Glossary of Common Merchant Services and Payment Processing Terms

Word or Phrase Abbreviation/Acronym Definition
Access Fee   Fee charged by the card companies* for accessing the network to process a transaction
Acquirer   Also referred to as Merchant Acquirer or Acquiring Bank. A bank or other financial entity that processes debit and credit card payments on the merchant’s behalf.
Acquiring Bank   See Acquirer
Accounts Payable A/P
  • Money payable by a business to its suppliers. Includes goods and services purchased by the business during normal business operations.
  • The department within a business organization that tracks and pays invoices for the company.
  • See also: Accounts Receivable
Accounts Receivable A/R
  • Money owed to a business by its customers in exchange for goods or services that have been delivered.
  • The department within a business organization that monitors incoming payments from debtors.
  • See also: Accounts Payable.
Address Verification Services AVS A fee most often invoked in card-not-present transactions, such as phone orders, keyed, online or mail orders, to confirm the identity of the customer. Includes the customer’s house number, street address and zip code as part of the acquirer’s authorization.
Application Fee   The fee paid by the merchant to an acquiring bank to process a new application for payment processing.
Authorization   The process within a credit transaction that checks for sufficient funds in the cardholder’s account. Positive authorization debits the cardholder’s available balance and earmarks the held funds for payment, although it does not deduct the funds from the cardholder’s account at that time. The transfer of funds out of the cardholder’s account happens at the time of settlement.
Automated Clearing House ACH A universal electronic payment network for clearing, processing and settling transactions – outside of the card companies’ networks. Used most frequently with direct deposit of paychecks and scheduled recurring payments.
Automated Teller Machine ATM An unattended electronic banking outlet, allowing customers to independently process transactions, get cash and request other services 24/7/365.
Average Ticket   The average individual purchase amount spent by a customer at a merchant’s location, usually calculated over a month’s time. One of the components used to calculate total processing costs per month.
Back end processor   The entity in the processing chain that accepts settled funds from the front end processor for a merchant’s daily transactions and facilitates the transfer of money from the issuing bank to the merchant’s bank.
Bank Card   See Check Card.
Bank Identification Number BIN The first six digits of a card number that identify the bank or financial institution issuing the card, the card type and brand.
Basis Point   Represents one one-hundredth of a percent, as in .001. Therefore, 150 basis points equal a 1.50% discount rate.
Bitcoin   A recently developed digital, or virtual, currency where transactions are made without a payment processing system and banks. Bitcoins are used most frequently for online transactions directly between individuals. Also called cryptocurrency.
Bundled Rate   Also called a flat rate, a discount rate including transaction fees, communication costs and statement fees rolled into one rate.
Cardholder   A consumer who is an authorized user of a credit or debit card.
Card Issuer   A bank or credit union offering credit cards to its customers and establishing a credit limit. The card issuer sends payments from the customer’s account to the merchant for purchases made. Also called member banks.
Card Not Present CNP Card Not Present – a transaction where the customer’s physical credit or debit card is not available for swiping. Online, mail order or telephone orders are CNP transactions. Sometimes called Mail Order Telephone Order (MOTO) transactions.
Chargeback   Reverses a disputed transaction between a merchant and customer; may be requested by the cardholder or card issuer.
Check Card   Also called Signature Debit or Bank Card. A payment card drawing directly from your checking account for immediate purchase withdrawals with your signature rather than with a Personal Identification Number (PIN).
Credit Card   A payment card issued by a financial institution that can be used to pay for goods and services at the point of sale (POS). There are three categories of credit cards:

  • Consumer credit cards (MasterCard, Visa, American Express, JCB, Diners)
  • International credit cards
  • Commercial credit cards (Corporate, Business, Purchasing)
Card Verification Code CVC A three or four digit code printed on a credit card that provides online, mail order, telephone order merchants with additional security and verification in Card Not Present Transactions.
Debit Card   A payment card used as an alternative to cash or checks that automatically and immediately deducts the authorized funds from the customer’s account with a keyed Personal Identification Number (PIN)
Debit Access Fee   Fee paid by a merchant each month to access all debit networks of its acquiring bank.
Declining Balance Card   A specialized payment card that has been funded to a specified limit and expiration date. Also called a Controlled Value Card.
Demand Deposit Account DDA A funded checking, money market or savings account to which the customer has convenient access.
Digital Currency   Alternative, virtual currency used in electronic payment transactions. Bitcoin is a digital currency.
Digital Wallet   An application usually on a handheld device, such as a tablet or smartphone, allowing customers to make electronic purchases online or at a point of sale (POS) without using a credit or debit card.
Direct Mobile Billing DMB Paying for goods or services by charging the transaction to the customer’s cell phone account.
Discount Fee   A fee paid by the merchant to its acquiring bank or third party for processing services. Also referred to as the merchant discount fee.
