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ABA Routing Number
This is the nine digit number that appears on all checks along with the
bank account number. (It is also sometimes called the Transit Routing
Number.) The number identifies which bank the account is from, as each
bank has its own identifying number. When you send a bank wire or ACH
transaction, you need both the nine digit number and your bank account
ACH/Automated Clearing House
ACH is short for Automated Clearing House. When you send money from one
bank account to another, you can do it through bank wire or ACH. Think of
ACH as an electronic payment from one bank account to another. The
transaction is initiated by a business to debit an account by submitting
an ACH file. This file contains the bank’s ABA (American Bankers
Association®) number and the account number(s) to debit, along
with the amount(s). This file is submitted for processing nightly and
passes through networks controlled by the Federal Reserve. ACH payments
are not guaranteed; that is, they must clear, much like a check. ACH is
useful as an alternative to accepting a credit card.
An acquiring bank provides credit card merchant accounts. It’s a bank that
has a relationship with Visa® and Mastercard®, as
well as your bank and is sometimes referred to as the clearing bank. The
acquiring bank is responsible for clearing transactions after they are
charged to a cardholder. That is, the acquiring bank makes the deposits
into a bank account when credit cards are processed.
These terms all refer to Visa, MasterCard, American Express®
and Discover®, whose familiar logos appear on the overwhelming
majority of credit and debit cards in the U.S. The Card brands regulate
card acceptance rules for member financial institutions.
ATM Debit Card
An ATM (Automated Teller Machine) debit card is similar in size and shape
to a credit card and features an account number and magnetic stripe on one
side. When swiped through a Point-of-Sale terminal, the cardholder is
prompted to enter a PIN number via a PIN pad. This will create an instant
debit transaction, with funds drawn from the customer’s bank account.
Funds are authorized in real time, and if there are not sufficient funds
in the customer’s bank account the transaction will be declined. In
addition to purchases, ATM cards can also be used at ATM machines to make
cash withdrawals, deposits and balance transfers, and to check account
This is the term given to the process of validating funds available on a
credit or debit card. It is done at the time the transaction is entered or
swiped through a Point-of-Sale terminal. When you process a credit card
transaction, a response comes back from the issuing bank, all in a second
or two. An authorization is either approved or declined by the issuing
If the authorization is approved, that means funds are available to be
withdrawn from the customer’s account and added to your bank account. When
an authorization is approved, a six or seven digit authorization code is
provided, along with the Address Verification Service (AVS) response. If
no authorization is given, this is a decline, meaning there are either not
enough funds in the customer’s bank account (if a debit card) or the
customer has most likely reached their limit on their credit card.
The authorization code is the response code from the issuing bank that is
returned to you at the time of authorization. This code is usually a six
or seven digit number and is recorded either by the Point-of-Sale terminal
or software, as well as printed on any receipt or sales draft. If doing a
phone or voice authorization, you should record the authorization code for
reference, as it serves as proof of authorization.
This is the amount charged to you each time a communication happens
between your software or Point-of-Sale terminal and the authorizing
network. The communication can occur either over a dial-up telephone line,
leased line or the internet. This fee covers all transaction types: sale
transactions, post-authorization transactions and refunds.
Authorization Only Transaction
Authorization Only (Auth Only) is a special type of sale transaction. It
authorizes an amount on a customer’s card but the item does not settle
until a later time, sometime several days or weeks later. The purpose of
an authorization-only transaction is to reserve an amount against a
cardholder’s available credit limit for a certain period of time. For
example, you may perform an authorization only transaction if an item
ordered is out of stock. When the item becomes available, you settle the
transaction, charging the card at that time.
Another reason you may do an authorization only transaction is when the
exact amount to be charged to a card is not yet known. This is common in
the hotel industry.
When a guest checks in to a hotel, their card is authorized for an amount
greater than the length of their stay. However, the transaction is not
settled until checkout, when the hotel may include incidentals that were
charged to the room. At checkout the hotel enters the final amount,
settles the transaction and the card is charged.
