bill the customer for the debt.
Internet Commerce – A term that covers all commercial transaction activity on the Internet.
Independent Sales Organization (ISO) – This is an organization that processes merchants online credit card transactions in exchange for a percentage of the sales or transaction fees.
Laundering – The practice of using another company’s credit card merchant account to process your credit card transactions. This is an illegal practice that will lead to heavy fines and perhaps more.
Merchant Account – An account that is established by a merchant to receive payment via credit cards.
Merchant Identification Number (MID) – A number provided by a merchant bank to identify the merchant in an e-commerce transaction.
M-Commerce – A term used to represent wireless e-commerce or the ordering of goods via wireless solutions like cell phone’s, pocket PC’s, PDA’s, etc.
Merchant – Collective term applied to Web-based eTailers who may have online storefronts.
Merchant Bank – This is the bank that holds the merchant account. When someone buys a product and/or service from a merchant, the merchant bank will place the needed funds into a merchant account in exchange for the right to collect the debt that is owned by the purchasing consumer.
Mail Order/Telephone Order (MOTO) – MOTO is a short version to describe businesses that conduct sales via mail and telephone/fax.
Merchant Service Provider (MSP) – This is a bank or other firm that provides processing for credit card transactions. Most MSP’s provide merchant accounts.
Monthly Minimum – This is the amount of fees you must meet each and every month, usually $25. If month sales do not make the monthly minimum the merchant account holder must make up the difference.
Merchant Account Provider (MAP) – Either a bank or other institution that will host a merchant account and process credit card transactions.
Micropayments – The payment acceptance method used by merchants who offer products, services, or information for a few cents to a few dollars. Processing these small payments with a merchant account would significantly reduce the amount of profit you would gain from the sale.
Point Of Sale terminal (POS) – Electronic device used by retail businesses to process credit card transactions. If the customer is present, they swipe or slide their credit card through the machine.
Personal Idenification Number (PIN) – Used to identify a person attempting to use a credit card, or other type of bank card. Can be either an alphanumeric or numeric code.
Processing Bank – The bank that processes the transaction once a credit card number is entered.
Payment Gateway – This is the code that will transmit a customer’s order to and from a merchant’s bank transaction authorizing agent.
Recurring Fees – Usually means fees that are billed each and every month.
Real-Time processing – The processing of a credit card transaction immediately after the purchase has been made. Real-Time is the preferred choice for Internet-based merchants.
Secure Socket Layer (SSL) – Used to encrypt and protect data usually on an order from an online merchants web site. Once the order has reached its destination the encrypted data is decoded.
Secure Electronic Transactions (SET) – A secure payment protocol developed by MasterCard and Visa designed to ensure security for bank card transactions over the Internet. In denying merchants access to credit card information, details are secured between the shopper and the bank.
Settlement – The step in the clearing process when the acquirer credits the merchant account with the amount of a credit card purchase, and the bankcard association (such as Visa and MasterCard) credits the acquirer and debits the card issuer for the transaction.
Setup Fees – A fee that is charged by a merchant services provider for establishing a merchant account.
Shopping Cart Program – Software used to aid customers when ordering a number of products/services from a merchants web site.
Smart Cards – Similar to a credit card, but has a small microprocessor built-in to the card that holds information about the cardholder.
Shopping Basket – As you shop online, you add items to your ‘virtual’ shopping basket. The basket is simply a list of the items you have selected to buy, together with the necessary details (number selected, price of each item etc). You can review what’s in your basket at any time as you shop.
Turn-Key – A solution a firm offers in which they provide an individual with a fully e-commerce enabled web site. Usually complete with shopping cart, web design, hosting and merchant account.
Transaction – This is any action between a cardholder and a merchant that results in activity on the account, such as an authorization and settlement. Merchants and financial institutions also conduct follow-on transactions that affect the cardholders’ account, such as a capture and credit.
Transaction Fee – A fee charged by a merchant account provider for each credit card transaction completed.
T-Commerce – The ability to order certain products and/or services right directly from your television. Still a very new concept that is being tested in Europe.
Terminated Merchant File (TMF) – Merchants with excessive chargebacks are stripped of their merchant account and the ability to accept credit card orders. The merchant is then placed on the TMF match list that all Merchant Service Providers have access to. Being placed on this file can keep you from obtaining another merchant account for several years.
U-Commerce – Stands for “Universal Commerce”. The ability to conduct secure commerce anywhere, anytime, with any type of device.
Visa PAS (Payment Authentication Service) – Under Visa’s PAS, cardholders must authenticate themselves by verifying their identity with a password when buying from a Web storefront. The ultimate aim is to secure merchant databases against compromise by hackers, and to password-protect card numbers that may be stored in a database.