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This glossary provides definitions for many of the terms used in the bankcard
Account number - A unique sequence of numbers assigned to a cardholder
account that identifies the issuer and type of financial transaction card.
Acquirer - A licensed member that maintains the merchant relationship
and acquires the data relating to a transaction from the merchant or card acceptor
and submits that data into interchange, either directly or indirectly.
Authorization - A process defined in operations regulations whereby
a transaction is approved by or on behalf of an issuer; commonly understood
to be receiving of a sales validation by the merchant, by telephone, or authorization
Authorization Code - A code that notifies you that you have obtained
the authorization for a specific Visa card transaction. Note: You should print
this on the sales draft.
Automated Teller Machine (ATM) - An unattended, magnetic stripe-reading
terminal that dispenses cash; accepts deposits and loan payments; enables a
bank customer to order transfers among accounts and make account inquiries.
AVS (Address Verification System) - In 1996, Visa/MasterCard headquarters
introduced a new regulation requiring all businesses who manually key in the
majority of their credit card transactions to have a special fraud prevention
feature on their credit card processing equipment. This feature is referred
to as an address verification system (it checks to see that the billing address
given by the customer matches the credit card). If you opt not to use AVS,
VISA and MasterCard will not support your transactions and will charge you
an additional 1.25% on those sales.
Bankcard -A debit or credit card issued by a bank or other financial
institution, such as a MasterCard® or Maestro card.
Bank Rate - Also known as "Discount Rate." This is a percentage of each
sale that the bank charges as per Visa and MasterCard Rate requirements. All
banks are required to have at least 3 rate structures. Face to face retail
(usually the lowest rate e.g.. 1.49%). Phone, Mail and Internet rates (usually
higher e.g.. 2.24%). And a rate for imprinted or phone authorized rates (highest
rate e.g.. 2.62%). It is very important to correctly classify the way you will
accept credit cards so that you can achieve the best rate structure.
Batch - A collection of credit card transactions saved for submitting
at one time, usually each day. Merchants who do not have real-time verification
systems must submit their transactions manually through a POS terminal. Batch
fees are charged to encourage a merchant to submit his or her transactions
at one time, rather than throughout the day.
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.
Capture - The submission of a credit card transaction for processing
and settlement. POS terminals and real-time processing software capture transactions
to submit to merchant account providers or credit card processors.
Cardholder -The customer to whom a card has been issued or the individual
authorized to use the card.
Cash disbursement - A transaction that is posted to a cardholder's MasterCard
card account in which the cardholder receives cash at an ATM, or cash or travelers
checks at a branch of a member financial institution or at a qualified and
approved agent of a member financial institution.
Chargeback - A chargeback occurs when a card holder disputes a credit
card transaction with his or her credit card issuer. The card issuer initiates
a chargeback against the merchant account. The amount of the disputed transaction
is immediately withdrawn from the merchant's bank account, and the merchant
has 10 days in which to dispute the chargeback with proof of purchase, signature,
proof of delivery, etc. A chargeback fee is usually assessed to the merchant
on top of the actual transaction. See also retrieval request.
Chargeback defense - A customer who does not receive his goods or services,
or says he did not place an order, can ask his issuing bank to charge back
the merchant. The Issuing Bank sends the chargeback request to the merchant
bank, which forwards it to the merchant asking to validate the charge. Information
such as the amount, an invoice or folio, customer signature, or shipping documents,
and the shipping address (used in AVS during the authorization) are needed
to defend against a chargeback.
Clearing - The process of exchanging financial transaction details between
an acquirer and an issuer to facilitate posting of a cardholder's account and
reconciliation of a customer's settlement position.
Cobranded card - A credit card issued jointly by a member bank and a
merchant, bearing the "brand" of both.
"Code 10" Authorization - This is a voice authorization code that you
might initiate when you suspect a card is stolen or fake, or when a customer
is acting suspiciously.
