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Glossary
There are quite a few terms you may not be familiar with when it
comes to credit card processing and e-commerce. We have put together
a glossary to help you better understand commonly used words, phrases,
and acronyms in the credit card processing industry.
A -
Address Verification System (AVS) - Checks to see that the billing
address given by the customer matches the credit card. If you opt
not to use AVS, VISA and MasterCard will not support your transactions
and will charge you an additional 1.25% on those sales. Most merchant
accounts come with AVS at no extra charge.
Automatic Check Handling (ACH) - ACH can also mean Automatic Clearinghouse.
ACH is a form of epayment or electronic payment. There are two ways
payments can be transferred: (1) by wire transfer, or (2) through
an automated clearinghouse. Wire transfer is an e-payment system
that is designed to handle high-dollar, time-crucial payments, usually
between large banks. ACH is designed to be an e-check or electronic
check. Unlike the wire transfer, it is usually used to process higher
volumes or small-dollar payments for settlement issues within 1
to 2 business days. All ACH transactions are settled pretty much
the same way checks are. The clearinghouse takes all of the ACH
files received daily from member banks, it then divides them by
the originating bank (where the check was either cashed or deposited)
and the paying bank (the bank where the check was drawn), then it
totals the accounts, and credits or deducts the accounts accordingly.
Acquiring bank - A bank that provides and e-business with a credit
card merchant account. The acquiring bank transfers credit card
and other purchase information to a credit card association, and
they in return forward it onto an issuing bank.
Authorization - This is the process where permission is granted
by the card issuer (the financial institution) allowing the payment
transaction to proceed. It is during this process that the issuing
bank checks that the available credit on the card is not exceeded.
B -
Batch - Is a collection of credit card transactions that are saved
for submitting at the end of the business day.
Batch Close - The process of sending a batch to the financial institution
for settlement.
Bank card - A plastic card that is accepted by merchants. They are
used to credit an account for processing a sales transaction. The
credit card is the most common form of a bank card.
Biometrics - The measurement of a living trait used to control access.
Refers to the interpretation of personal traits for access control
purposes in place of password or ID verification systems.
C -
Credit card - This is a type of bank card that can be widely used
all around the world as a form of payment. The credit card holder
must then reimburse the credit card company for the amount of the
total sales the holder had charged on that particular credit card.
Chargeback - A credit card transaction that is billed back to the
merchant after the sale has been settled. Chargebacks are initiated
by the card issuer on behalf of the cardholder. Typical cardholder
disputes involve product delivery failure or product/service dissatisfaction.
Cardholders are urged to try to obtain satisfaction from the merchant
before disputing the bill with the credit card issuer.
Capture - This is the submission of a credit card transaction for
processing and settlement.
Cardholder - An individual or business that has established an account
with a credit or debit card issuer. A cardholder is eligible to
initiate a payment card transaction.
Credit card processors - They handle all of the details of processing
credit card transactions.
Card Verification Value (CVV2) - Three-digit security number that
is printed on the back of most Visa credit cards. Requiring this
number on order checkouts can reduce credit card fraud and chargeback
instances significantly when used in addition to AVS protection.
Card Verification Code (CVC2) - Numeric security code that is printed
on the back of MasterCard credit cards. Requiring this number on
order checkouts can reduce credit card fraud and chargeback instances
significantly when used in addition to AVS protection.
Certificate Authority (CA) - This is the service a bank provides
that digitally signs public keys sent to it by a web browser or
by the merchant's server software. It issues and validates digital
certificates associated with SET transactions.
D -
Discount rate - This is a fee that the major credit cards charge
for handling a transaction.
Digital Cash - Two main mechanisms in that "digital coins" can be
downloaded to the user's PC from a participating bank, or the set
up of a digital money account with a bank. Both (encrypted) forms
of cash can be sent to merchants for payment.
Digital Certificate - Online identification that authenticates a
consumer, merchant and a financial institution. Digital certificates
are used to encrypt information exchanged in SET transactions. A
certificate is a public key that has been digitally signed by a
trusted authority (the financial institution) to identify the user
of the public key.
Digital Money - The same as digital cash but can also involve the
use of software-based secure credit card transactions.
Digital Signatures - An electronic signature, which cannot be forged.
Instead it is generated from a computed digest of the text that
is encrypted and sent with the text message. The recipient decrypts
the signature and retrieves the digest from the received text. If
the digests match, the message is authenticated and proved to be
from the sender.
Digital Wallet - Software that provides the equivalent of a wallet
for electronic commerce. A digital wallet, or e-wallet, holds digital
money that you purchase similar to travelers' checks. A wallet may
also hold your credit card information along with a digital certificate
that identifies you as the authorized cardholder.
E -
E-commerce - The processing of buying and selling via the Internet.
Electronic Wallet (E-Wallet) - Software, residing as a plug-in in
the Web browser, that enables a cardholder to conduct online transactions,
manage payment receipts and store digital certificates. Like your
real wallet, your digital wallet stores your credit card number
and shipping details. This wallet initiates the data encryption
in a SET transaction.
Electronic Data Interchange (EDI) - The electronic communication
of business transactions, such as orders, confirmations and invoices.
Electronic Funds Transfer (EFT) - The transfer of money initiated
through an electronic terminal, automated teller machine, computer,
telephone, or magnetic tape. EFT also applies to credit card and
automated bill payments.
Electronic Data Capture (EDC) - To use a Point Of Sale (POS) terminal
for submitting credit card transaction information to a merchant
account provider.
Encryption - Scrambling of an electronic message (usually e-mail)
in a way that only the sender and receiver can read the message.