One caveat is that if an authorization only transaction is not settled
within 24 hours, the transaction can downgrade to a different rate
category and you may be surcharged a small fee. However, the benefits of
using an authorization only transaction usually outweigh any costs, since
the authorization guarantees payment.
An issuing financial institution’s electronic reply to an authorization
request, which may include:
- Approval – transaction was approved
- Decline – transaction was not approved
- Call Center – response pending more information; in this case you
call the toll-free authorization phone number. This occurs if there is a
problem with the cardholder’s card.
Average Ticket Size
Average ticket size refers to the average dollar amount of your credit
card transactions. Average ticket size is always asked when you set up a
new merchant account. If you don’t yet process credit cards, simply
estimate your average credit card sale. (Keep in mind that the average
credit card transaction is typically higher than the average cash
transaction.) If you already process credit cards, simply divide your
total monthly volume by the number of transactions to determine your
average ticket size.
Address Verification Service/AVS
AVS stands for Address Verification Service. AVS is required for all
card-not-present (keyed) credit card transactions. At the time of the
transaction, simply enter the street address and ZIP code along with the
card number, expiration date and amount. When the transaction is submitted
for authorization, the address and ZIP code are checked against the
billing address and ZIP code for the cardholder. The AVS response is
provided by the issuing bank and the result is either a match, partial
match, no match, or AVS not available/error.
You can use this information for fraud control. For example, if the
address and ZIP code do not match, it would be prudent for you to contact
the cardholder before shipping expensive merchandise. There is a small
cost for AVS, but it is usually incorporated into the transaction fee. You
should use AVS if you accept credit card orders via the internet, or
anytime a credit card is not present, as it will help reduce the risk of
Basis points are the percentage that you are charged on a credit card
transaction. One basis point is equal to 1/100th of 1 percent. Thus a rate
of 2.33% is equivalent to 233 basis points. Oftentimes you will hear the
term basis points in regards to rates. For example, 75 basis points is the
same as saying 0.75%.
Batch or Batch Processing
A batch is a collection of transactions, usually a single day’s worth.
Batch processing refers to closing or settling an entire batch of
transactions at one time. The Point-of-Sale terminal or credit card
processing software can be set on manual batch close or automatic batch
If on manual batch close, you need to batch out at the end of each day.
This sends a command to the processor to settle all transactions that have
been entered. Once a batch is settled, a report is printed showing the
transaction totals in the batch. Before a batch is settled, changes can be
made to existing transactions in the batch. For example, you may want to
void a transaction, or change the amount of one of the transactions.
Changing the amount is common in the restaurant business. In that case,
the amount of each transaction is adjusted to include tips before the
batch is closed.
In automatic batch close, no manual intervention is required. Instead the
terminal or software will automatically close the batch (settle the
transactions) at a certain time each day. In some cases the processor will
settle the batch at the processor level (host batch close). Most
businesses are set up on automatic batch close, unless a tip edit function
is useful, in which case manual batch close is typically the better
option. Many processors charge a fee each time a batch is closed.
Breach Security Coverage
A value-added service that offers up to $100,000 in coverage to offset the
costs of an actual or suspected data breach.
This question is commonly asked on new merchant applications. Your
business type should fit into one of the following categories: Retail,
Restaurant, Hotel, Mail Order / Telephone Order or internet. A description
of each follows:
Retail – This applies to you if you are in a face-to-face
environment and sell tangible goods, where cards are swiped or inserted
into a terminal or other card reader device.
Restaurant – A restaurant is defined as a business that serves
food, is in a face-to-face environment, and uses terminals to swipe or
otherwise accept credit cards. The key difference between restaurants and
retail is that the product is consumable (hence a lower risk of
chargebacks) and tips are usually entered as part of the transaction.
