Acquirer / Acquiring Bank
The acquiring bank is the financial institution that maintains a contractual relationship with the merchant. Acting as a "middle man," the acquiring bank receives credit card transactions from the merchant or from the card acceptor, and then settles those transactions with the issuing banks.
The acquiring bank deposits funds into the merchant depository bank account, and recoups those funds from the card issuers. The merchant must pay certain fees to the acquiring bank for handling the credit card transactions.
Address Verification Service (AVS)
A service that is offered as a part of the credit card authorization procedure. Address Verification Service (AVS) is intended to combat fraud in mail order, telephone order, and Internet transactions by including cardholder billing address information in the authorization request. The issuing bank compares the address information in the authorization request message with its database of information about the cardholder. If the address contained in the request message does not match the information in the database, the authorization may be declined. Mail, telephone, and Internet transactions that do not include cardholder AVS data are not eligible for the lowest interchange rates from the VISA and MasterCard networks.
American Express
A company that specializes in the issuance of Travel and Entertainment (T&E) credit cards. American Express competes with VISA, MasterCard, and other card issuing companies. American Express services the cards that they issue, processing their transactions via their own network.
Approval
When a point-of-sale terminal transmits an credit card authorization request, that request will either be approved or declined. An approval response means that the amount of the sale is within the cardholder's credit limit. When an approval code is returned, a hold will be placed on cardholder funds in the amount of the sale for 3 to 21 days, depending on the card issuing bank, and will guarantee funds to the merchant for up to 30 days.
Approval Code
When point-of-sale terminal transmits an authorization request, the terminal will receive a response message that either approves or declines the request. When the transaction is approved, the response message will include a number, the approval code, which confirms the authorization. This code is issued to the merchant by the authorization center or stand-in processor, and is usually recorded on the transaction receipt as proof of authorization. Sometimes called authorization code.
Arbitration
The procedure used to determine responsibility for a chargeback-related dispute.
Authorization
When a customer uses a credit card to pay for goods or services, the point-of-sale terminal transmits an authorization request message to the merchant's credit card processor.
Authorization is the act of ensuring that the cardholder has adequate funds available to cover the amount of the purchase. The authorization procedure includes other safeguards. For example, during the authorization attempt, lost or stolen cards may be identified. The authorization request may be declined if the card is expired. Address Verification Service may be used to match the cardholder address with records on file in the issuer's database. A positive authorization results in an approval code being generated.
In the most typical scenario, the point-of-sale terminal dials out and transmits an authorization request message. The terminal receives a response message from the credit card network indicating whether the authorization was approved or declined.
An issuer, an authorizing processor, or a stand-in processor must approve or decline the authorization request. For approved authorizations, a hold is placed against the cardholder's credit limit for the dollar amount approved. The merchant should settle the transaction before the hold is released.
Authorization Center
A department or organization, sometimes controlled by the processor, that can electronically communicate a merchant's authorization requests on credit card transactions to the cardholder's bank. See Processor.
Authorization Only
A transaction type used to reserve an amount against a cardholder's available limit for intended purchases. Auth Only transactions are most frequently used in the lodging, restaurant, and car rental industries, where the transaction amount is finalized later and entered via a Prior Authorized Sale transaction.
Automated Clearing House (ACH)
A group of processing and financial institutions that are linked by a computer network. Various types of electronic payment transactions, including credit card settlements, are routed across this network. The Automated Clearing House network provides a means of exchanging funds electronically. The National Automated Clearing House Association (NACHA) is responsible for maintaining the ACH rules and standards governing the exchange of ACH payments between financial institutions.
Average Ticket
The average dollar amount of a merchant credit card transaction that is generally used in pricing decisions and calculations. For example, the Merchant Services Provider may use the average ticket amount to determine the fee structure that will be charged to a merchant for credit card processing.
Bank Identification Number (BIN)
A six-digit number assigned by VISA or MasterCard and used to identify a card issuing institution. The issuer emblazons the plastic cards with its logo. The BIN is the first six numbers embossed on the card.
Bank Settlement Percentage
The percentage fee an acquiring bank takes off the dollar amount of the ticket price as its fee for a transaction.
Bankcard
A debit or credit card, such as a VISA or MasterCard, issued by a bank or other financial institution.
