Merchant account forums

Address Verification System (AVS): A-more-or-less standard feature of a merchant account package that authenticates consumer card details by ensuring that they match the billing address.

Automatic Check Handling (ACH): Alternatively known as Automatic Clearinghouse, ACH functions as an online cheque, an e-check. ACH files (e-checks) are sent to a Clearinghouse and processed in the same manner as a real check.

Acquiring Bank: Also known as the acquirer, referring to a bank or an organisation that provides e-commerce merchant accounts. When a merchant sells a product the merchant account receives money directly from the acquirer.

Authorization: The validation of a customer credit card details whereby the issuing bank (the cardholder’s credit card company) authenticates the cardholder and confirms that the account has sufficient funds for the transaction.

Batch: A group of credit card transactions that have been collected for submission to a financial institution such as ACH clearing house or processing.

Batch Close: A group of transactions that have been sent to a financial institution for settlement. Typically this occurs on a daily basis.

Capture: The conversion of an authorized amount of money into a bill that is submitted (in a batch) for settlement. Transactions can only be captured if the credit card enabling the payment has been authorized.

Card Verification Code 2 (CVC2): A numerical code consisting of three digits found on the backside of MasterCard credit cards in the signature panel. Requiring this number at an online checkout, in conjunction with other security systems such as AVS, can minimise credit card fraud.

Card Verification Value 2 (CVV2): A numerical code consisting of three digits found on the backside of Visa credit cards in the signature panel. Requiring this number at an online checkout, in conjunction with other security systems such as AVS, can minimise credit card fraud.

Certificate Authority: An organisation such as a bank that provides a service that enables information to be sent securely between an online merchant and a service provider. The institution issues a certificate that identifies the merchant and is validated by the use of a signature key pair (public and private keys).

Chargeback: A fee or an amount of money owed to a customer in the event that the merchant can’t or did not complete his side of the deal. For example: A customer has paid for a product that he/she never received. This can be a part of online fraud. For example, the customer receives the product but says he/she has not. Unfortunately due to the nature of the Internet, this can happen, but by taking care it can be minimized and or eliminated.

Note: By making sure the customer knows the name of your company on their credit card bill as opposed to an anonymous name, will make them less likely to attempt fraud as they and their bank will have a record.

Clearing: In the event of a sale, the process of exchanging financial transaction details between the acquirer and the issuer to facilitate a settlement of funds.

Credit: In this context it refers to money borrowed, then paid back in the near future, for example at the end of the month.

Credit card: A particular kind of bankcard that can be used for payments all around the world using credit.

Credit Card Processing: Online processing involves credit card transaction information being passed through a payment gateway to be processed. If the information is authenticated the agreed funds are then distributed to the relevant party or institution (the merchant, the acquirer, the issuing bank).

Digital Cash: An encrypted form of online payment received by merchants, most commonly used for very small amounts of money known as micropayments.

Digital certificate: Otherwise known as an electric wallet used as a means of identification in the authorization of SET transactions (secure electronic transactions). It contains similar information to that of a standard credit card in addition to the individual’s public key that is used to electronically sign, encrypt and decrypt messages.

Discount Rate; Refers to a percentage fee that is paid to the merchant account provider for every product sold. The percentage can differ from 2% up to and exceeding 10% (in the case of third party processors).

Note: 10% may seem a lot initially but it all depends on the type of service your getting. It may work out cheaper to pay a higher rate directly based on monthly sales, as opposed to paying lower rates but high monthly fees.

Digital Signature: An electronic form of identification or code that uses cryptography and thus cannot be forged. It is used to authenticate the sender of a message and that the information in the message has not been changed since it has been sent. The signature is bound to a public key and can only be decrypted by the corresponding private key held by the issuing authority.

Digital Wallet: Otherwise known as an e-wallet and similar to a standard wallet in that it contains information about yourself and your financial method to receive and purchase online. This commonly includes: name, billing address, card details and identification such as digital signatures and public keys. Digital wallets encrypt merchant and customer information in secure electronic transactions (SET) assuring the privacy and security of personal information.

E-commerce: Electronic commerce or business that typically involves the buying and selling of products or services online.