Hotel – This refers to merchants in a face-to-face environment that
sell lodging and hospitality services. These merchants typically utilize
conventional terminals where cards are swiped or inserted.
Mail Order/Telephone Order (MOTO) – This refers to any business
that is not face-to-face with the customer, thus the transactions are
keyed into a terminal. The term mail order/telephone order comes from the
fact that the credit card number is received either over the phone or
through the mail, but it encompasses all transactions that are keyed no
matter how they are received.
Internet – This refers to a business where the credit card
information is collected over the internet via a web page.
The process of acquiring the account information required for processing a
payment. This occurs by swiping a credit or debit card through a card
reader, inserting the card into a reader or by manually keying in the
Card Not Present (CNP)
A payment card transaction where the cardholder/card are not physically
present. For example, an online or mail/telephone order.
A transaction where the cardholder and payment card are both present.
Sometimes referred to as a face-to-face transaction.
Occurs when a cardholder disputes a transaction with the card issuer. The
issuer initiates a retrieval request against you and the disputed amount
is withdrawn from your account until the matter is settled. You are given
10 days to dispute the chargeback with proof of purchase or delivery. The
merchant account provider imposes a chargeback fee as part of the process.
A payment card that is issued by a bank and used by an individual to
purchase merchandise or services on credit.
Credit Card Imprinter
A device used to create a receipt for a credit card transaction. These
flatbed imprinters have largely been replaced by printers linked to a
credit card terminal.
Credit Card Processing
The electronic process of transacting and verifying a credit card
transaction. Once authorized, the process initiates an ACH transfer of
funds from the issuing bank to the credit card processor, who then
deposits the proceeds into your account.
Credit Card Processor
An entity that handles the electronic verification and initiation of
Electronic Funds Transfers (EFT) into the ACH system on behalf of clients.
The term is used interchangeably with merchant services provider, merchant
account provider and merchant acquirer.
Credit Card Reader
A credit card reader, sometimes called a credit card swiper, is an
electronic device used to read data stored on the magnetic stripe of a
credit card. When the credit card is swiped (or inserted) at the point of
sale, the information pertinent to processing the card transaction is read
and processed. Typically this magnetic stripe data includes the
cardholder’s name, credit card account number and expiration date, and
also the Card Security Code (CSC), also known as the Card Verification
Debit cards are similar to credit cards, except that the funds are
immediately withdrawn from the cardholder’s bank account. Credit card
charges, on the other hand, are billed to the cardholder each month, and
interest charges may be added. Also, a credit card holder need not pay the
entire balance due each month, while with debit cards there is no balance
to pay off, as the money comes directly out of the cardholder’s bank
There are two types of debit transactions; one is offline debit
(Signature), and the other is online debit (PIN). With offline debit, the
customer signs a receipt and does not enter a PIN and the transaction
travels through the Visa/MasterCard Network. With online PIN debit, the
customer must enter their PIN number and the transaction is authorized
over a debit network. Online debit requires additional equipment (i.e., a
PIN pad), and can only be used in a card present environment. Offline
debit, however, can be used in both card-present and card-not-present
situations (i.e., ecommerce websites) since no PIN is entered. All
standard merchant accounts allow offline debit transactions to run through
the account as if it was a standard credit card.
A percentage fee charged by a merchant account provider to its clients for
processing services, plus interchange and assessments paid directly to the
credit card brands and issuing banks.
EBT stands for Electronic Benefits Transfer, an electronic system used by
state governments in the U.S. to provide financial and material benefits
(including unemployment and food benefits) via debit card.
Electronic Funds Transfer (EFT)
An automated transfer of funds using an electronic medium.
Also known as an e-wallet, it allows the user to charge payment for goods
and services to their card without using the card. Software on the user’s
mobile device securely stores payment information and works in conjunction
with software on your end.
The process of translating data into secret code (encoding) to ensure
secure transmission. An effective way to help ensure data security, it is
also referred to as end-to-end encryption (E2EE).
