Glossary of Credit Card Processing Terms
Credit Card Processing Terms are a series of mind numbing definitions that leaves one wondering… why? Whether your merchant account is based in Houston, Texas or Miami, Florida we hope the following terms will be of help.
A
ABA Routing Number
A unique nine-digit number assigned to each banking institution, used to identify the bank and direct ACH debits and credits. The ABA routing number is usually found at the bottom of a personal or business check.
ACH
Automated Clearing House – group of processing institutions linked by a computer network to process electronic payment transactions between financial institutions.
Acquirer, Acquiring Bank
A financial institution that is a member of Visa® and/or MasterCard® and maintains the merchant credit card processing relationship. The acquirer receives all transactions from the merchant account to be distributed to the issuing banks.
American Express
A company that specializes in the issuance of Travel and Entertainment (T&E) cards. American Express services the cards it issues, serving as its own transaction processor with its own processing network.
Approval Response
An affirmative reply following a transaction authorization request.
Association
MasterCard International®, Visa U.S.A.® or Visa International®, which are licensing regulatory agencies for bankcard activities.
Authorization
The process by which a credit card processing transaction is approved by the issuer, or by Visa® and/or MasterCard®on behalf of the issuer. Permission is given to (or denied) the merchant, via the acquirer, to accept a specific transaction from the cardholder account. An authorization indicates only that the card is valid and that sufficient funds are available on the cardholder’s credit limit at the time the request is made.
Authorization Approval Code
The numerical code designated by the issuer, assigned to a sales transaction as verification that the sale is authorized.
Authorization Only (Auth Only)
Used to reserve an amount against a credit card’s available credit limit for intended purchases. Authorization Only is most frequently used in the lodging (check-in), restaurant (tab) and car rental (pick-up) industries, where an approval is received for an estimated amount prior to the finalization of the charge amount.
Authorization Request
A merchant’s request for an authorization to accept a cardholder’s sales transaction. An authorization request can occur electronically via a credit card processing terminal or via telephone as a voice authorization.
Average Ticket
The average dollar amount of sale for credit card transactions.
AVS
Address Verification Service – verifies the cardholder’s billing address against the one on file with the issuer. AVS is designed to help combat fraud in non-face-to-face transactions.
B
Bankcard
A card issued by a banking institution with a Visa® and/or MasterCard® brand.
Batch
A group of approved credit card processing transactions, usually accumulated during one business day.
Batch Deposit
The electronic depositing of a batch file transmitted to the transaction processor for settlement.
BIN
Bank Identification Number – a unique series of numbers assigned by Visa® and/or MasterCard® to a member institution, which identifies that institution in transaction processing. The BIN comprises the first six digits of a standard credit card number.
Business Card
A payment card typically issued to and used by owners of small businesses.
C
Capture
Receiving and storing transaction data at the processor’s host computer, to be submitted later for processing and payment.
Card-Not-Present
A type of card transaction in which the card is not present at the point of sale for the magnetic stripe to be read. These are considered higher risk transactions.
Card Present
A type of transaction in which the card is present and is swiped through an electronic device that reads the contents of the magnetic stripe on the back of the card.
Card Reader
Input device on a card terminal that translates the information stored on the magnetic stripe on the back of a card.
Cardholder
The person to whom a payment card is issued, or an additional person authorized by the original cardholder to use the card.
Cardholder Account Number
A sequence of numbers assigned specifically to a cardholder account that also identifies the issuer and type of payment card. The cardholder account number is the embossed number imprinted on the payment card.
Cardholder-Initiated Chargeback
A chargeback that results when a cardholder contacts the card issuer and refuses to accept a charge appearing on a monthly billing statement. A cardholder has 90 days to initiate a chargeback.
Chargeback
A challenge to a transaction initiated by the issuer or cardholder that is returned to the acquirer for resolution.
Chargeback Fee
The amount assessed by the acquirer for processing chargeback’s.
