CREDIT CARD PROCESSING TERM GLOSSARY M-Z

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.

Merchant Account - A bank account applied for by merchants to enable them to receive the proceeds of credit card purchases. Once a merchant account has been established, the acquiring bank agrees to pay the merchant for all valid credit card purchases in exchange for the right to collect the debt owed by the consumer.

Merchant Bank - The bank that holds a merchant account for merchants. Once a consumer purchases a product using a credit card, the merchant bank places funds into the merchant account in exchange for the right to collect the debt owed by said consumer.

Merchant Processing - The settlement of electronic credit card and payment transactions for merchants. This is a completely separate business than that of credit card issuing. Merchant processing requires the gathering of sales details from the merchant, collecting funds from the issuing bank, and then transferring that payment to the merchant.

Merchant Underwriting - Without merchant underwriting and approval policies, there would be no control over credit risk. Approval policy is important because it targets and designates merchants which fit the acquiring bank's processing criteria. This also acts as an agreement between the acquiring banks and third party billing agents as to what information is needed from the merchants to measure that merchant against the acquiring desired list of criteria.

Merchant Services Provider - Any bank, MSP or other firm that provides financial transaction processing services, but usually credit card sales. Many ISOs provide merchant accounts, while some other companies require their customers to establish merchant accounts on their own.

MOTO Discount Rate (or Mail/Telephone Order Discount Rate) - This particular discount rate is charged by the merchant account provider for transactions in which the actual card was not present and physically handled by the merchant. MOTO discount rates are generally higher than card present or swipe discount rates to account for the increased chance of fraud or non-payment.

POS (Point Of Sale) Terminal - An electronic device used to verify and process credit card transactions. In card-present credit card transactions, the merchant generally swipes the card through the POS terminal.

Real-time Processing - The verification, authentication and processing of credit card transactions immediately after a purchase has been made. On the Web, this verification typically takes five minutes or less. This form of processing is particularly important to Websites which sell products their customers expect to receive immediately, such as software downloads or paid-for memberships.

Retrieval Request - When a credit card holder cannot specifically remember a credit card transaction, or the bank wants order details for a specific transaction, a Retrieval Request is issued. The card issuer initiates this form of request, and the merchant generally has 10 days to respond with the order information, or risk that the retrieval request turn into a chargeback. In cases like these, the merchant is frequently charged what is known as a Retrieval Request fee.

Risk - Up until quite recently, obtaining a merchant account was quite easy for most people. Because the Internet had not yet been fully accepted, most banks and underwriting departments were unaware of the inherent risks involved with Internet credit card processing. Before the advent of Internet processing, as an example, the acceptable level for chargebacks for most banks was around 3-4% of your total monthly volume. Now, however, chargebacks amounting to more than 1% could ensure that you actually forfeit your merchant account.

When merchants first apply for a merchant account, many are unaware of the inherent risks which come with having one, nor the concepts of liability and personal guarantor. With a conventional merchant account, the guarantor on a merchant account is liable for processing volume. With NexSwipe products and Internet gateway credit card processing, CCPS assumes much of the risk involved, and higher discount rates are required, mainly to pay for the intensive fraud control mechanisms we use.

Rolling Reserve (or Hold Back) - The portion of revenue held in reserve from a merchant's credit card transactions. This hold back is to cover disputed charges, chargeback fees and other expenses. After a predetermined time, holdbacks are returned to the merchant. We should also note that merchant account providers are rarely ever liable for interest on holdbacks.

Settlement - The process by which funds (less fees) are transferred to merchants.

Shopping Cart Programs - Shopping cart programs generally run as part of an E-Commerce enabled website to record purchasing decisions by a visitor or customer. These programs are typically stored on Web servers.

Swipe (Card-Present) Discount Rate - This is the discount rate charged to the merchant by the merchant account provider for transactions in which the credit card is available. Because there are many checks and safeties with this kind of transaction, and the merchant generally can compare signatures, this form of discount rate is typically lower than Internet or MOTO discount rates.

Transaction Fee - A charge applied to each credit card transaction that is typically collected by the merchant account provider or ISO. Typical transaction fees can be anywhere from $0.15 to $1 or above for high risk transactions.

This glossary's part one is located here.