Bankcard Association
A organization formed by a group of banks either for the purpose of sponsoring a single-identity program (such as VISA or MasterCard) or to use common processing and administrative facilities.
Banking Day
With reference to a participating depository financial institution, any day on which it is open to the public during any part of the day, for carrying on substantially all of its financial functions.
Batch
An accumulation of approved credit card transactions waiting to be settled. Typically, approved credit card transactions are accumulated throughout the business day, and then submitted to the processor at the end of the day. The batch may contain sales transactions, credits, voids, and other credit card transaction types.
Batch File
A computer file containing credit card transaction data.
Batch Settlement
The process by which a batch file is electronically transmitted to a transaction processor.
Card Verification Code (CVC)
A unique check value encoded on the magnetic stripe of a card to validate card information during the authorization process. The Card Verification Code is used in fraud prevention.
Card Verification Value (CVV)
The Card Verification Value is calculated from the data encoded on the magnetic stripe - called the Card Verification Code - using a secure cryptographic process.
Cardholder
An individual to whom a credit card is issued, or who is authorized to use an issued card. The cardholder is able to make purchases using the credit card.
Cardholder Bank
The bank that has issued a credit card to an individual. The term is frequently used in conjunction with interchange arrangements to identify the card-issuing bank. See Issuing Bank.
Cash Advance
A cash disbursement obtained by a cardholder through presentation of their card at a financial institution in person, by mail, or through an ATM.
Chargeback
A transaction returned through interchange by an issuing bank to an acquiring bank. A transaction may be returned because of rules and regulations violations, because the sale is disputed by a cardholder, or as a result of fraud. In the case of cardholder dispute, the merchant has the opportunity to appeal and prove that the sale is valid.
Chargeback Period
The number of calendar days from the endorsement date of a transaction receipt (or processing date, as applicable), during which time the issuing bank may exercise a chargeback right. See Chargeback.
Chargeback Reason Code
Two-digit code identifying the reason for a chargeback. See Chargeback.
Check Authorization Request
A request transmitted to a check processing organization to validate a check presented as payment for services. The processor may approve or decline the authorization request based on the presenter's check writing history.
Clearing
The clearing process includes all of the functions necessary for the acquiring bank to recover funds related to a transaction, in the transaction currency, from the issuing bank. Clearing is part of the settlement process. In the clearing process, the acquirer and the issuer exchange financial details so as to complete a sale. As a result of clearing, the amount of the purchase is posted to the cardholder account.
Compliance
Bankcard compliance programs define interchange requirements. These requirements are intended to improve the quality of transaction data submitted by the point-of-sale terminal, to combat fraud, to adjust the interchange value of non-compliant transactions, to provide detailed adjustment data to the acquirer regarding any compliance adjustments, and to ensure better chargeback protection. To receive the best interchange rates, the merchant must adhere to rules set forth by the compliance programs.
Credit Card
MasterCard, VISA or other credit cards issued by a bank. A plastic card with a credit limit, which is used to purchase goods and services and to obtain cash advances on credit, for which a cardholder is subsequently billed by an issuing institution for repayment of the credit extended.
Credit Card Association
VISA and MasterCard are the two largest credit card associations. The associations do not directly issue credit cards. However, the associations develop the rules and regulations that govern how these card types are processed.
In turn, how a credit card transaction is processed will determine the fees associated with the transaction. The rules are designed to eliminate fraud, promote use of credit cards in financial transactions, and to accommodate the various industries that desire to accept credit cards as payment for good and services.
Debit
A transaction that reduces the amount of money in a cardholder's account. Examples of debit transactions are a check, an automated teller machine (ATM) withdrawal, or point-of-sale (POS) debit purchase that causes funds to be transferred from the cardholder's account.
On-line debit transactions require the use of a personal identification number (PIN); the transaction amount is typically debited on the same day. Off-line debit transactions, which use separate authorization and clearing messages, require a signature, and the account is debited a few days later.
Debit Card
A plastic card used to initiate a debit transaction. In general, these transactions are used primarily to purchase goods and services and to obtain cash, for which the cardholder's account is debited by the issuer. See Debit.
Decline
A response to a transaction attempt that means the card-issuing bank will not accept the charge, and the merchant must finalize the sale with another form of payment.
Demand Deposit Account
Demand deposits get their name from the terms of agreement on the account -- payable on demand. By law, financial institutions may not pay interest on demand deposit accounts.
