Processing Glossary
Merchant Processing Glossary – The Basics
Address Verification Service (AVS): AVS is a tool for merchants to reduce the risk associated with card not present transactions, such as mail order, telephone order, or Internet transactions. The billing address given by the customer is passed in the transaction and it is checked against the billing address on file at the customer’s card issuing bank.
Annual Fee: A fee charges to Merchants, which can be used to lower the discount rate; it is a one-time fee deducted once a year.
Authorization: This is a process where an issuing bank or authorized agent approves a transaction for the specified amount. This process takes place by the merchant via telephone or terminal before the transaction is completed.
Batch Processing: This occurs when a merchant transmits the “batch” of daily sales for processing. An “open” Batch is one that is not yet “closed.” Batching generally occurs at least once per day. There are two different ways to close the batch: auto batch, which means that the machine will be programmed to close the batch at a specific time every day.The second one is terminal batch, which means the merchant has to manually batch out every day (including entering tips when applicable).
Card Issuer: The financial institution or company that has provided a card to a cardholder.
Card Present: A transaction evidenced by the action of swiping a card through a terminal or by an imprinted and signed credit card draft.
Chargeback: A chargeback is the result of an action taken by a cardholder who disputes a credit card transaction through their credit card issuer. The card issuer initiates a chargeback against the merchant’s account. The sale amount of the disputed transaction is immediately debited from the merchant’s bank account. Merchants have 10 days in which to dispute the chargeback. This may be accomplished by providing the card issuing bank with a proof of purchase by the cardholder. This could be a signature or proof of delivery. A chargeback fee is generally assessed to the merchant account by the merchant bank for the handling of this process.
Contingent Liability:Contingent Liability refers to a situation created when a merchants processes transactions before the date a cardholder receives the goods or services purchased. Travel agencies and mail order / telephone order merchants pose contingent liability risks to the bank.
CVV2: CVV2 is a three digit security code that is printed on the back of most credit cards. The CVV2 program is designed to reduce fraud in the card not present environment by validating that a genuine Visa/MasterCard credit card is being used during a transaction
Debit transaction fee plus network fees: each time a debit card or ATM card is used, there is a debit fee charged to the merchant
Discount Rate: A fee taken by the bank as a percentage of all sales transactions. If the discount rate is 2.50%, for example, the discount rate fee is $2.50 for $100.00 charge. There are different discount rates for each transaction type: Qualified, Mid-Qualified, and Non-Qualified. Mid-Qualified is higher than Qualified and Non-Qualified is higher than Mid-Qualified. The discount rate is deducted on a daily basis.
Downgrades: A downgrade occurs when the merchant does not meet the Visa/MasterCard requirements for a transaction and as a result the transaction is moved to a lower level of interchange. The merchant pays a higher rate for downgrades.
Early termination fee: if merchant cancels before the allotted contract time, they will be charged an early termination fee.
EBT Stands for “Electronic benefits Transfer”: Service can only be applied to merchants with a food stamp license. The Cash Benefits can be provided to any type of merchant. Merchant must have debit pricing set up and a pin pad.
Encryption: The method used to scramble financial information for security purposes. For example, all Personal Identification Numbers (PIN’s) are encrypted when transmitted for authorization.
Gateway: This is a service which connects the shopping cart with the card processor. Essentially, the gateway accepts the data in the shopping cart’s format, translates it to the card processor’s format and sends it to the card processor. It then does approximately the same thing, but in reverse, when it returns the authorization and other codes to the shopping cart.
Interchange: The exchange of transactions between clearing members for Visa and MasterCard transactions, according to the associations operating rules and regulations. During this process transactions are routed to the appropriate card issuing bank.
Keyed: A transaction is “keyed” when the information from a credit card is manually typed into a terminal or computer. A transaction is keyed because either the card is not present at the time the transaction is entered or the equipment being used to process the transaction can’t read the card.
Manual Imprinter: The now old fashioned manual, slide type device used to produce an image of the raised (embossed) characters on a credit card, to a transaction slip. All merchants should have a manual imprinter for cases that demand a physical imprint.
Monthly Minimum: The minimum amount of discount fees charged by a Merchant Service Provider in a given month. If account activity does not generate the monthly minimum, the merchant pays the difference. This fee is deducted at the end of each month. (rate * monthly volume processed = monthly minimum fee)
Non-Bankcards: Discover, Diners, Amex, JCB
Retrieval Request: When the cardholder’s bank request retrieval of information. This is done in order to substantiate a chargeback claim made by a customer.
Statement Fee: This is a monthly fee that entitles the merchant to customer support, and a statement to be mailed to the merchant. The statement fee contains the summary of all activities merchant processed throughout the month. This fee is taken out the at the end of each month.
Transaction Fee: This is a per item fee charged for each transaction between your terminal and the processor’s network. The merchant has to pay a transaction fee regardless of the response (approved, declined) they get. The transaction fee is deducted at the end of each month.