A fee that is set by the credit card brands and paid to their member
banks. Interchange is charged to credit card processors, who pass the cost
along to you as part of the discount fee. It makes up the largest portion
of credit card processing fees.
A bank or financial institution that is a licensed member of a credit card
network. It provides cardholders with a line of credit for purchases or
cash advances, and is responsible for reimbursing an acquirer for
purchases made by the cardholder. The issuing bank then bills the
The business arrangement between you and a credit card processor that
allows you to accept payment cards from customers.
Merchant Account Provider/Merchant Services Provider/Merchant Acquirer
The entity that provides you with the products and services needed to
process payment cards. The provider also acts as an intermediary between
you and the issuing banks and credit card networks and is responsible for
depositing proceeds into your bank account.
Merchant Processing Agreement (MPA)
The contract between you and your merchant account provider that outlines
the responsibilities and warranties of all parties involved in credit card
Mobile Credit Card Processing
Processing payment card transactions from a mobile device or smartphone.
The amount that a processor charges you if its discount rate, transaction
fees and other account fees do not collectively equal a pre-determined
amount that’s defined in your merchant processing agreement(MPA).
Monthly Processing Limit
The amount of money that a merchant service provider will allow you to
process each month before incurring additional fees, as outlined in your
merchant processing agreement.
Monthly Processing Volume
The gross monthly payment card sales that you process. This figure is
specified in your merchant application for card processing along with the
average ticket size. Both are used to help determine processing fees.
Abbreviation for mail order/telephone order.
A fee charged by your processor when you exceed your pre-determined
A collective term for credit, debit, prepaid and EBT cards.
Software on a third-party provider’s server that handles the transmissions
between you and your processor that are required to complete an electronic
PCI-DSS stands for Payment Card Industry Data Security Standards, a set of
requirements established by the credit card networks to protect cardholder
information and reduce the risk of data theft. The standards apply to you,
merchant account providers, issuing banks and the credit card networks.
Meeting these requirements is known as being PCI compliant.
PCI Non-Validation Fee
A fee charged to you if you fail to return a PCI Compliance Validation
Certificate, which can be obtained by completing and passing an annual
Self-Assessment Questionnaire (SAQ) and/or Quarterly Network Scan (if you
electronically store cardholder information or your application systems
are connected to the internet).
The Personal Identification Number is the digital code that PIN-based
debit cardholders enter at the terminal when making a purchase.
Hardware a PIN debit cardholder uses to enter their PIN at the
Point-of-Sale. Also called a keypad.
Abbreviation for Point-of-Sale, which is the place where a customer makes
payment. While POS once referred specifically to credit card terminals at
the cash register, technology has expanded its application to include
mobile, wireless and virtual terminals.
The electronic equipment used to capture, transmit and receive the
information necessary for electronic payment card transactions.
A transaction charged to a cardholder on a designated periodic basis
(weekly, monthly, annually) as payment for products or services. Two
examples of recurring billing are club memberships and subscriptions.
The ability to approve or decline a payment card transaction in seconds
while the customer waits.
Retrieval is the first step in the chargeback process. In a disputed
transaction, the issuing bank requests a copy of the physical sales ticket
for the transaction in question.
SSL stands for Secure Socket Layer, a system for encrypting payment card
data sent over the internet.
Terminated Merchant File
Also called MATCH, this database is maintained by third-party processors,
banks and other financial institutions. It lists the names of merchants
whose privileges to process credit cards and other electronic transactions
have been terminated by an acquirer for violation of a merchant processing
Virtual Shopping Cart
A program that is integrated into a website and makes it possible for
shoppers to keep a running tally of products and services they plan to
purchase. At checkout, the shopping cart connects to a secure payment page
where customers complete their purchase with a payment card.
A low-tech processing solution (typically used by low-volume merchants)
which requires you to call an authorization center to process a
transaction and receive authorization.