Discount Fee
The dollar amount paid by the merchant to the acquirer, or other contracted party, for processing the merchant's credit card transactions.
Discount Rate
The percentage rate that an acquirer charges the merchant for handling credit card transactions. The discount rate is a small percentage of the value of each credit card purchase.
Discover
Owned by Dean Witter, Discover & Co., this corporation issues credit cards to individual cardholders and manages those accounts in-house. They are a for-profit organization in competition with VISA and MasterCard and other card-issuing corporations. Draft Capture
Electronic Authorization
Obtaining authorization for use of a credit card by electronic means, as vi a computer equipment and telephone line. In an electronic authorization, the merchant's point-of-sale device connects directly to the credit card network to obtain approval for the requested transaction.
Expiration Date
The date, expressed numerically as month and year, after which a credit card is considered invalid.
Fraudulent Transaction
A fraudulent transaction is a transaction that takes place without the legitimate consent of the cardholder. Such transactions might be derived from the use of lost, stolen, or counterfeit cards, or other fraudulent conditions as defined by the card issuer.
Fraudulent User
An individual who is not the cardholder or designee and who uses a card (or, in a mail/phone order or recurring transaction, an account number) to obtain goods or services without the cardholder's consent.
Fulfillment
The satisfaction of a retrieval request. The acquirer supplies the issuer with the original voucher or sales slip, or a reproduction of the slip. The fulfillment record confirms the acquirer presented the requested document, and impacts reimbursement for the associated transaction by the issuer to the acquirer. See Retrieval Request.
Interchange
The domestic and international systems operated by the MasterCard and VISA associations for authorization, settlement, and routing of interchange and other fees, as well as other monetary and non-monetary information related to credit card activities.
Interchange Fee
A fee paid by the acquiring bank to the issuing bank for each transaction. The fee compensates the issuer for the time lapsing after the acquiring bank has completed settlement, but before the issuing bank has recouped the settlement value from the cardholder. MasterCard International and VISA International independently establish interchange fees for their respective networks.
Internet Service Provider (ISP)
An organization that provides access to the Internet in some form, usually for money.
Issuing Bank
Any VISA or MasterCard association member financial institution, bank, credit union, or company that issues, or causes to be issued, credit cards to cardholders.
An individual desiring a credit card makes application to an issuing bank. The issuing bank undertakes a review of the individual's credit history, current salary, and other such factors. If the application is approved, the issuing bank provides the individual with a credit card and associated account number.
The issuing bank transfers funds to acquiring banks to cover purchases made by the cardholder, and receives the cardholder's payment at the end of the billing period.
JCB Card
The JCB card is issued by Japan Credit Bureau International Credit Card Company, Ltd. JCB is now recognized in several countries. However, most of the card's usage takes place in Japan.
MasterCard
MasterCard International, Inc., and all of its subsidiaries and affiliates.
MasterCard Card
A card that bears the MasterCard symbol, enabling a MasterCard cardholder to obtain goods, services, or cash from a MasterCard merchant or an acquirer.
MasterCard Issuer
A member of MasterCard International, Inc., that issues MasterCard cards.
Member
An entity or financial organization that is a member of VISA or MasterCard. Acquirers and issuers may be members.
Merchant Agreement
A written agreement between a merchant and a bank or other organization containing their respective rights, duties, and warranties with respect to acceptance of credit cards as a form of payment.
Merchant Category Code
Four-digit classification codes used to identify the type of merchant business in various stages of transaction processing. For example 5999 is the code given to miscellaneous and specialty retail stores. Related term: SIC code.
MSP
The MSP contracts to sell transaction processing services for one or several acquiring institutions. The MSP signs up merchants with processing agreements as provided by the acquirer. The MSP also relays to the merchant quote rates as provided by the acquirer, and can sell or lease POS hardware to the merchant. In some cases, the MSP will continue to service the merchant account on behalf of the acquiring bank.
The department within an acquiring bank that assists merchants with their questions. MICR
Point-of-Sale (POS)
Location in a merchant establishment where a credit card transaction takes place. For retail businesses, the point-of-sale typically refers to the cashier or check-out desk. For mail and phone order businesses, the point-of-sale has a broader reference, encompassing the customer's telephone, personal computer, or order form, as well as the catalog, advertisement, or other "storefront" material.