Voice Authorization: When the merchants need to call the 800 number on the back of the customer’s card to verify a specific transaction
Annual Fee: A fee charges to Merchants, which can be used to lower the discount rate; it is a one-time fee deducted once a year.
Authorization: This is a process where an issuing bank or authorized agent approves a transaction for the specified amount. This process takes place by the merchant via telephone or terminal before the transaction is completed.
Batch Processing: This occurs when a merchant transmits the “batch” of daily sales for processing. An “open” Batch is one that is not yet “closed.” Batching generally occurs at least once per day. There are two different ways to close the batch: auto batch, which means that the machine will be programmed to close the batch at a specific time every day.The second one is terminal batch, which means the merchant has to manually batch out every day (including entering tips when applicable).
Card Issuer: The financial institution or company that has provided a card to a cardholder.
Card Present: A transaction evidenced by the action of swiping a card through a terminal or by an imprinted and signed credit card draft.
Chargeback: A chargeback is the result of an action taken by a cardholder who disputes a credit card transaction through their credit card issuer. The card issuer initiates a chargeback against the merchant’s account. The sale amount of the disputed transaction is immediately debited from the merchant’s bank account. Merchants have 10 days in which to dispute the chargeback. This may be accomplished by providing the card issuing bank with a proof of purchase by the cardholder. This could be a signature or proof of delivery. A chargeback fee is generally assessed to the merchant account by the merchant bank for the handling of this process.
Contingent Liability:Contingent Liability refers to a situation created when a merchants processes transactions before the date a cardholder receives the goods or services purchased. Travel agencies and mail order / telephone order merchants pose contingent liability risks to the bank.
CVV2: CVV2 is a three digit security code that is printed on the back of most credit cards. The CVV2 program is designed to reduce fraud in the card not present environment by validating that a genuine Visa/MasterCard credit card is being used during a transaction
Debit transaction fee plus network fees: each time a debit card or ATM card is used, there is a debit fee charged to the merchant
Discount Rate: A fee taken by the bank as a percentage of all sales transactions. If the discount rate is 2.50%, for example, the discount rate fee is $2.50 for $100.00 charge. There are different discount rates for each transaction type: Qualified, Mid-Qualified, and Non-Qualified. Mid-Qualified is higher than Qualified and Non-Qualified is higher than Mid-Qualified. The discount rate is deducted on a daily basis.
Downgrades: A downgrade occurs when the merchant does not meet the Visa/MasterCard requirements for a transaction and as a result the transaction is moved to a lower level of interchange. The merchant pays a higher rate for downgrades.
Early termination fee: if merchant cancels before the allotted contract time, they will be charged an early termination fee.
EBT Stands for “Electronic benefits Transfer”: Service can only be applied to merchants with a food stamp license. The Cash Benefits can be provided to any type of merchant. Merchant must have debit pricing set up and a pin pad.
Encryption: The method used to scramble financial information for security purposes. For example, all Personal Identification Numbers (PIN’s) are encrypted when transmitted for authorization.
Gateway: This is a service which connects the shopping cart with the card processor. Essentially, the gateway accepts the data in the shopping cart’s format, translates it to the card processor’s format and sends it to the card processor. It then does approximately the same thing, but in reverse, when it returns the authorization and other codes to the shopping cart.
Interchange: The exchange of transactions between clearing members for Visa and MasterCard transactions, according to the associations operating rules and regulations. During this process transactions are routed to the appropriate card issuing bank.
Keyed: A transaction is “keyed” when the information from a credit card is manually typed into a terminal or computer. A transaction is keyed because either the card is not present at the time the transaction is entered or the equipment being used to process the transaction can’t read the card.
Manual Imprinter: The now old fashioned manual, slide type device used to produce an image of the raised (embossed) characters on a credit card, to a transaction slip. All merchants should have a manual imprinter for cases that demand a physical imprint.
Monthly Minimum: The minimum amount of discount fees charged by a Merchant Service Provider in a given month. If account activity does not generate the monthly minimum, the merchant pays the difference. This fee is deducted at the end of each month. (rate * monthly volume processed = monthly minimum fee)
Non-Bankcards: Discover, Diners, Amex, JCB
Retrieval Request: When the cardholder’s bank request retrieval of information. This is done in order to substantiate a chargeback claim made by a customer.
Statement Fee: This is a monthly fee that entitles the merchant to customer support, and a statement to be mailed to the merchant. The statement fee contains the summary of all activities merchant processed throughout the month. This fee is taken out the at the end of each month.
Transaction Fee: This is a per item fee charged for each transaction between your terminal and the processor’s network. The merchant has to pay a transaction fee regardless of the response (approved, declined) they get. The transaction fee is deducted at the end of each month.
Voice Authorization: When the merchants need to call the 800 number on the back of the customer’s card to verify a specific transaction
