Credit Card Industry Terms
Authorization - An authorization is the approval from the financial institution that issued the cardholder's card that allows you to accept the transaction for a given amount. The merchant in the form of electronic or written receipt retains the 4-6 digits.
Authorization only - Authorization only is a function to hold funds on a credit card without actually capturing those funds. An authorization only are used to hold funds before an actual amount is charged to the credit card because the total amount due is not known but the merchant wishes to capture and hold an estimate. Establishments that use this function include hotels, car rental or contractors. The authorization will usually expire 7 days from the approval date on the authorization.
Batch Settlement - A batch settlement is closing out all your transactions for the day. IT is like talking all your credit card sales to the bank and submitting for deposit.
Capture Only - When an authorization code is obtained for a transaction (e.g. voice authorization), a merchant can capture these funds using the Capture Only method. The transaction is finalized in the next Batch.
Card Verification Code (CVC2) - Numeric security code is printed on the back of MasterCard credit cards. Requiring this number on order checkouts can reduce credit card fraud and charge back instances significantly when used in addition to AVS.
Chargeback - A charge back occurs when a customer disputes a credit card sale. There are many reasons for a charge back but the most common is the customer is not satisfied with the product or service.
Credit card - The plastic card used to make purchases.
Currency conversion - A process where the currency involved in the transaction is then converted into the currency of settlement or the currency of the issuer. The transaction is then authorized, cleared and reported.
Debit card - The plastic card used to complete a bank account withdrawal from a cardholder's bank account.
Digital Certificate - Online identification authenticates a consumer, merchant and a financial institution. Digital certificates used to encrypt information exchanged in SET transactions. A certificate is a public key digitally signed by a trusted authority (the financial institution) to identify the user of the public key.
Digital Signature - An electronic signature that is impossible to forge. Instead, the digital signature comes from a digest of the text encrypted and sent with the text message. The recipient decrypts the signature and retrieves the digest from the received text. A match authenticates the message.
Discount Rate - The fee charged by Visa, MasterCard, Discover or American Express, being a percentage of each sale.
Electronic Data Capture (EDC) - To use a Point of Sale (POS) terminal for submitting credit card transaction information to a merchant account provider.
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 Ticket Capture (ETC) - An ETC system reaches out and "grabs" sales ticket information electronically. Buyer information is contained on the magnetic strip on the back of the credit card. The merchant "swipes" the card through a terminal and the buyer information is "read" by the computer system and merged with the sales information. It then processes the ticket just as if the merchant was making a manual deposit at a bank. This action occurs in "batches" of tickets, such as at the end of the day.
Independent Sales Organization (ISO) - A firm or organization that offers the service to process credit card transactions. AN ISO represents the processor and markets the service in exchange for transaction fees or a percentage of sales that the ISO receives form the processor. There are many different levels of ISO’s available to merchants. Many are only agents of an ISO while others have a direct relationship with the processor.
Issuing Bank - The bank that issues the customer the credit card and transmits funds to the seller's merchant account when the customer utilizes the card. The issuing bank then debits the cardholder's account for the purchase.
Mail Order/Telephone Order (MO/TO) - Transactions initiated by the customer using the mail or telephone, rather than through retail terminals or over the Internet.
Merchant Account Provider - A third party company providing merchants with merchant accounts. Providers generally have an established relationship with a number of banks that operate merchant accounts. Providers either has their own processing system to process and validate transactions, or they act as resellers of third parties' processing systems.
Merchant - Any other person, DBA or corporation that accepts credit cards.
Merchant Bank - The bank that provides merchant accounts to merchants, thereby giving the merchants the ability to accept credit cards.
Mobile Commerce (mCommerce) - not a new way of processing credit and debit cards. The acceptance method has been around for a few years, but is just really starting to make a large impact on how we do business away from our offices. mCommerce first started with the use of wireless POS (Point Of Sale) swipe terminals and has since then made its way into cellular phones and PDA's (Personal Digital Assistants). Wireless POS swipe terminals are much more expensive (usually around $700 and up) then regular "wired" terminals which require you to be nearby a phone jack and electrical outlet in order to operate. As a result, this has caused many people to find alternative ways to process transactions.
Monthly Minimum - The minimum monthly charge a merchant must pay in Discount Rate fees. If the merchant's sales for the month result in his paying Discount Rate fees greater than or equal to the agreed minimum monthly amount, no further fee is involved. However, if the merchant's sales for the month result in his paying Discount Rate fees less than the agreed minimum monthly amount, the merchant must pay the deficiency.
Offline Debit Card - These cards usually look like a credit card and resemble a credit card transaction. The merchant's terminal reads your card, identifies it as a debit rather than a credit card, and creates a debit against your bank account. However, instead of debiting your account immediately, it stores the debit for processing later -- usually within 2-3 days.
Online Debit Card - These cards usually are enhanced ATM (automated teller machine) cards that work the same as they would in an ATM transaction.
Payment Processor - A company that attends to the actual processing of a credit card transaction, to be distinguished from the merchant account bank, which merely acts as the recipient of the transaction, proceeds.
Personal identification number (PIN) - A secret code that allows the issuer of a card to positively authenticate the cardholder for approval of a transaction.
Point of Sale Terminal (POS) - The physical machine that allows a merchant to swipe a credit card through to initiate a transaction, most common in retail environments.
Real-Time Processing - Credit card processing completed online, while the customer is still visiting the website. AVS (address verification service)- AVS will match shipping information with the cardholder's billing address.
Secure Electronic Transactions (SET) - A secure payment protocol developed by MasterCard and Visa designed to ensure security for bankcard transactions over the Internet. In denying merchants access to credit card information, securing details between the shopper and the bank. Cardholder- The person authorized to use the credit card.
Secure Socket Layer (SSL) - A secure web protocol designed to ensure cardholder information is safe during the ordering process
Settlement - The process by which Visa and MasterCard transfer funds between a cardholders account at the issuing bank and merchant’s account at the acquiring bank. Settling a transaction involves withdrawing funds from the cardholder's account and depositing them into the merchant's account. If the transaction is a refund, the process is opposite from the above description. The acquiring bank transfers those funds directly to your business checking account. It is important to remember unless you automatic batch settlement to close your batch every day or you will not receive your funds and pay a higher discount fee on those funds.
Terminated Merchant File (TMF) - Merchants with excessive charge backs can lose the ability to accept credit cards. The merchant is listed on the TMF match list that all Merchant Service Providers have access and will have difficulty entering into another merchant account contract until the previous activity is resolved. Placement on this file can keep you from obtaining another merchant account for several years.
Travel and Entertainment - Properly used, this phrase refers to American Express (Amex) and Diners Club cards where a cardholder normally pays off the card each month. This is to differentiate these programs from pure credit cards. Discover is commonly lumped-in with the other T&E card types, al-though it is not technically a T&E card type.
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