Discount Rate   The fixed percentage deducted from each purchase transaction (added back on a return) by the processor for handling the merchant’s transactions.
Dues and Assessments   Fees charged by the card companies based on the brand name of the card presented; Visa charges dues and assessments when the card is a Visa card and so on.
E-commerce   Online transactions between businesses or businesses and consumers for purchasing or selling goods and services
Effective Rate   The real percentage rate charged per transaction after calculating all fees and charges.
Electronic Data Interchange EDI Paperless exchange of business-to-business electronic documents in a standardized format; for example purchase orders and invoices.
Electronic Funds Transfer EFT Moving money directly between bank accounts without the exchange of paper money. For example, payroll direct deposits.
Electronic Interchange Reimbursement Fee EIRF This is a specific Visa Interchange category. Refer to the Visa interchange rate chart for additional information. http://usa.visa.com/download/merchants/Visa-Interchange-Reimbursement-Fees-April-2014.pdf
Electronic Transaction Association ETA A trade organization for Independent Sales Organizations (ISOs) and merchant service providers.
Electronic Signature   The electronic equivalent of a person’s written signature; could be shown as a unique code or symbol.
Europay MasterCard Visa EMV The evolving global standard for chip-enabled credit and debit cards (as opposed to magnetic stripe swipe cards). EMV will be implemented in the United States no later than October 2015.
Federal Reserve   The regulatory agency responsible for monitoring the transfer of funds between financial institutions, among many other duties.
Financial Institution FI Inclusive term referring to banks, savings and loan associations, credit unions and other entities that are compliant with all banking laws and can accept deposits and extend credit to its customers.
Fraud   Unauthorized use of a credit or debit card by a person or organization unknown to the authorized user.
Front End Processor   These processors link to card companies and provide authorization and settlement services to the merchants associated with a particular merchant bank.
Funding   Completed payments to a merchant for the deposits submitted
Gateway   An independent business that collects transaction information and passes it to the acquiring bank, allowing for automated real time processing and fast approval back to the merchant.
Gift Cards   A popular form of payment card that may be used to pay for goods or services up to the limit loaded on it.
Gross Sales Volume   Total sales volume counted in dollars or in transactions during a month. One of the components used to calculate total processing costs per month by some processors. Other processors use net values.
Guarantee Discount Rate   The rate charged to a merchant for Point of Sale (POS) check processing.
High Ticket Surcharge   An extra fee assessed when the value of a transaction is significantly above the average ticket value sold by a merchant.
Independent Sales Organization ISO An entrepreneurial organization selling merchant services for (a) a single acquirer or (b) several processors and/or acquiring banks. ISOs may also sell terminals, check processing services, loyalty and gift cards and payment application software.
Interchange   A fee, fixed by merchant category definitions, assessed by the acquiring bank for every credit or debit transaction. This fee reimburses the cardholder’s issuing bank for its expenses. The largest part of payment processing transactions.
Interchange Plus   Based on the merchant’s interchange category, the exact cost of the interchange fee plus dues and assessments is added to the transaction for processing.
Issuer   The bank, credit union or savings and loan issuing a commercial card or account.
Large Ticket Interchange   A lower interchange fee assessed for an individual transaction exceeding a specified high dollar amount and meeting other defined requirements.
Level I Data   Reflects a standard transaction and includes date, supplier and purchase amount for the transaction.
Level II Data   Expanded data for this transaction includes Level I data in addition to a purchase order number and sales tax.
Level III Data   More detailed transaction data including Level I and II data as well as line-item information.
Line of Credit   The upper limit of credit that may be extended to a customer. Set by the card issuer.
Low Value Transactions   Group of transactions where the total is less than a designated small monetary amount and is defined uniquely by each card company.
M-commerce   Refers to mobile electronic commerce (e-commerce, online purchase transactions on a handheld computer, tablet, phablet or smart phone.
Magnetic Ink Character Recognition MICR Character recognition using magnetic ink, typically on checks for routing numbers and account numbers. The magnetic ink facilitates reading the numbers off the checks, processing thousands of checks quickly.
Mail Order Telephone Order MOTO See Card Not Present
Merchant   Any individual or business authorized to accept credit or debit payments
Merchant Account   A business bank account allowing a business or individual to accept and transact debit and credit card processing.
Merchant Acquirer   See Acquirer
Merchant Cash Advance MCA An agreement between the processor and merchant to divert a percentage of sales back to the merchant as a loan to the merchant but with a higher interest rate.
Merchant Category Code MCC Describes the type of business the merchant conducts; important for categorizing the interchange fees the merchant will be charged.
Merchant Discount Fee   See Discount Fee
Merchant Discount Rate   The percentage rate that a business is charged monthly for all credit and debit card services it receives from the card issuer bank as part of its merchant account.
