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Twenty Essential Payment Processing Terms

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


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-


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


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, email or call Mike Krause at 585-704-6453.

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