POS Terminal
A device located at a merchant establishment that is connected to the credit card network via telephone lines or other means. The POS terminal is designed to authorize, record, and forward credit card data by electronic means for each purchase made by credit card.
Posting
The process of recording debits and credits to individual cardholder account balances.
Pre-Authorization
A pre-approval for a future transaction. The pre-authorization is usually followed, within a specific time interval, by the actual financial transaction that will be settled by the merchant. Pre-authorizations are used primarily in situations where the cardholder wishes to obtain "advance approval" or "verification" that sufficient funds are available to make a subsequent purchase using a credit card.
Prior Authorization
A previously authorized transaction that is manually entered into the terminal's open batch for later settlement. For example, voice-authorized transactions need to be entered into the terminal for payment to take place. This transaction type is also known as a force sale.
Private Label Card
A merchant's proprietary card that is accepted only at its own locations. ATM cards are actually considered private label cards.
Processor
The processor is an organization that furnishes credit card processing, billing, reporting, settlement, and operational services to acquiring banks. The processor provides the computing facilities for routing credit card transactions over a network to the appropriate issuer for authorization or settlement.
Some acquiring banks process their own credit card transactions. Merchant point-of-sale terminals connect directly to computer systems owned and managed by the acquiring bank.
Other acquiring banks outsource the processing of their credit card transactions to a third-party processor. The third-party processor then owns and maintains the hardware and software needed to process credit card transactions. In that case, merchant point-of-sale terminals connect to the third-party processor to transmit credit card requests. The third-party processor provides transaction reporting to the acquiring bank.
Real-Time Transaction
An online transaction, such as an ATM withdrawal, that is usually settled immediately.
Settlement
Settlement is the procedure that results in the dollar value of credit card transactions being deposited in the merchant's depository account by the acquirer. Most merchants will "settle" credit card transactions on a daily basis by transmitting a credit card batch file to the credit card processor. See also Merchant Depository Account.
Settlement Statement
A document issued to the merchant, indicating the sales and credit activity, billing information, fees and chargebacks occurring during a particular time period.
SIC Code
Standard Industrial Classification Code. Indicates the type of industry engaged in by a business establishment. Related Term: MCC Code.
Smart Card
A card that carries an embedded computer chip with memory and interactive capabilities so that it can be updated. The chip can store identification data and other data relating to the cardholder.
Soft Decline
A declined response in which authorization is not granted on a valid card not because it has been lost or stolen, but because the credit card account already exceeds the credit limit.
Terminal-Based Processing
In a terminal-based system, transactions are not "captured" at the time that they occur. Rather, the point-of-sale device retains all transaction data in a batch file. When the merchant is ready to close a batch, the batch settlement procedure is initiated. The POS device communicates with the host processor, uploading the complete batch file. Only when the batch file is successfully uploaded to the host is the settlement considered complete. The host returns a message to the POS device, indicating whether the batch was accepted or rejected. Batches that are accepted by the host are processed and funds are transferred to the merchant
Transaction
The most common example of a transaction is the process that takes place when a cardholder makes a purchase with a credit card. The credit card is swiped at the POS terminal. The terminal makes a dial connection to the credit card network, transmitting information related to the sale as well as cardholder account information. Finally, the credit card processor returns a response message indicating approval or denial of the request.
Transaction Date
The date a cardholder effects a credit card purchase of goods, services, or other things of value.
Transaction Identifier
unique 15 character value that VISA assigns to each transaction. The Transaction Identifier is returned in the authorization response message. VISA uses this value to maintain an audit trail throughout the life cycle of the transaction and all related transactions, such as reversals, adjustments, confirmations, and chargebacks.
VISA
VISA International Service Association and all of its subsidiaries and affiliates.
VISA Card
A credit card that bears the VISA symbol, enabling a VISA cardholder to obtain goods, services, or cash from a VISA merchant or an acquirer.
VISA Issuer
A financial institution that is a member of VISA International Service Association and that issues VISA cards.
VISA Merchant
A merchant that displays the VISA symbol and accepts all VISA cards.
Voice Authorization
An approval response obtained through interactive communication between an issuer and an acquirer, their authorizing processors, or stand-in processing, through telephone, facsimile, or telex communications. Most commonly, a voice authorization is obtained by a merchant from the authorization center via telephone.