Glossary of Payment Terms

Learn payment industry terms to better understand your service.

ACH: Automated Clearing House; an electronic payment network most commonly associated with payroll direct deposit, recurring payments, and is the network most commonly used to settle merchant card accounts.


Acquirer: the company (typically a federally insured financial institution) responsible for connecting merchants to Visa and MasterCard authorization and settlement systems.


Assessments: fee paid to MasterCard and VISA for marketing and administrative costs. This is a percentage of the sales passed through interchange.


AVS: Address Verification System (AVS) is an optional service that helps protect against fraud by verifying the identity of the person claiming to own the credit card. The system will check the billing address of the credit card provided by the user with the address on file at the credit card company.


Authorization: an electronic exchange between a card-issuing bank and the merchant-acquiring bank, initiated through a POS terminal, confirming a cardholder has sufficient credit (or funds in a DDA if it is a pin-based debit transaction) to cover a pending transaction.


Back End: the transaction information gathered by the front end is processed for settlement, chargebacks, retrievals and statements.


Backbilling: a pricing structure where the qualified discount rate for the current month is detailed on that month’s statement and downgrades, transaction fees, and monthly fees are billed on the following month’s statement. In order to accurately analyze a backbilled merchant’s pricing, two consecutive statements are required.


Basis Point: one one-hundreth of a percent; one basis point is 0.01% or 0.0001; 10 basis points would be 0.10% or 0.0010; 25 basis points would be 0.25% or 0.0025; 100 basis points would be 1.0% or 0.0100.


Batch: the merchant electronically sends their captured transactions to their acquiring bank for settlement. Batches may be opened and/or closed automatically or manually. Most terminals can be programmed to batch out automatically at a certain time each day. However, some merchants, such as those taking tips (like salons or restaurants), need to manually reconcile their tips and then manually batch their terminal to ensure accurate batches and the most advantageous cost associated with those

transactions.


BIN: bank identification number; a numerical code assigned to each federally insured financial institution for the routing of transactions and other purposes.


Card Not Present: card transactions (for example, Internet or MOTO purchases) for which the customer's card is not presented to the merchant at the POS. Interchange is set higher on these transactions because there is an increased risk with these types of transactions.


Card Type: refers to the brand of card – Visa, MasterCard, Discover, AMEX and what type of card – consumer credit, business, check card, rewards, etc.


Charge Type: refers to the individual kind of card within each card type. The charge type also provides a pattern for downgrades. Some card type/charge types are only available for certain MCC/SIC codes (certain merchant industry types).


Chargeback: occurs when a cardholder's bank (the card issuer) reverses all or part of a card transaction, leaving the merchant financially liable for the payment and subject to penalties – unless it can be proven the merchant was not at fault. Chargebacks can be initiated by disgruntled customers or by cardholders' banks (due to procedural errors, for example). Chargebacks exceeding one percent (1%) of a merchant's monthly sales are considered excessive.


CVV: Card Verifcation Value; a value encoded on the magnetic stripe of the card. CVV is used as a security feature for transactions in person (swiped retail transactions).


DBA: doing business as; the name under which a business is operating. The DBA name may or may not be the same as the corporate name.


DDA: demand deposit account; also known as a checking account.


Debit Cards: issued by financial institutions and tied to cardholders' DDAs. Sometimes referred to as online debit cards, these cards carry the logo of one or more debit network and require the input of cardholder's PIN at the point of sale.


EBT: electronic benefits transfer; commonly referred to as food stamp benefits. Merchant must coordinate with their local government office to get set up for EBT acceptance and provide their EBT certificate to Redde in order to accept EBT transactions.


Gateway: in payment processing, any network that connects merchant POS terminals with transaction processing and settlement networks, such as the MasterCard and Visa settlement networks. Gateways can also provide related services, including transaction management and reporting. Gateways more commonly refer to an Internet Gateway, such as Authorize.Net, which allow merchants to set up shopping carts or accept transactions when the card is not present.


Interchange: the fee paid to the card-issuing bank by the card-acquiring (merchant) bank. It is the basic fee upon which all other acquiring and processing fees are added to come up with the merchant discount fee.


Interchange Plus Pricing: a pricing structure in which the interchange and dues/assessments are passed directly through to the merchant. This structure is sometimes also referred to as cost-plus pricing.


ISO: an independent sales organization that is registered with Visa and MasterCard to sell and process bankcard transactions or an independent sales organization that works with and does business under the name of such a registered ISO.


MO/TO: mail order/telephone order; 100% keyed merchant environments.


PCI DSS: Payment Card Industry Data Security Standard; established for securing payment card information. Failure to adhere to the standard (by any party that handles card information, including merchants and ISOs) can result in substantial fines; often shortened to PCI.


PIN: personal identification number; used to process PIN-based debit transactions.


POS: point of sale; the place where retail sales occur and payment transactions are initiated; commonly used to describe POS systems (such as cash register systems) and/or computer software programs used for electronic payment processing (such as PC Charge).


Processor: the company that moves transactions on behalf of acquirers between merchants, banks, and the card networks.


Settlement: The process by which members exchange financial data and value resulting from sales transactions, cash disbursements, or merchandise credits, which are ultimately billed to the cardholder's account.


Transaction: a payment card sale or refund between the cardholder and merchant