Payment Processing Terms and Definitions
This information is intended to help you understand terms commonly used in payment processing information and bank statements.
See Payment Transaction Processing Overview for help understanding the flow and organizations involved in payment processing.
Note: This information has been compiled from various sources and is for informational purposes only. Specific terminology may or may not match that of Sonova Financial Services.
ABA Routing Number
This 9-digit number is assigned by the American Banker’s Association and is used to identify individual banks. When performing an ACH transfer from one bank account to another, this number is used to assist the electronic routing of funds.
An access number is a telephone number used by the modem in a computer to communicate with an Internet Service Provider allowing for online access.
ACH (Automated Clearing House)
A processing organization networked with others to exchange (clear and settle) electronic debit/credit transactions (no physical checks).
This is the status of a Visa/MasterCard member bank that establishes and maintains the merchant relationship and processes all merchant transactions.
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.
Means only the portion of a Service actually impacted by the relevant Service Level Target.
Any third party through whom Payment Gateway may offer the Payment Gateway Services to you, including but not limited to an Independent Sales Organization (ISO), a Merchant Service Provider (MSP), a Value Added Reseller (VAR), an Application Service Provider (ASP), an Acquiring Bank, or Financial Institution.
A fee charged to Merchants, which can be used to lower the discount rate.
This is a fee for processing the paperwork and setting up the account.
Application Programming Interface (API)
Means an interface allowing integration with a programmable software package or platform.
This code is given by the credit card issuer and authorizes a specific transaction. This number should be saved for future reference.
A communication charge for each transaction (Sale, Credit, Void) and each time a merchant closes a batch of transactions.
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.
Automated Response Unit (ARU)
An ARU allows the manual keyed entry and subsequent authorization of a credit card over a cellular or land-line telephone. A business typically imprints their customer’s card with an imprinter and then processes the transaction instantaneously over the phone.
Means the percentage of time during a month in which the Payment Gateway application is not subject to an Outage.
Average Ticket Size (AVT)
The average Visa/MasterCard dollar amount of each transaction the merchant anticipates processing or actually processes over time.
1/100th of a percentage point is a basis point. In merchant processing terms there are three distinct categories: Qualified, Mid-Qualified, and Non-Qualified. Concerning the discount rate, there is an increase of basis points from Qualified to Mid-Qualified and an increase from Mid-Qualified to Non-Qualified.
Any bulk processing of transactions, or a bulk settlement submitted to a processor by Payment Gateway including credit card, ACH, or other related transactions.
The credit card transactions remaining on a merchant’s terminal are stored in an “open” batch. They will remain there unless the merchant “batches out”. Once the merchant batches out, the daily sales are submitted for processing, and the batch is now “closed” or “settled”.
For the purposes of this Agreement means a network of Issuing Banks and Acquiring Banks that process payment cards of a specific brand. Without limiting the foregoing definition, American Express, Discover Financial Services, JCB International, MasterCard International Inc., Visa Inc., Visa International Inc., and any other payment card company belong to the Card Association.
The financial institution or company that has provided a card to a cardholder.
A transaction evidenced by the action of swiping a card through a terminal or by an imprinted and signed credit card draft.
The person who the credit card is issued to and whose name is embossed upon the face of the card.
A transaction in which only a bank or financial institution can submit, for cash to a cardholder. The transaction is posted against the cardholder’s bankcard account. Interest fees for cash advances are charged from the day of the transaction.
The situation in which the issuer is faced with a delinquent loan of such severity that it must absorb the amount of the debt, at least temporarily, in order to clear the amount from its ledgers. The issuer may still attempt to collect some or all of the amount owed through the recovery process.
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.
Means the process of sending a batch of transactions for settlement.
Means any information, data, trade secrets, know-how, directly, or indirectly, in writing or orally or by inspection of samples, equipment or facilities, including but not limited to past, present and future research, products, product plans, services, services documentation (in whatever form or media provided) customers, customer lists, user data, revenue, markets, software developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration, marketing, marketing materials, financial or other business information, or the financial terms of this Agreement.