Commerce server - A Web server that contains the software necessary
for processing customer orders via the Web, including shopping cart progrCredit Card Transactions Inc.,
dynamic inventory databases, and online payment systems. Commerce servers are
usually also secure servers.
Corporate card - A bankcard issued to companies for use by company employees.
The liability for abuse of the card typically rests with the company and not
with the employee.
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
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.
Currency conversion - The process by which the transaction currency
is converted into the currency of settlement or the currency of the issuer
for the purpose of facilitating transaction authorization, clearing and settlement
reporting. The currency of transaction is determined by the acquirer; the currency
of the issuer is the preferred currency used by the issuer, and most often,
the currency in which the cardholder will be billed.
DDS (digital data storage) debit card - A financial instrument used
by consumers in place of cash. Unlike a credit card, debit card purchases are
deducted automatically from the cardholder's account, like a check. Visa and
MasterCard now offer debit cards through banks and other financial institutions.
Debit card - A plastic card used to initiate a debit transaction. In
general, these transactions are used primarily to purchase goods and services
and to obtain cash, for which the cardholder's asset account is debited by
Digital wallet - A consumer account set up to allow e-commerce transactions
through a particular credit card processing system. Before the consumer can
make a purchase, he or she must first establish an account with the credit
card processor, who provides an ID and password. These can then be used to
make purchases at any Web site that supports that transaction system.
Discount Rate - See "Bank Rate."
Draft/Sales draft - A record (usually paper) used to document that a
good or service was purchased.
Electronic Commerce Indicator (ECI) - A system in which the transaction
data from an Internet transaction is tagged with this indicator and sent on
to Visa or MasterCard. It is a requirement (October 1st, 2000) for all merchants
with a majority of sales via the Internet to use an approved and ECI compliant
payment gateway. Hand keying of credit card numbers in to standard credit card
terminals would not capture and pass on the ECI, therefore this method is not
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.
Emboss - The process of printing identifying data on a bankcard in the
form of raised characters.
Equipment - Most credit card transactions are conducted electronically
by using Electronic Draft Capture (see EDC). Typically this is performed by
terminal (like the Verifone Tranz 330), Software or via the Internet.
Factoring - 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.
Floor limit - A specific dollar limit used to determine which Visa card
transactions you must authorize. If your business has a floor limit $1,000-you
must get authorization for any transaction over that amount. Note: All airline,
telephone, and mail order transactions must be authorized, even if the amount
is under your floor limit.
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.
Imprint - A physical impression you make from a customer's card which
appears on the draft. This proves that the card was present when the sale was
made. Note: An imprint can be created electronically if you use a magnetic-stripe-reading
terminal that includes the correct point-of-sale (POS) entry code.
Imprinter -A device to produce an image of the embossed characters of
the bankcard on all copies of sales drafts and credit slips.
Interchange fee - The fee that the Card Association charges the merchant
to get the funds into his bank (merchant bank) and to get the billing information
to the cardholder's bank (issuing bank). Interchange fees are based on following
credit card regulations and capturing appropriate data including card swipe,
address, and electronic signature as needed. These fees are also based on the
timeliness of the settlement of transactions.
ISO (independent service organization) - A firm or organization that
offers to process online credit card transactions, usually in exchange for
transaction fees or a percentage of sales. Merchants must generally establish
a merchant account before contracting for ISO services, although some ISOs
claim not to require separate merchant accounts. See also factoring.
Issuer - The member that enters into a contractual agreement with MasterCard
to issue MasterCard® cards.
Issuing bank - The bank that maintains the consumer's credit card account
and must pay out to the merchant's account in a credit card purchase. The issuing
bank then bills the customer for the debt.
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.
Mail Order/Telephone Order (MO/TO) - A transaction initiated by mail
or telephone to be debited or credited to a bankcard account.
Member - An institution that participates in the program Credit Card Transactions Inc.
offered by MasterCard International Incorporated.
