Glossary of Merchant Services Terms

Click on a letter below to find your term.

A 

ABA Routing Number

A Nine digit number also referred to as a Transit Routing Number which is used to identify and direct electronic ACH deposits to the associated bank institution.

Acquirer

The financial institution that establishes and maintains the merchant account, receives transactions from the merchant, and initiates the interchange via a Card Network such as VISA/MasterCard.

Address verification service (AVS)

A service that verifies the cardholder's address, used primarily by mail/phone order merchants. AVS does not guarantee that a transaction is valid.

Adjustment

A debit or credit to a Cardholder or Seller account to correct a transaction error.

Assessment Fee

The portion of the discount fee that goes directly to the Card Network/Assosiation.

Authorization:

Approval from the financial institution that issued the cardholder's card. It allows you to accept the transaction for a given amount

Authorization response code

A code returned in the authorization response to indicate approval of a transaction. The code is recorded on the transition receipt as proof of Authorization.

Automatic Bill Payment:

An arrangement between a merchant or service provider and a customer that allows recurring automatic charges for a service to an agreed-upon credit or debit account.

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Bankcard

A payment card issued by a financial institution. The most common bankcards are MasterCard and Visa brand payment cards.

Batch

A group of accumulated transactions that have been captured, but not yet settled. Most merchants settle their batches at the end of each day.

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Cancellation Code

The code that a lodging or car rental merchant gives to a cardholder. The cancellation code confirms that the cardholder did, indeed, cancel a reservation.

Card Associations/Network

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

Cardholder

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

Chargeback

Also known as a "Debit Memo,” a reversal of a sales transaction. If you deposited a $50 transaction in your merchant bank account, a chargeback for that transaction indicates that the $50 has been debited from your merchant account.

"Code 10" Authorization

A voice authorization code that you might initiate when you suspect a card is stolen or fake, or when a customer is acting suspiciously.

Clearing

The exchange of transaction details between an acquirer and an issuer which posts the transaction to the cardholder's account and reconciles it for settlement.

Control Number

Number that uniquely identifies a retrieval request or chargeback.

Credit Card

A plastic card bearing an account number assigned to a cardholder with a credit limit that can be used to purchase goods and services and to obtain cash disbursements on credit, for which a cardholder is subsequently billed by an issuer for repayment of the credit extended at once or on an installment basis.

Credit Card Processors

(or third-party processors) - Merchant services providers that handle the details of processing credit card transactions between merchants, issuing banks, and merchant account providers. Web site operators usually must first establish their own merchant account before contracting for credit card processing services.

Credit Slip

A paper or electronic representation of credit that is issued to a Cardholder on a prior credit card sale.

CVC2

See CVV2. Card verification code 2 (CVC2) is MasterCard's term for this security code.

CVV2

Card verification value 2. CVV2—a 3 digit code printed on the back of a Visa card—is an important security feature that protects Internet and phone transactions from fraud. CVV2 ensures that the credit card number is legitimate and that the card is in the possession of the purchaser.

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Draft/Sales Draft

A record (usually paper) used to document that a good or service was purchased

Discount rate

A collection of fees charged by the acquirer to process the merchant’s transaction. This includes interchange fee, assessment, and per item charges.

DUKPT

Derived Unique Key Per Transaction. An encryption technique for secure key-management that uses a unique key for each separate transaction to prevent the disclosure of any previously used key.

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Electronic Check Transaction

The act between a customer who presents a check, and the merchant who accepts it, that results in: (a) creation of a sales draft receipt at the point of sale and (b) creation and transmission of the authorization request and clearing record to the Electronic Check Service in a single transaction.

Electronic Draft Capture (EDC):

Process of electronically authorizing, capturing, and settling a payment card transaction. The POS terminals are a form of EDC.

Electronic draft capture (EDC)

A system in which the transaction data is captured at the merchant location for processing and storage.

Electronic funds transfer (EFT)

A paperless transfer of funds initiated from a terminal, computer, telephone instrument, or magnetic tape.

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Financial Institution:

Any organization that provides financial services to merchants or individuals, including, commercial banks, credit card banks, savings banks, credit unions, etc. (also: Acquirer, Merchant Bank).

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Holdback

A portion of the revenue from a merchant's credit card transactions, held in reserve by the merchant account provider to cover possible disputed charges, chargeback fees, and other expenses. After a predetermined time, holdbacks are turned over to the merchant. Note: Merchant account providers almost never pay interest on holdbacks.

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Imprint

An impression of a customer's card made on the draft. This proves that the card was present when the sale was made.

Internet Payment Gateway Service (IPGS):

A service that provides a standard Internet connection for merchants and merchant aggregators (businesses that provide hosting and other e-commerce processing services for multiple merchants) to securely and reliably send and receive payment transaction messages.

Interchange

The association function that enables members to exchange payment card transaction data and funds on a standardized basis.

Interchange Fee

For purchases, the fee charged to the acquirer and paid to the issuer. Also known as “Interchange Reimbursement Fee”.