Refers to a situation created when a merchant processes transactions before the date a cardholder receives the goods or services purchased.
A plastic card having a magnetic strip that is issued by a bank or business authorizing the holder to buy goods or services on credit. Also called a charge card.
Credit Card Processing
Obtaining immediate authorization of a credit card purchase when ordering online. The card processing company notifies the merchant, and the merchant confirms or denies the order with the customer.
Credit Card 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 Card Terminal
A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card’s information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment that only processes credit cards although it is common for related transactions including gift cards and check verification to also be performed. A credit card terminal typically must be plugged in to a power supply and connected to a telephone line.
A credit report is run on every signing principal on the merchant account application and is used to make approval decisions.
CVV2 (Card Verification Value2)
A three digit security code that is printed on the back of most credit cards and is sometimes asked by the merchant along with the card information. This code helps aid in reducing fraud in a card not present environment and helps validate a genuine credit card.
The collection, formatting and storage of information in computer memory. Some point-of-sale terminals perform data capture functions. See EDC terminal.
A multitude of companies that honor card transactions by debiting the cardholder’s checking account for the purchase amount. Debit Networks are smaller than their credit based counterparts and are more numerous.
An account used by a customer to make deposits and withdrawals at a financial institution. Includes checking, savings and NOW accounts, etc.
Direct Mail Merchant
Indicates merchants that submit actual sales drafts for payment (paper merchant) through the mail for payment.
A percentage of each transaction that the merchant is charged by the Merchant Service Provider for facilitating a credit card transaction.
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.
e-Commerce stands for Electronic Commerce and is the process of buying or selling goods or services via the internet. This is most commonly done through a merchant’s or service provider’s website and usually involves an online catalog and shopping cart. Payments are processed with an online gateway such as Authorize.Net. eBay is another form of e-Commerce.
Also referred to as Electronic Data Capture terminal. A point-of-sale device that reads information encoded in the bankcard’s magnetic stripe, performs authorization functions, stores transaction data and batches and transmits that data to the acquirer for processing.
Means the earlier of the date You agree to the terms and conditions of the Agreement by (i) clicking the “I AGREE” button associated with the Agreement; or (ii) by using Payment Gateway Services or (iii) acknowledging Your acceptance of the Agreement by any other method, including without limitation execution of a Merchant Account Application that incorporates the Agreement by reference.
Any event that adversely impacts the Service that is caused by (a) the acts or omissions of You, Your employees, customers, contractors or agents; (b) the failure or malfunction of equipment, applications or systems not owned or controlled by Payment Gateway; (c) Force Majeure events; (d) scheduled maintenance, alteration or implementation; (e) any suspension of Service pursuant to the Merchant Service Agreement; or (f) the unavailability of Your required personnel, including as a result of failure to provide Payment Gateway with accurate, current contact information.
The purchase of debts owed, or accounts receivable, in exchange for immediate payment at a discount. In e-commerce, the term is often applied to ISOs that offer to process credit card transactions through their own merchant account rather than through an account established by the merchant, in exchange for a percentage of the transaction or other fee. Factoring of credit card debt is illegal.
A list of fees and charges that is accepted by you and paid by you to Payment 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.
Global Payment Systems
The primary data transport communications facility that links all MasterCard customers and MasterCard data processing centers into a single on-line financial network (also called a packet-switching network.) Global Payment Systems separates communications processing from financial applications to transmit messages over a single communications network. Used to be referred to as Banknet.
A guarantor is somewhat like a co-signer. The guarantor agrees to personally guarantee any processing losses Ballistic Merchant Services incurs as a result of doing business with the merchant. A personal credit report may be ordered for review by our underwriters.
High Risk Merchant
In the processing world, some business types and industries are considered as “risky.”
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.
Independent Contractor/Independent Sales Organization (IC/ISO)
A person or organization that has been contracted by a company to sell its merchant processing services.