F -
Factoring - When used in e-commerce, the term is applied to companies
that offer to process credit card transactions through their own
merchant account rather then having the merchant purchase their
own, in exchange for a percentage of the transaction. This is an
illegal practice and will result in heavy fines. Also known as credit
card laundering.
G-
Gateway - See payment gateway.
H -
Holdback - Also referred to as a reserve. This is a fee held back
from a merchant's credit card transactions to cover any possible
charge backs, and other disputed charges that a merchant may encounter.
Usually, after a time, the hold backs are returned to the merchant.
I -
Issuing bank - Also known as an "Issuer". This is the bank that
maintains a consumer's credit card account and will pay out to a
merchant's account when the consumer makes a credit card purchase.
At the end of the month the issuing bank will bill the customer
for the debt.
Internet commerce - A term that covers all commercial transaction
activity on the Internet.
Independent Sales Organization (ISO) - This is an organization that
processes merchants online credit card transactions in exchange
for a percentage of the sales or transaction fees.
L -
Laundering - The practice of using another company's credit card
merchant account to process your credit card transactions. This
is an illegal practice that will lead to heavy fines and perhaps
more.
M -
Merchant account - An account that is established by a merchant
to receive payment via credit cards.
Merchant Identification Number (MID) - A number provided by a merchant
bank to identify the merchant in an e-commerce transaction.
M-Commerce - A term used to represent wireless e-commerce or the
ordering of goods via wireless solutions like cell phone's, pocket
PC's, PDA's, etc.
Merchant - Collective term applied to Web-based eTailers who may
have online storefronts.
Merchant bank - This is the bank that holds the merchant account.
When someone buys a product and/or service from a merchant, the
merchant bank will place the needed funds into a merchant account
in exchange for the right to collect the debt that is owned by the
purchasing consumer.
Mail Order/Telephone Order (MOTO) - MOTO is a short version to describe
businesses that conduct sales via mail and telephone/fax.
Merchant Service Provider (MSP) - This is a bank or other firm that
provides processing for credit card transactions. Most MSP's provide
merchant accounts. Monthly minimum - This is the amount of fees
you must meet each and every month, usually $25. If month sales
do not make the monthly minimum the merchant account holder must
make up the difference.
Merchant Account Provider (MAP) - Either a bank or other institution
that will host a merchant account and process credit card transactions.
Micropayments - The payment acceptance method used by merchants
who offer products, services, or information for a few cents to
a few dollars. Processing these small payments with a merchant account
would significantly reduce the amount of profit you would gain from
the sale.
P -
Point Of Sale terminal (POS) - Electronic device used by retail
businesses to process credit card transactions. If the customer
is present, they swipe or slide their credit card through the machine.
Personal Idenification Number (PIN) - Used to identify a person
attempting to use a credit card, or other type of bank card. Can
be either an alphanumeric or numeric code.
Processing bank - The bank that processes the transaction once a
credit card number is entered.
Payment gateway - This is the code that will transmit a customer's
order to and from a merchant's bank transaction authorizing agent.
R -
Recurring fees - Usually means fees that are billed each and every
month.
Real-Time processing - The processing of a credit card transaction
immediately after the purchase has been made. Real-Time is the preferred
choice for Internet-based merchants.
S -
Secure Socket Layer (SSL) - Used to encrypt and protect data usually
on an order from an online merchants web site. Once the order has
reached its destination the encrypted data is decoded.
Secure Electronic Transactions (SET) - A secure payment protocol
developed by MasterCard and Visa
designed to ensure security for bank card transactions over the
Internet. In denying merchants access to credit card information,
details are secured between the shopper and the bank.
Settlement - The step in the clearing process when the acquirer
credits the merchant account with the amount of a credit card purchase,
and the bankcard association (such as Visa and MasterCard) credits
the acquirer and debits the card issuer for the transaction.
Setup fees - A fee that is charged by a merchant services provider
for establishing a merchant account.
Shopping cart program - Software used to aid customers when ordering
a number of products/services from a merchants web site.
Smart cards - Similar to a credit card, but has a small microprocessor
built-in to the card that holds information about the cardholder.
Shopping Basket - As you shop online, you add items to your 'virtual'
shopping basket. The basket is simply a list of the items you have
selected to buy, together with the necessary details (number selected,
price of each item etc). You can review what's in your basket at
any time as you shop.
T -
Turn-key - A solution a firm offers in which they provide an individual
with a fully e-commerce enabled web site. Usually complete with
shopping cart, web design, hosting and merchant account.
Transaction - This is any action between a cardholder and a merchant
that results in activity on the account, such as an authorization
and settlement. Merchants and financial institutions also conduct
follow-on transactions that affect the cardholders' account, such
as a capture and credit.
Transaction fee - A fee charged by a merchant account provider for
each credit card transaction completed.
T-Commerce - The ability to order certain products and/or services
right directly from your television. Still a very new concept that
is being tested in Europe.
Terminated Merchant File (TMF) - Merchants with excessive chargebacks
are stripped of their merchant account and the ability to accept
credit card orders. The merchant is then placed on the TMF match
list that all Merchant Service Providers have access to. Being placed
on this file can keep you from obtaining another merchant account
for several years.
U -
U-Commerce - Stands for "Universal Commerce". The ability to conduct
secure commerce anywhere, anytime, with any type of device.
V -
Visa PAS (Payment Authentication Service) - Under Visa's PAS, cardholders
must authenticate themselves by verifying their identity with a
password when buying from a Web storefront. The ultimate aim is
to secure merchant databases against compromise by hackers, and
to password-protect card numbers that may be stored in a database.
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