Issuer

The financial institution that issues a credit card to a cardholder. The issuer must be a licensed member of MasterCard or VISA. Also called the issuing bank.

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Level I processing

Purchases made with personal credit cards issued from U.S. banks qualify as Level I transactions. This means that the only information the merchant must pass to process the transaction is the merchant's name, transaction amount, and the date.

Level II processing

Level II transactions normally involve corporate cards issued from a U.S. bank. Transactions that qualify for Level II processing cost the merchant less than Level 1 transactions. To qualify for Level II, a transaction must be passed with: merchant name, transaction amount, date, tax amount, customer code, merchant postal code, tax identification, merchant minority code, and merchant state code.

Level III processing

Of the 3 different levels of credit card processing, Level III provides the lowest transaction processing rate. But, in order to qualify for the lowest rate, Level III transactions must be passed through the processing system with much more detailed transaction information that Level I or II transactions. Because so much information must be transmitted, not all terminals are equipped to process Level III transactions. Purchases that qualify as Level III transactions generally are made with government credit card or corporate cards.

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Magnetic stripe

The magnetically encoded stripe on the bankcard plastic that contains information pertinent to the cardholder account. The physical and magnetic characteristics of the magnetic stripe are specified in ISO Standards 7810, 7811, and 7813.

Magnetic stripe reader

A device that reads information recorded on the magnetic stripe of a card. Also known as a card swipe reader.

Merchant

A business that has contracted with an acquirer for card processing services and accepts credit cards as a method of payment for goods or services.

Merchant Account

A merchant account is a specialized bank account that your business uses to accept credit cards, debit cards, gift cards, electronic check transactions, and other types of payment.

Merchant Bank:

Your banking or financial institution that provides merchant services, including Visa acceptance services (also: Acquirer, Financial Institution).

Merchant Identification Number

The number a financial institution assigns to a merchant to identify your business.

Merchant services provider

A bank, ISO, or other firm that provides services for processing financial transactions, usually credit card sales. Many MSPs provide merchant accounts, while others require their clients to establish merchant accounts on their own. Some MSPs claim that they do not require merchant accounts; this may indicate factoring, which is illegal in many areas.

Monthly minimum

"This is a fee that is imposed if your credit card charges (Discount Rate) do not add up to their monthly minimum amount. For example, your monthly minimum is $25 a month. If your discount rate was 2.25% and you processed $1000.00 in credit card volume, $22.50 is charged to the account plus an additional $2.50 (the difference of the $25.00 minimum and actual discount fees).

also: The minimum amount in fees and percentages charged by a merchant services provider in a given month. If account activity does not generate the monthly minimum, the account holder must make up the difference."

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NOVA

The data processing systems, networks, and operations that are used to support and deliver Visa’s authorization, clearing and settlement services.

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Payment card

A broad term, applying to any magnetic coded card used to make purchases.

Payment Card Industry Data Security Standards (PCI DSS)

An industry standard that sets technical and compliance standards for protecting cardholder data. PCI DSS is supported by VISA, MasterCard, Discover and American Express and applies to everyone that stores, processes or transmits cardholder data

Per Item Charge

Fees paid to the processor on a per transaction basis.

POP

Point of Purchase check conversion is a process that will allow a merchant to accept a check and convert that paper check into an electronic transaction, which is processed and debited from the customers’ checking account.

POS Partner

PC based point of sale software used to authorize and settle payment card transactions via a modem. POS: The Point of Sale is the physical or web location where a sales transaction occurs, and payment is authorized.

Point-of-sale (POS) terminal

A device used to record and transmit card transactions electronically for authorization and processing. POS terminals can transmit information via a regular telephone line, broadband Internet connection, or wireless signal. Also called a card processing terminal.

Processor

An organization that is connected to a payment card association and provides authorization, clearing and settlement services on behalf of a member.

Secure Socket Layer (SSL)

A security feature that keeps Internet communications private and ensures they have not been forged or tampered with.

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Settlement

The exchanging of data or funds between the acquirer and the issuer. Settlement includes funding the merchant for the transaction and paying any necessary fees due to the issuer or acquirer for processing the transaction.

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Transaction

An act between a Seller and a Cardholder that results in either a paper or an electronic representation of the Cardholder's promise to pay for goods or services received from the act.

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Unauthorized Transaction

Any sale for which a Cardholder does not provide his/her specific authorization (This should not be confused with the failure to receive an authorization response from the Issuer.)

Value Added Reseller (VAR):

A third party that enhances or modifies existing hardware or software, adding value to the services provided by the processor or acquirer.

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Virtual terminal

An Internet-based portal used for processing card transactions. Brick-and-mortar merchants may use an online payment gateway to process card transactions online without a POS terminal or card processing software. Online merchants must have an online payment gateway to enable their business for ecommerce. Also called an online payment gateway.

VISA®

A registered mark for Visa U.S.A., Inc and Visa International, Inc.