Payment Processing Glossary

A

ACH: ACH stands for automated clearing house, which is an electronic transfer of funds between bank accounts.

AMEX: The abbreviated version of American Express – a credit card company that specializes in travel and entertainment.

Account Number: A unique number assigned to a cardholder that indicates the issuer and financial transaction.

Acquiring Bank: Also known as the Merchant Bank. A licensed member of VISA and MasterCard that allows merchants to process credit cards. These banks also deposit daily sales into the merchant’s bank account.

Adjustments: Made when settling chargebacks or disputes with other financial companies; usually the cardholder’s company.

Authentication: A process that verifies the identity of a merchant.

Authorization: The process of making sure that the cardholder has sufficient funds/credit limit on his or her card. The available credit is impacted by the authorize amount.

Average Ticket: The average size of a merchant’s typical transaction. This is typically used in determining daily and monthly volume limits.

B

Bank Routing Number: A nine digit number that appears across the bottom of a check which identifies the financial institution.

Bankcard: A credit, debit or gift card issued by a financial institution.

Batch: The total captured sales that are waiting to be settled. Depending on the acquiring bank, several batches may be settled daily.

Business Day: Weekdays (Monday – Friday), which are not on the list of bank holidays.

C

Capture Date: The date in which the acquiring bank processes a transaction.

Card Issuer: Any financial institution or organization that issues credit cards, debit cards or personal identification numbers (PIN).

Card Verification Code (CVC): A unique number that is calculated from data encoded on the magnetic stripe of a MasterCard. During the authorization process, this validates card information.

Card Verification Value (CVV): A unique number that is calculated from data encoded on the magnetic stripe of a VISA card. During the authorization process, this validates card information.

Cardholder: The individual that was issued the credit card, debit card or PIN number – and any additional people authorized to use any of the above.

Cash Back: Where some or all of the purchase is returned to the cardholder as cash.

Chargeback: A transaction that is disputed by the cardholder or by an issuing bank and is returned to the merchant for mitigation or resolution.

Chip: A small semi conductive square found on most credit or debit cards now. This is used as additional fraud protection.

Clearing Account: A bank account that will receive a merchant’s credit card or debit card settlements.

Clearing Bank: A bank that accepts the merchant’s daily settlements. This bank also conducts the necessary transfers.

Credit Card: A card with a credit limit issued to an individual for purchases in which they repay the extended credit at a later date.

Credit Limit: The maximum amount of money the cardholder can owe to his or her issuing bank at any given time.

Currency Conversion Fee: The cost of using a credit or debit card internationally. These fees are based on converting the consumers currency into the merchant’s currency before settlement.

D

Database: Data that is collected and organized for easy access.

Data Encryption: The process of changing data strings to make it unusable to hackers or anyone who does not have authorization to view the information. Typically this is stored in “keys” or “tokens.”

Debit: Any charge assessed to a customer’s bank account.

Debit Card: A card that accesses a deposit account such as a checking or savings account.

Decline: The denial of the authorization request.

Discount Rate: The amount charged to a merchant for processing credit cards.

Doing Business As (DBA): The specific name of the merchant (location or establishment) where credit card transactions occur.

E

E-check: The electronic version of the paper check.

Electronic Commerce/E-Commerce: The transacting of business through the internet rather than on paper.

Encryption: The method of coding data for anti fraud and security purposes.

F

Financial Institution: Any organization that invests, moves or deals in financial transactions.

Funding: Refers to payment of a merchant for his or her settlements.

I

Interchange: The system for both domestic and international systems operated by VISA and MasterCard for the authorization, settlement and passing of interchange fees as well as other information to monetary and non-monetary related to card activities.

Interchange Fee: Fees paid to the issuer by the acquirer to make up for transaction costs. VISA and MasterCard dictate what these fees are.

Issuing Bank: A VISA and MasterCard licensed financial institution that executes and holds contractual agreements in regards to cardholders.

M

Magnetic Stripe: The stripe on the back of a credit or debit card that encodes the cardholder’s information.

Member: A financial institution that is a member of VISA and MasterCard and is licensed to issue credit or debit cards to the appropriate cardholders.

Merchant: A business that accepts credit card or debit card payments.

Merchant Acquirer: See acquired or acquiring bank.

Merchant Agreement: The contract between the merchant and acquiring bank that outlines rights and responsibilities.

Merchant Number: A number that identifies a merchant to the merchant processor for billing purposes.

N

Net Payment: Payment to the merchant minus processing fees.

Net Revenue: Income minus the interchange fees.

Net Settlement: Settlement of a series of financial transactions, minus the cost of transaction fees.

O

Originator: The financial institution where a wire transfer or ACH payment initiates.

P

PIN: Stands for Personal Identification Number. This is a confidential number used by the cardholder to indicate card ownership for ATM or point of sale terminal transactions.

PIN Pad: A security module that is usually tamper resistant which enables a cardholder to enter his or her PIN at the terminal.

Paper: Cash disbursement slips, credit slips, sales slips or any other media involving a card or card account.

Payment Gateway: An application for e-commerce platforms that authorizes payments. It’s equivalent is the point of sale terminal at a brick and mortar location.

Point of Sale (POS) System: A system that allows the merchant to accept credit cards at a specific location.

Prepaid Cards: A debit card that allows the card holder to only spend the amount pre-deposited on the card. Sometimes these cards can be reloaded, but not always.

Processor: An organization that provides authorization and clearing/settlements on behalf of a merchant. These organizations are connected to VISANet and/or BankNet.

R

Reason Code: This code is used to provide information regarding chargebacks, fees, fund disbursement or a request for documents.

Receipt: Either a hard copy or electronic transaction description that took place either online through a payment gateway or physically through a point of sale system. The items that are included on the receipt include the account number, amount, a reference number and an action code.

Recurring Transaction: A transaction charged on a periodic schedule for recurring memberships, goods or services.

Reference Number: A number assigned to identify a transaction. Usually these are a 23 digit number.

Remittance Information: Information required to post bill payments.

S

Settlement: The settlement is what happens when the acquiring bank and the card issuer exchange funds or data during a transaction.

Supporting Documents: Information asked of the merchant during the application process that prove eligibility. These can include driver’s licenses, utility bills, previous processing history and more.

T

Third Party Processing: Processing of transactions by companies acting under card issuers or acquirers.

Transaction: An event that causes either an exchange in data or change in a financial position.

Transaction Date: The occurrence date of the transaction. Used often times in recording and monitoring transactions.