CREDIT CARD PROCESSING TERM GLOSSARY A-I

Industry Terms You Need To Know When Shopping For A Merchant Service

The following is a comprehensive list of terms we use frequently throughout our site. If you are looking for a term that you think should be listed here and is not, please contact us about it here.

ACH - A popular, low cost electronic payment form. Also known as Automated Clearing House transactions, this form of payment is typically used to process high volumes of often small-dollar payments, which are typically settled within 1-2 days. ACH transactions are settled in a very similar manner to the way checks are settled - the clearinghouse takes all ACH files received from its member banks on a daily basis, sorts them by originating bank and paying bank, totals accounts and credits and debits the appropriate accounts accordingly.

Acquiring Bank - A financial institution which signs contracts with merchants in order to perform the service of settling electronic transactions. The acquiring bank provides merchants with credit card processing or merchant accounts. This bank sends any credit card and purchase information from the merchant to credit card associations such as Visa and Mastercard, which then forwards the details to the issuing bank.

Authorization - The process through which an issuing bank approves the fund availability for a credit card transaction of a specified amount.

Batch Processing - A group of credit card transactions saved for submitting at a single time, usually once per day. Because some merchants do not have real-time verification systems, they must manually submit their transactions through a POS (or Point Of Sale) terminal. Batch fees are often charged in cases like this, to encourage a merchant to submit all transactions at a single time, rather than throughout the business day.

Chargeback - A dispute of payment initiated by the cardholder/consumer with their credit card issuing bank. The amount of the disputed transaction is immediately withdrawn from the merchant bank account, whereupon the merchant has the right to dispute the chargeback with evidence such as proof of purchase, signature or proof of delivery.

In these cases, a chargeback fee is often assessed to the merchant on top of the original transaction amount. Chargeback can occur when a cardholder disputes a transactions because of 1) Non-fulfillment of a product or service, 2) unauthorized purchase or 3) unmet product/service expectations. When a chargeback is initiated the onus of due diligence is on the banks, who must research the facts to determine who in fact is responsible for the transaction.

Debit Card - A bank issued card which allows consumers to access funds from their checking or savings accounts for the purpose of paying for services or merchandise. A debit card works much like a credit card, except for the fact that funds are immediately withdrawn from the cardholders accounts.

Discount Rate: A percentage-based fee paid to the merchant account or credit card processing provider or ISO for handling an electronic transaction. All merchants are subject to these rates, although the actual percentage may vary.

EFT - A similar transaction to an ACH, this is the electronic transfer of funds from one financial institution to another. Hence the unabbreviated name: Electronic Fund Transfer.

Interchange Rate - Rate set and charged by the bankcard association (i.e. Visa or Mastercard) to the acquiring banks for each transaction. The interchange rate is generally a percentage of transaction amount and helps account for authorization costs, fraud protection and the average bank's cost of funds.

ISO - This is an abbreviated form of Independent Sales Organization, or a business which provides merchant functions such as credit card processing on behalf of the acquiring bank. In many cases, ISOs are responsible for signing on new merchant accounts or providing customer services. The term ISO is frequently interchanged with MSP or Merchant Service Provider. In general, an acquirer must register all of its MSP/ISO associates with its bankcard associations.

Issuing Banks - These are banks that offer and maintain consumer credit card accounts and must pay funds to the merchant's credit card processing account with each credit card purchase. In turn, this issuing bank will invoice the customer for the debt.

This glossary is continued here.