Integrated Point of Sale (IPOS)
This acronym refers to conventional terminals that are “smarter” and more sophisticated in that they may be set up to communicate with like terminals owned by the same merchant – even if they are located at different locations and with different merchant numbers.
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.
A fee set by and collected by the Card Association from Your financial institution (Acquiring Bank) and paid to the issuing financial institution (Issuing Bank) to cover expenses incurred in billing the cardholder.
Internet Merchant Account
A Merchant Account is a relationship between a retailing company and a Merchant Bank, which allows the retailer to accept credit card payments from customers via the Internet.
Means an internet address usually represented in dotted decimal, e.g. “127.0.0.1”.
A bank or financial institution that is a licensed member of Visa and MasterCard that provides cardholders with a line of credit for cash advances or purchases, and is responsible for payments to an acquiring bank for purchases made by the cardholder.
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.
Means the monthly average time it takes for a transaction to travel through the relevant portion of the Payment Gateway Application excluding transaction settlements and any time waiting for a response from a third party.
A stripe (on the bankcard) of magnetically encoded cardholder account information.
Magnetic Stripe Reading Terminal
A point-of-sale terminal which reads the encoded information from the magnetic stripe when the bankcard is swiped through the terminal “slot.” The terminal automatically transmits account and transaction information to the authorizing agent.
Merchant Account Provider
Merchant account providers give businesses the ability to accept debit and credit cards in payment for goods and services. This can be face-to-face, on the telephone, or over the internet.
Merchant Accounting System
The accounting system that transfers electronic funds from the Interchange to the merchant’s bank account via the Automated Clearing House (ACH) and sends the merchant monthly statements concerning the merchant’s credit card transfers.
A merchant account allows a business to accept credit cards, debit cards, gift cards and other forms of payment cards. This is also widely known as payment processing or credit card processing. Or an arrangement with a commercial bank or card issuer that permits a business to accept credit card payments and deposit those payments, less charges, to its bank account.
Merchant Identification Number (MID)
This is the number that the FDC assigns to a merchant to identify them along with the credit card processors that they use. It is not to be confused with a merchant processing account number or Terminal Identification Numbers (TIDs).
Monthly Recurring Fixed Charge (MRFC)
Any and all fees You are obligated to pay to Payment Gateway including Your monthly commitment and fixed Service charges.
Monthly Volume (MV)
With Visa and MasterCard transactions, a merchant account is approved to process up to a maximum dollar volume. American Express, Discover, and any other card processing volumes are not included into the calculated monthly volume. This is a major consideration for the underwriter of the file and can determine the type of documentation that will be required for the file.
An operating mode in which terminals are not connected to a central computer. Responses are governed by guidelines, set by the issuer, which are housed in the terminal or in a supporting device.
Off-Line Transaction Processing
Capture of order and credit card information for later authorization and transaction processing through a traditional card swipe terminal or through a computer.
An operating mode in which terminals are connected to a central computer and have access to the data base for authorization, questions and file changes.
A period of at least one minute during which the Payment Gateway Application is completely unavailable or inaccessible for reasons other than an Excluded Event. An Outage begins when Payment Gateway opens the relevant trouble ticket and ends at the earlier of the restoration of the Affected Service or when the ticket is closed. All Outage measurements will be rounded to the nearest one minute increment.
A payment gateway is an e-commerce ASP service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical POS (point-of-sale) terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and the merchant.
Payment Gateway Application
Means the components owned and operated by Payment Gateway excluding any components that are not owned and operated directly by Payment Gateway.
Payment Gateway Provider
A company that provides code and/or software for an e-commerce site to enable it to transfer information from its shopping cart to the acquiring bank, and on through the rest of the credit card transaction. See also payment gateway.
A company that provides the processing of credit card transactions. Payment Processors are to be distinguished from issuing banks which act as the recipient of the transaction proceeds.
Means Payment Card Industry Data Security Standard.