Electronic Data Interchange: EDI refers to the exchange of, in most cases transactional information between organisations. Typically information such as order forms, invoices and other trade related documents are stored and sent electronically, massively reducing the amount of paper work.

Electronic Funds Transfer (EFT): The transfer of funds using any kind of electronic device from a magnetic tape to a computer.

Encryption: A means of coding information (the contents of an email) through the use of public and private keys so that it is illegible to any un-authorized parties.

High Risk: A high risk business refers to a company that poses a considerable amount of ethical or financial risk to a merchant service provider (MSP). High risk merchant accounts are provided to high risk merchant businesses by MSP’s that specialize in this form of processing.

Note: High risk business are not restricted to but include: adult entertainment, biotechnology, imitation products, betting shops, casinos and pharmaceuticals.

Holdback: A fee that is held back to cover a breach of contract or any other charges such as chargebacks that may occur during the delivery of a service or product. For example, the acquirer may take a small percentage of the initial transaction and then return the amount after the successful delivery of a product or service, or after a given period of time.

Issuing Bank: The issuer is the financial institution that holds customer credit card accounts. Merchants receive payment for their online products and services through these institutions via a processing facility.

Independent Sales Organization (ISO): ISO’s are merchant account and credit card processing providers. ISO’s tend to make their money through transaction or sales percentage fees rather than set monthly fees. ISO’s often solicit merchants for affiliate acquiring banks that provide merchant services such as merchant accounts or processing facilities.

Note: Merchant applications through ISO’s are often referred or pitched to an underwriter of the affiliate-acquiring bank for approval.

Mail Order/Telephone order (MOTO): Credit card transactions that have been commenced through mail or over the telephone.

Merchant Account: In regards to e-commerce attaining a merchant account licenses your business to trade online. A merchant account permits a merchant to accept credit card payments.

Merchant Identification Number (MID): Merchant identification numbers are associated with all transactions and assigned by the acquirer (merchant account provider) when a merchant account is set up.

M-commerce: Essentially e-commerce, but conducted through wireless devices such as PDA’s, mobile phones and so on.

Merchant: Whether a sole trader or massive corporation a merchant can be a single person or a business that accepts credit or debit cards as a form of payment.

Merchant Bank: Also referred to as an acquirer, this is a bank that provides merchant accounts and or other relative services such as a payment gateway. When a product is sold the proprietary merchant receives payment through his/her merchant bank, which in-turn receives payment from the issuing bank where the customer’s card account is held.

Merchant Service Provider: Any organisation that provides a merchant service such as accounts and or credit card processing facilities.

Monthly Minimum: Regardless of sales this fee is a recurring monthly cost that must be paid. In the event that sales are insufficient to cover this cost the merchant account holder must make up the difference.

Note: Third party processors tend not to charge any monthly costs, preferring instead to charge higher transaction fees.

Merchant Account Provider: MSP’s include banks Independent sales organisations and third party processors. They provide merchant accounts facilitating the license and means to accept credit card payments.

Micropayments: Payments considered too small or impractical to process through a standard processing system. Micropayments or micro-commerce involves accumulating small amounts of money and then processing them as one payment. To process each payment individually would seriously reduce profits.

Offshore Merchant Account: A merchant account that resides offshore i.e. in another country and thus comes under different jurisdiction than a domestic merchant account. Offshore merchant accounts are often used by high risk businesses for a variety of reasons that include lenient account applications, higher processing limits and reduced taxes. To find out more please click here or refer to the articles on Offshore Merchant Accounts.

Point Of Sale: POS can imply two things: A time and place where a transaction occurred, and secondly the technical means i.e. the device that captured it. POS is commonly recognised as a swipe machine requiring the consumer’s card to be ‘swiped’ manually.

Personal Identification Number (PIN): An alphanumeric code or series of digits known as a PIN used to authenticate the use of a credit or debit card in a transaction.

Payment Gateway: A service that enables the actual processing of online transactions. In essence a payment gateway is an automated electronic equivalent to a POS device. The payment gateway gathers transaction information (name, card number, billing address, etc.) supplied by the customer through the merchants website. This information is then forwarded to the cardholder’s issuing bank for authentication.