Merchant - A retailer, or any other person, firm, or corporation that
(pursuant to a merchant agreement) agrees to accept credit cards, debit cards,
or both, when properly presented.
Merchant Account - A specialized bank approved and issued account to
process credit card transactions. One of three parts needed to accept credit
cards. Other parts required, a local bank checking account (to deposit funds)
and a Processing Solution (to access your merchant account).
Merchant bank - A bank that has entered into an agreement with a merchant
to accept deposits generated by bankcard transactions; also called the acquirer
or acquiring bank.
Merchant Identification Number - The number a financial institution
assigns to a merchant to identify your business.
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.
MOTO (mail order/ telephone order) discount rate - The discount rate
charged by the merchant account provider for credit card transaction in which
the actual credit card was not available to the merchant. MOTO discount rates
are generally higher than swipe discount rates to account for the increased
chance of fraud or nonpayment.
Payment gateway - The code that transmits a customer's order to and
from a merchant's bank's transaction-authorizing agent - usually a MAP (merchant
account provider). See also payment gateway provider.
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.
Personal Identification Number (PIN) - A four-to-twelve character secret
code that allows an issuer to positively authenticate the cardholder for the
purpose of approving an ATM or terminal transaction occurring at a point-of-interaction
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.
Processing Solution - A device, software or virtual product that allows
you to connect to a Merchant Account. With out a processing solution, like
a credit card terminal, there would be no way to verify, approve and deposit
credit card transactions.
Purchasing card - Designed to help companies maintain control of purchases
while reducing the administrative cost associated with authorizing, tracking,
paying, and reconciling those purchases.
Real-time processing - Having your customer's credit card information
validated and processed for you automatically. The credit card will be charged
and the money will be deposited into your bank account all automatically. This
is perfect for an internet-based business.
Receipt - A hardcopy document representing a transaction that took place
at the point of sale, with a description that usually includes: date, merchant
name/location, primary account number, amount and reference number.
Recurring fees - Regular, usually monthly, charges for maintaining a
merchant account. Recurring fees include the discount rate, transaction fees,
statement fee, and monthly minimum.
Reserve account - See "Holdback."
Retrieval request - A retrieval request is what happens when a cardholder
cannot remember a credit card transaction, or the bank wants order information
for some reason. The card issuer initiates a retrieval request, in which the
merchant has 10 days to respond with the order information or the retrieval
request will turn into a chargeback. There is usually a retrieval request fee
issued against the merchant also in these cases.
SSL (secure socket layer) - A system for encrypting data sent over the
Internet, including e-commerce transactions and passwords. With SSL, client
and server computers exchange public keys, allowing them to encode and decode
Settlement - The process by which merchant and cardholder banks exchange
financial data and value resulting from sales transactions, cash disbursements
and merchandise credits.
Setup fees - Fees charged for establishing a merchant account, including
application fees, software licensing fees, and equipment purchases.
Smart card - A plastic card containing a computer chip that can store
electronic "money." Unlike a credit card, a smart card can only spend out the
dollar amount its owner has already put into the card account. It's similar
in function to a prepaid calling card but is available for all purchases.
Swipe discount rate - The discount rate charged by a merchant account
provider for transactions in which a credit card is available for inspection
by the merchant. Swipe discount rates are generally lower than MOTO discount
rates because the merchant can match signatures and perform other checks for
fraud or misuse.
Third-party processing - Processing of transactions by parties acting
under contract to issuers or acquirers.
Transaction - Action between a cardholder and a merchant or a cardholder
and a member that results in activity on the cardholder account.
Transaction date - The date a cardholder effects a card purchase of
goods, services, or other things of value, or effects a cash disbursement.
Transaction fee - A charge for each credit card transaction, collected
by the MAP (merchant account provider) or ISO.
Transaction fees usually fall between $0.20 and $1 (U.S.).