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For your convenience, NFC offers this helpful
credit card transaction guide & glossary of industry terms. ACH: A form
of electronic payment. Automated Clearing House is typically used
to process high volumes of relatively small-dollar payments for
settlement within one or two business days. ACH transactions are
settled in a manner similar to the way checks are settled: The clearinghouse
takes all ACH files received daily from its member banks, sorts
them by the originating bank (the bank where the check was cashed
or deposited) and the paying bank (the bank against which the check
was drawn), totals the accounts, and credits or debits appropriate
accounts accordingly. Acquiring Bank: A financial institution that contracts with merchants to settle electronic
transactions. The acquiring bank provides the merchant with its
credit card processing account. This acquiring bank sends credit
card and purchase information from credit card transactions to a
credit card association (such as Visa and MasterCard), which forwards
it to the issuing bank. Authorization:
The process by which an issuing bank approves the availability of
funds for a credit card transaction for a specific amount. Bankcard Association: The Visa and MasterCard associations. Batch Processing: A collection of credit card transactions saved for submitting at one time,
usually each day. Merchants who do not have real-time verification
systems must submit their credit card transactions manually through
a POS terminal (Point Of Sale). Batch fees are charged to encourage
a merchant to submit his or her credit card transactions at one
time, rather than throughout the day. Chargeback:
A payment dispute initiated by the cardholder with their credit
card issuing bank. The amount of the disputed credit card transaction
is immediately withdrawn from the merchant's bank account, and the
merchant can dispute the chargeback with proof of purchase, signature,
proof of delivery, etc. A chargeback fee is usually assessed to
the merchant on top of the actual credit card transaction. Chargeback
is usually generated when a cardholder disputes a transaction because
of one of the following criteria: Non
fulfillment of product or Service Debit Card:
A bank issued card that allows its user to access their funds for
the purpose of paying for merchandise. A debit card acts like a
credit card, the difference being that funds are immediately taken
from the cardholders checking or savings accounts. Discount Rate:
A fee in percentage paid to the merchant account provider or ISO
for handling an electronic transaction. E.F.T.: Much
like ACH, the Electronic Fund Transfer is the transfer of funds
from one financial institution to another. Interchange Rate: The rate that is set and charged by the bankcard association to the acquiring
banks for the credit card transaction. The interchange rate, which
is actually a percentage of the transaction amount, also helps account
for authorization costs, fraud and the general or average banks
cost of funds. I.S.O.: An
Independent Sales organization is an organization that provides
a variety of merchant functions (i.e. processing) on behalf of the
acquirer. These functions can also include selling new merchant
accounts or providing backroom services. An I.S.O. can also be referred
to as an M.S.P. (Merchant Service Provider). It is important that
the acquirer must register all ISOs/MSPs with bankcard associations. Issuing bank:
The bank that maintains the consumer's credit card account and must
pay out to the merchant's account in a credit card purchase. The
issuing bank then bills the customer for the debt. Merchant Account: A bank account established by a merchant to receive the proceeds of credit
card purchases. By establishing a merchant account, the merchant/acquiring
bank agrees to pay the merchant for valid credit card purchases
in exchange for the right to collect on the debt owed by the consumer. Merchant Bank:
A bank that holds a merchant account. After a consumer buys a product
using a credit card, the merchant bank places funds into a merchant
account in exchange for the right to collect on the debt owed by
a consumer. See also merchant account provider. Merchant Processing: The settlement of electronic payment transactions for merchants. It is
a separate and distinct business line from credit card issuing.
Merchant processing involves gathering sales information from the
merchant, collecting funds from the issuing bank, and payment to
the merchant. Merchant Underwriting: Merchant underwriting & approval policy helps control
credit risk. The policy is effective in designating and targeting
merchants who meet the acquiring banks processing criteria. The
policy also acts as a an agreement between the third party billing
agent & the acquiring banks as to what information is needed
from the merchants to measure the merchant against the acquiring
desired list of criteria. The policy also outlines and lists what
information is needed from the merchant, for the merchants agreement. Merchant services provider: A bank, ISO, or other firm that provides services for processing
financial transactions, usually credit card sales. Many MSPs provide
merchant accounts, while others require their clients to establish
merchant accounts on their own. Some MSPs claim that they do not
require merchant accounts; this may indicate factoring, which is
illegal in many areas. MOTO discount rate (mail order / telephone order discount rate): The discount rate charged by the merchant
account provider for credit card transaction in which the actual
credit card was not available to the merchant. MOTO discount rates
are generally higher than swipe discount rates to account for the
increased chance of fraud or nonpayment. POS terminal (point of sale terminal): An electronic device used for verifying and processing
credit card transactions. If the credit card is available, the merchant
can swipe the card through the terminal. Real-time processing: The verification and processing of credit card transactions
immediately following a purchase. Real-time verification on the
Web usually takes less than five minutes. Real-time verification
is especially important for Web sites that sell products and services
that consumers expect immediately, such as memberships to the site
or software downloads. Retrieval Request: A retrieval request is what happens when a card holder cannot remember
a credit card transaction, or the bank wants order information for
some reason. The card issuer initiates a retrieval request, in which
the merchant has 10 days to respond with the order information or
the retrieval request will turn into a chargeback. There is usually
a retrieval request fee issued against the merchant also in these
cases. Rolling Reserve (a.k.a. hold back): A portion of the revenue from a merchant's credit card
transactions, held in reserve by the merchant account provider to
cover possible disputed charges, chargeback fees, and other expenses.
After a predetermined time, holdbacks are turned over to the merchant.
Note: Merchant account providers almost never pay interest on holdbacks Settlement:
The process by which funds less applicable fees for bona fide sales
are sent to merchants. Shopping cart program: A software package that runs as part of a Web site to collect
and record purchasing decisions by a visitor. Shopping cart programs
are stored on Web servers. Swipe discount rate: The discount rate charged by a merchant account provider for transactions
in which a credit card is available. Swipe discount rates are generally
lower than MOTO discount rates because the merchant can match signatures
and perform other checks for fraud or misuse. Third-party Organization: Any outside company with which the acquirer contracts to provide
merchant processing services. Transaction fee: A charge for each credit card transaction collected by the merchant account
provider or ISO Transaction fees usually fall between $0.20 and
$1 (U.S.).
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