Processing Limit: An allowance or volume of funds that your account can hold for a given period, usually one month. For each sale you make the account provider is liable to refund every cent to the customer in the case that you can’t. Similar to a credit card limit when you apply for a credit card, you must also agree on a processing limit when setting up a merchant account.

Note: Processing limits are more relevant to companies with higher ticket prices (the price of a product) or high sales revenues that come with automobiles, jewellery, casinos, betting shops, etc.

Private Key: Used by an acquirer or equivalent for digitally signing outgoing messages authenticating and decrypting received messages, which have been signed and encrypted by the merchant’s corresponding public key.

Public Key: Used by a merchant for digitally signing outgoing messages and authenticating and decrypting received messages, in doing so and in conjunction with a corresponding private key, confirming the legitimacy of two correspondents and the contents of the message.

Real-Time Processing: The immediate verification and processing of a credit card purchase as opposed to being stored and batch-processed at a later time. Real-time processing keeps you up-to-date with sales figures and allows customers to quickly and easily fill out orders as they are processed instantly.

Recurring fees: Monthly charges that cover the upkeep of your merchant account. This includes costs such as the monthly minimum, statement fees and discount rate.

Recurring Transactions: Periodic credit card transaction, consented and paid by a customer to a merchant. Recurring transactions are often used for subscriptions or memberships.

Reverse Funds: An amount of money that can be paid monthly or up front to the merchant account provider that acts as an insurance to cover situation whereby refunds exceed your sales.

Shopping Cart: On the surface, the online interface that the customer interacts with when purchasing products from a merchant’s website. More specifically it is software that compiles and submits order forms containing transaction details to the payment gateway for authorization and subsequent processing.

Smart Card: Aesthetically similar to a credit card containing a microchip that holds information and can hold electronic money. The cardholder tops up the smart card and can then use it for purchases providing that the balance is not exceeded.

Note: Smart cards are considered to be more secure than magnetic strip cards due to the comparatively larger amount of security information that the microchip can hold

Secure Electronic Transaction (SET): A method of interchange between customer, merchant and financial institution that is conducted securely to ensure personal and financial information is kept private. Security and privacy are accomplished through digital certificates or digital wallets that contain identification and transaction information that is encrypted and decrypted using public and private keys

Settlement: Refers to a chain of events in the clearing process whereby your merchant account is credited by the acquirer (the account provider), which has in-turn been credited by the issuing bank (the cardholder’s providing bank such as visa or MasterCard), which in-turn debits the cardholder for their purchase.

Settlement Time: The period of time between an online sale and the completed transfer of funds into your account. This time can very between a matter of days and a matter of weeks depending on the merchant service provider (MSP).

Setup Fees: The initial cost a merchant pays an MSP when setting up a merchant service. This may include software, hardware and the required licenses. Not all merchant service providers charge a set up fee.

T-Commerce: The process of ordering products or services through interactive television.

Terminal ID: TID numbers are assigned to an individual merchant’s software or hardware used to capture and submit transactions. TID numbers are used to identify the merchant when transactions are submitted to the merchant’s processing provider.

Transaction: Encompasses all activities involved in depositing funds from the consumer account into the merchant account. This constitutes the initial authorization from the cardholders issuing bank to the final settlement of funds.

Transaction fee: A set charge or percentage that the merchant pays to the merchant account provider in the event of a successful transaction.

Turnkey: In this context it implies a fully complimented e-commerce package complete with merchant account, payment gateway, shopping cart and all the necessities required to do business online.

Underwriting: A risk assessment process carried out by an acquiring company (usually an individual within the an acquiring bank known as an underwriter) to grant or deny a merchant application. This also involves establishing specific, transaction fees, discount rate etc. based on the level of risk taken on by the acquirer.

Virtual Terminal: Enables merchants to manually process transactions from anywhere, providing there is an Internet connection. For example, customer credit or debit card details are entered into the virtual terminal software manually. When the order has been captured the merchant or sales operative sends the transaction details electronically to be processed.

Note: Virtual Terminal is commonly used by mail or telephone order based companies.

Visa Payment Authentication System (Visa Pass): A requirement by Visa that Visa cardholders authenticate themselves as the legitimate cardholder by supplying a password in addition to the card details used for a purchase. By protecting credit card details with a password makes it harder for merchant databases, that store card details, to be breached by un-authorized parties.