Mid-Qualified   In tiered payment systems, a mid-qualified transaction has some complications (corporate card, foreign credit card, manual keying and so on) that are charged an additional discount rate in their processing.
Near Field Communications NFC Short-range wireless communications technology becoming more prevalent in mobile and e-commerce payment processing. See also RFID.
Non-Qualified   In tiered rate processing, a non-qualified transaction is one that does not meet mid-qualified conditions. These may include corporate, government cards or corporate purchasing cards. Sometimes these transactions are called Standard rather than non-qualified. Non-qualified transactions incur an additional surcharge for processing.
Overdraft   A check written against an account with insufficient funds to pay the amount listed on the check.
Payment Card Industry PCI Responsible for developing the widely-accepted payment account data security. Payment card industry members (banks, card companies and merchants) must comply with PCI standards; failure to comply may result in fines or processing restrictions.
Payment Card Industry Data Security Standard PCI-DSS Universal security standards approved and supported by the card companies for protection of consumer cardholder data.
Payment Service Provider PSP Online service provider for e-commerce businesses, offering payment methods for their use.
Phishing   Email fraud perpetrated to acquire personal information or account numbers to steal from an individual.
Personal Identification Number PIN Usually a four digit numeric confidential code set up by a credit card holder and used to maintain security over debit card transactions.
Point of Purchase POP Where purchasing of goods or services takes place. In a store or restaurant, usually at a cash register. Online, the POP may be a secure connection for inputting credit or debit card information.
Point of Sale POS In brick-and-mortar stores, this means at the cash register, where retail sales occur. Online, this would be the secure online page where credit or debit card information is entered. The POS is evolving into occurring anywhere someone has a mobile terminal, tablet or smart phone.
Processor   The processor provides back-office services for the acquiring bank or card issuer, including the authorization of credit and debit card transactions and data delivery.
Provider   Supplies credit card-related goods and/or services.
Qualification   The level at which a particular transaction is assessed interchange fees. The qualification level is determined on several factors including how the credit card number is entered, the speed of transaction settlement, the merchant’s industry classification as well as others.
Quick Response Code QR A two-dimension image, similar to a barcode, that is read by smartphone software, downloaded app or a QR code scanner. The codes link users to mobile-enabled web pages for immediate information access. The codes are a mobile-friendly way to interest offline prospects in online information resources.
Quick-Service Restaurant QSR The category of merchants that includes fast food stores with large transaction throughput but with low dollars per transaction.
Radio Frequency Identification RFID A wireless non-contact application using radio-frequency electromagnetic fields to transfer data to automatically identify and track tags (retail application) or transactions (payment processing).
Remote Deposit Capture RDC Uses a digital photo image of a paper check to clear and settle the payment.
Reseller   An Independent Sales Organization (ISO) or agent can sell payment products and services as an independent agent of a third party company.
Risk Fee   A fee assessed by the acquiring bank based on a merchant’s profile and payment performance, similar to how a credit score affects individuals in securing financing.
Secure Sockets Layer SSL The internet standard for encrypting payment and personal information transferred online. SSL encrypts sensitive data (including credit and debit card information) in both directions so it is protected from hackers. In a browser window for an online transaction, https:// will be shown instead of http:// when SSL is in force.
Settlement   The portion of the complete payment transaction process where the card companies transfer funds from the cardholder’s account at the issuing bank and the merchant’s account at the acquiring bank. If the transaction is a refund, the transfer happens in reverse.
Set-Up Fee   A fee paid by the merchant for processing their payment application and preparing their equipment for accepting credit and debit cards.
Signature Debit   See Check Card
Signature-Required Account   Many merchant accounts insist on a cardholder’s signature to process a transaction.
Statement   Monthly document, received in hardcopy or online, that provides account details for the previous billing period.
Standard Industry Code SIC A national standard that categorizes all businesses into specific numeric codes. This has been updated into the North American Industry Classification System, NAICS.
Surcharges   Any fees or charges beyond the set rate for a specific merchant category.
Swipe Fees   Also known as interchange fees, these fees are part of the total cost a merchant pays for processing any credit card transaction.
Terminal Fee   A fee for service or maintenance of processing equipment rented from the processor or ISO.
Transaction Fee   This is charged on a single transaction and assessed on each item entered through the terminal beyond the discount rate.
Transaction splitting   Cardholders want to split a purchase into multiple transactions to avoid single transaction limits. This is usually not allowed.
Tokenization   A process protecting private data including credit card account numbers by substituting non-sensitive alias values, also called tokens, to limit the cardholder’s data transmitted during a payment process.
Unbundled   Refers to per item fee billing. The processor’s agreement may stipulate that there is a charge for each transaction, for communication costs, provided supplies and so on. All charges are shown individually on the monthly statement.

 

*Card companies are Visa/MasterCard/Discover