Just like any other industry or organization, the merchant services/payment
processing industry has a myriad of terms that can make your head swim. If you
can master just a few at a time, you’ll find the whole world of credit card payment
transactions much more understandable. Here are twenty of the most essential
terms and concepts to wrap your noodle around.
1. Acquirer/Acquiring Bank. A financial institution, and member of the Visa and
MasterCard networks, that sets up agreements with retail or online merchants
allowing the merchants to accept debit or credit cards as payment. Acquirers
are also frequently referred to as acquiring banks.
2. Address Verification Service (AVS). This service lets merchants who accept
card-not-present transactions to check the billing address provided by a
customer with the address on file with the card issuer. An AVS request is
processed at the same time as the transaction’s authorization request but is a
separate request and, therefore, a separate fee.
3. Authorization. The card issuer has the responsibility to approve or decline a
debit or credit card transaction, referred to as authorization. In a card-present
transaction, the authorization request is generally processed automatically as
the card is swiped. For card-not-present transactions, authorization begins
when the transaction information is keyed into an online form and submitted.
4. 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.
5. Chargeback. Every e-commerce merchant dreads having a transaction kicked
back to the acquiring bank by the card issuer, usually because the customer
(cardholder) is disputing a transaction. In turn, the acquiring bank charges
back (returns) the disputed transaction to the initiating merchant.
6. Copy request. A request from the card issuer to the acquiring bank for a copy
of a sales receipt for a disputed transaction. The copy request might be
provided by the acquiring bank, if it retains receipts for its merchants or by the
initiating merchant. A copy request is also known as a retrieval request.
7. Electronic Commerce Indicator (ECI). A particular code entered by e-
commerce merchants and their acquiring banks into the designated field of
authorization and settlement messages to earmark a transaction as e-
commerce.
8. Exception file. A frequently updated list of counterfeit, stolen, lost, fake or
otherwise invalid card numbers maintained by payment processors.
Transactions, particularly those under the usual authorization limit, should be
checked against the current exception file as a routine part of the transaction
authorization process.
9. Fraud scoring. A system of analytical fraud identification models developed
by payment processors that identify the highest-risk products in card-not-
present transactions that require additional verification for authorization.
10. High-risk merchant. A merchant with a high risk for frequent chargebacks
because of its business category. For example, check cashing services,
collection agencies, mail order companies, pawnshops, travel services and
many others.
11. Mail Order / Telephone Order (MO/TO). A business or selling environment for
which mail or telephone sales are the primary source of revenues.
12. Payment Card Industry Data Security Standard (PCI DSS). A national set of
security requirements with which all merchants must comply to protect sensitive
customer account data.
13. Payment gateway. A component of the virtual point-of-sale system that
enables authorization and settling of e-commerce transactions. Payment
gateways connect a merchant’s e-commerce website with the acquiring bank’s
processing platform.
14. Pick-up response. A response by the authorization agent to the initiating
merchant who has presented a card-present authorization request, directing the
merchant to cancel the transaction and keep the credit or debit card.
15. Processor. A third-party company providing authorization, clearing and
settlement – or any combination of the three – on behalf of the acquiring bank
to merchants.
16. Re-presentment. A chargeback that has been rejected by the acquiring bank
and sent back to the issuing bank for the merchant. A chargeback can be re-
presented again once the merchant or its acquiring bank can resolve the
dispute that led to the rejection.
17. Security codes. One of two codes, depending on the brand of the credit or
debit card: (1) The last three digits of the number stamped in the signature area
or just to the right of it on the back of MasterCard, Visa and Discover cards and
(2) the four-digit number found just above the card number on the front right of
American Express cards. These codes provide merchants accepting card-not-
present transactions with additional security and verification.
18. Skimming. Illegally copying (skimming) the consumer’s account information
encoded in the magnetic stripe of a credit or debit card. The data that is
skimmed is then re-encoded on counterfeit cards or used in fraudulent
purchases.
19. Split-tender. Using two forms of payment (tender) for a purchase transaction.
These usually occur when customers have gift cards or prepaid debit cards
and want to use the remaining balance on a card and then cover the difference
with a different type of payment.
20. Virtual terminal. A web-based application allowing a merchant to process
credit or debit card transactions by keying the payment information into a
secure payment form (portal) opened in a standard browser window. A virtual
terminal is the web’s equivalent of a point-of-sale (POS) device.
For more information on important payment terms and our whole range of
merchant processing services, please visit SalesSensePayments.com, email
Mike@SalesSensePayments.com or call Mike Krause at 585-704-6453.