Merchant Account Glossary of Terms
Transparency is a crucial component of our Savvy business philosophy. We never want our clients to be confused or misguided by merchant account terminology. Below are a few key definitions to familiarize yourself with when discussing payment processing.
A financial institution that processes credit and debit card, as well as ACH payment transactions on behalf of a merchant.
Automated Clearing House, or ACH for short, is an electronic check payment from your customer’s bank account to your business checking account. A company initiates a transaction by receiving authorization to debit their checking or savings account for a specific amount and obtaining the routing and account number. A file is then passed to your merchant service provider for processing. An ACH payment must clear your customer’s account, similar to a paper check, and therefore monies are not always guaranteed.
An ACH Credit transfers money from the merchant’s banking account to a customer.
An ACH Debit removes an authorized amount from a customer to a merchant’s banking account.
Once a credit or debit card is sent for validation, a response is received from the issuing bank, and an authorization is obtained. The authorization will either come back as an approval or a decline.
Whether an authorization is approved or declined, a six to seven digit authorization code is received by the merchant. A gateway terminal will record this code as valid proof of authorization.
This nominal fee is assessed every time a payment processing channel is accessed – whether initiating an authorization or refund.
Average ticket size is the most frequent dollar amount per transaction processed. This is a prominent figure to have when applying for credit card or ACH processing. The average ticket size can be determined by dividing your total monthly sales (in dollars) by the total number of transactions processed in that same period.
Address Verification Service, or AVS, is a required competent of all card-not-present transactions. This service validates the cardholder’s address and/or ZIP code by checking it against the issuing bank’s records. Responses received will either result in a match, partial match, no match, or AVS not available/error.
For any business processing credit or debit cards over the web or keying in a transaction manually via a MOTO (Mail Order Telephone Order) system, AVS is essential to reduce fraud and chargebacks.
Basis points are the percentage assessed on a credit card transaction. One basis point is equal to 1/100th of 1 percent. A rate of 3.25% equates to 325 basis points.
A group of payment transactions received throughout the course of a business day is referred to as a batch. Batch processing involves closing the group of transactions at one time. A batch is usually closed daily either via a manual or automatic process.
Manual closing means every day a merchant must access their online payment gateway to batch out the transactions held in a queue to settle them. Automatic closing means the online payment gateway routinely closes the transactions contained in a batch daily at a predetermined time determined by the merchant.
Card Brands refer to Visa, MasterCard, American Express® and Discover®. These networks account for the majority of credit and debit cards processed within the United States. Each brand is responsible for regulating their own card acceptance rules, meaning when and where they can be processed as valid forms of payment.
A cardholder is an individual a credit or debit card has been issued to.
Upon swiping, inserting or manually keying in a payment card information, the account information is said to be captured by your payment terminal.
A payment card transaction where the cardholder and/or card are not actually present. Online and mail/telephone order payments fall under the CNP heading.
Chargebacks are a reversal of a previous payment received by your customer’s banking institution. Common reasons for chargebacks include fraudulent or unauthorized charges, or the amount is disputed. It is essential as a high-risk merchant to keep your chargeback ratio under 1% monthly
The CFPB is a government agency charged with safeguarding consumers from unsavory financial procedures.
With Convenience Fee payment processing, a merchant’s can alleviate the entire or majority of their payment processing cost by passing a nominal fee on to the consumer.
An issuing bank will approve a consumer for a line of credit, and in turn, the consumer receives a credit card for the purchase of good and services.
Chosen by the merchant, a credit card processor handles electronic payment transactions and ensures batches are ultimately deposited into the merchant’s bank account. The term is used interchangeably with merchant services provider, merchant account provider and merchant acquirer.
Debit cards mirror credit cards in appearance; however, funds are drawn directly from a linked bank account in place of a line of credit so to speak. The authorization is instantaneous, meaning if available funds are not sufficient to cover a purchase, a decline will be received.
Recently PINless debit card processing has been made available to merchants, meaning a consumer's PIN is not always required for purchases. This is especially useful for eCommerce merchants, and those in higher-risk industries as customers do not need a credit card to purchase goods or services. Typically debit cards, although branded by a major card network, are exempt from the stringent guidelines imposed on credit cards.
A percentage charged by a payment processor in exchange for merchant services.
The process of encoding data to guarantee secure transmission.
An IVR system utilizes a series of predetermined responses to capture and automatically process payment information from a customer over a phone call. It alleviates staff-time from having to process payments manually.
Interchange fees constitute the most considerable portion of a merchant's card processing costs. The rate is set by the major card brands and is updated from time to time.
A database is maintained by financial institutions listing terminated merchants who have violated merchant processing agreements.
An approved business or individual that can process card and/or ACH payments.
A merchant account gives you access to process credit and debit card as well as ACH payments. A business can apply for a merchant account by working with a credit card processor.
Monthly minimums are outlined in a Merchant Agreement. Should the fees a processor can charge collectively on a monthly basis to do not meet a minimum amount, the processor will charge a minimum monthly cost to the merchant.
The total monthly payment sales you expect to process via credit and debit card or ACH payments.
Abbreviation for Mail Order/Telephone Order payments.
The association responsible for creating and enforcing rules surrounding the ACH payment network.
Secure site that completes electronic payment transactions between a merchant and a payment processor.
An innovative payment solution, Pay by Text allows consumers to pay bills via SMS text message.
PCI-DSS stands for Payment Card Industry Data Security Standards. The credit card networks established a set of rules merchants must abide by to protect cardholder information and reduce the risk of data theft. Meeting these requirements is known as being PCI compliant.
A similar to a recurring payment, a PPD transaction is processed when a merchant receives written authorization to debit a consumer’s checking or savings account at periodic points in time for payment of goods and services.
A periodically charged transaction to a cardholder on for the payment of goods and services is known as recurring billing or recurring payments. Payments can be processed weekly, monthly, or annually depending on a merchant’s agreement with the customer.
The ability to process a payment transaction in seconds without any time delays.
SSL stands for Secure Socket Layer, a system for encrypting payment card data sent over a network.
Date in which payment funds will be dispersed to a merchant.
A one-time payment for goods and services.
TEL ACH transactions are processed when a merchant receives verbal authorization from a consumer to debit their checking or savings account for payment of goods and services.
A document containing relevant merchant account information. This file is received from the payment processor upon merchant account approval, and the data is used to communicate between an online payment gateway and/or integrated software system and the merchant service provider.
Web ACH transactions are processed when a merchant receives internet authorization from a consumer to debit their checking or savings account for payment of goods and services.