Personal Identification Number (PIN)
This is the number that is assigned by the bank to cardholders for identification purposes. It can be used as an electronic signature so that ATM transactions and debit card transactions may take place without the card holder’s written signature. PIN numbers are also used in online payment processing.
This is a small box-type terminal attachment with a 10-key pad. They are used so that a cardholder may enter their PIN number and are commonly used for debit card transactions.
The location where a transaction occurs in exchange for goods or services.
Point-of-Sale (POS) Terminal
A small device that allows you to slide the credit card through to make a charge. This is what most retail stores have. It is fast, easy and accurate to make a charge on a customer’s credit card within seconds. It is also known as a terminal machine.
A statement or legal document that discloses the ways a party gathers, uses, discloses, and manages a customer or client’s data.
Government agencies or corporations may issue their employees Purchase Cards. A Purchase Card is a credit card, but unlike a regular credit card it can only be used at certain types of merchant locations.
Qualified Discount Rate
When conditions are optimum a Qualified Discount Rate is given to the merchant. This means that retail transactions are card-swiped and the merchant does an electronic batch settlement (batches-out) at the end of everyday. For Keyed or Internet merchants to receive a Qualified Discount Rate they can obtain an AVS response and an order number. They also need to batch-out.
A transaction charged to the cardholder (with prior permission) on a periodic basis for recurring goods and services.
Refund Policies depend on the merchant. The merchant decides how and to what extent they can guarantee their products or services to cardholders. Refund or return policies that are very liberal can do a lot to reduce the number of charge-backs that a merchant receives.
A request by the issuer to the acquirer for a copy of the actual ticket of a transaction. The initial step that the issuer takes in the event that either the issuer or the cardholder disputes a transaction.
Return Payment Fee
A fee charged by the payment processor on each occurrence when the payment processor is unable to collect fees on your account for any reason (including but not limited to insufficient funds, closed account, or any other negative response).
An initial fee paid to the Merchant Service Provider for establishment of an account and for processing and reporting tools.
When used for internet shopping, a customer can use a shopping cart as they would in a grocery store by placing items inside for eventual purchase. A shopping cart groups the chosen items so that only one online credit card transaction is needed to complete their purchases.
The statement fee is a monthly fee associated with the monthly statement that is sent to the merchant at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result.
This is physical act of sliding a card through the credit card processing. The machine then reads the magnetic strip on the back of the credit or debit card. An alternative way to accept the credit card, or debit card would be to manually key in the information. However, swiping a card is far more beneficial because it documents the physical presence of the card at the point of sale which lessons the chances of credit card fraud.
Terminal Identification (TID) Number
The unique number assigned to each point of sale terminal that tells the Host which merchant a transaction came from and where an authorization is to be sent.
A terminal provider supplies the software on which a terminal operates.
Third Party Service Provider
An entity that provides bank and/or merchant payment services including, but not limited to billing, reporting, customer service, authorization, and settlement services.
Means all common law or registered trademark(s), service mark(s), trade name(s) and trade dress rights and/or similar or related rights under any laws of any country or jurisdiction, including but not limited to the United States of America whether existing now or hereafter adopted.
A billable occurrence completed or submitted under an account including but not limited to sale, void, refund, credit, offline force, capture, authorization, validate, update or settlement regardless of whether approved or declined.
The fee charged to a merchant as payment for a transaction.
An underwriter is an intermediary between buyer and seller who is trained to evaluate risk and liability and assign appropriate classifications to a proposed business relationship.
A transaction that cannot be categorized as a retail sale or a cash advance, and for which there are special merchant classification codes. An acquirer with such merchant activity must have written approval from MasterCard and/or Visa for a bankcard relationship with the merchant.
Value Added Reseller (VAR)
Means any third-party vendor that enhances or modifies existing hardware or software, adding value to the services provided by the processor or acquirer.
Value Added Service(s)
Any service or product offered by the payment processor.
A virtual terminal is an application that is usually bundled with a gateway that enables a merchant to process credit card transactions securly over the Internet.