Chargeback Reason Code
A numerical code which identifies the specific reason for a chargeback. Visa® and MasterCard® each have their own chargeback codes.
Check Card
A bankcard that can be used with a PIN at an ATM or without a PIN at the point of sale, also known as an offline debit card. When used at the point of sale, the transaction is processed through interchange as a credit card transaction with the funds debited from the cardholder’s checking account.
Check Digit Verification (MOD-10 check)
A check digit is the last position of a card account number, generated from an algorithm performed on a primary card account number. Verification of this number is referred to as a MOD-10 check and is used to validate a credit card number.
Check Guarantee
A service that guarantees check payment to a merchant up to a specified amount. However, merchants are required to perform correct authorization procedures.
Check Reader
A device that reads the numbers encrypted on the bottom of most checks.
Check Verification
A service that provides merchants with some security against bad checks. The person writing the check is matched against a national negative file database to flag outstanding or bad checks on record from other members of this service.
CID
Card Identification Number/Card Identifier – An American Express and Discover verification process that utilizes a non-embossed three- or four-digit number printed when authorizing credit card transactions where the physical card is not present.
On American Express cards, the CID is a four-digit code printed on the front of the card.
On Discover cards, the CID is a three-digit code printed next to the card number in the signature panel.
Close
Sending a merchant’s completed transactions to the host for processing. (See also “Settlement”)
Code 10 Authorization
If the POS device reads “Lost or Stolen Card,” or “Pick Up Card” or a similar message, the merchant should call the authorization center for a Code 10 Authorization. The operator will ask questions to determine if the transaction is valid.
Commercial Cards
Formal name for the following three types of cards:
Corporate Card; usually issued to the employees of a large corporation where the corporation assumes all liability for the card’s usage.
Purchasing Card; issued to corporations. It allows the corporation numerous parameters to control daily and monthly spending limits, total credit limits and where the card may be used. Many employees may be issued the same card number.
Business Card; similar to the Corporate Card, but issued to a business with fewer employees. Each employee is responsible for his or her purchases.
Compliance
Compliance to the Visa® and MasterCard® regulatory bylaws.
Also, a method of resolving a dispute between members if no chargeback reason code applies. The challenging member must prove financial loss due to a violation of Visa® or MasterCard® rules by the other member.
Credit
A refund or price adjustment given for a previous purchase.
CVC2
Card Validation Code – MasterCard term for the three-digit code printed next to the card number in the signature panel and used as part of the authorization process.
CVV2
Card Verification Value – Visa term for the three-digit code printed next to the card number in the signature panel and used as part of the authorization process.
D
DDA
Demand Deposit Account – a checking account.
Debit Card
A bankcard used to purchase goods and services and to obtain cash, which debits the cardholder’s personal checking account. During online debit transactions, the cardholder must enter a PIN.
Decline
A response from the card issuer denying the use of the card for the attempted transaction. If a request for approval is declined, the merchant must ask the cardholder for another form of payment.
Dial-Up Terminal
An authorization terminal that uses a telephone line to communicate with the authorization center.
Direct Response
Term used to describe a merchant processing primarily non-face-to-face or card-not-present transactions.
Discount Rate
The fees charged by the card acquirer to the merchant account for credit card processing transactions.
DUKPT
Derived Unique Key Per Transaction – a method of PIN pad encryption.
E
EBT
Electronic Benefits Transfer – the automation of government benefits through electronic authorization, data capture and settlement processes. Plastic cards with magnetic stripes are used, eliminating paper benefits and coupon distribution.
ECA/ECP
Electronic Check Acceptance/ Electronic Check Processing – process that converts a paper check into an electronic check at the point of sale. The check is electronically processed through the ACH network.
E-Commerce
Electronic Commerce – the sale and purchase of goods or services over the Internet.
EDC
Electronic Draft Capture – the use of a point-of-sale device to authorize and settle credit card transactions.
EFT
Electronic Funds Transfer – an electronic system that automatically moves funds, e.g., an ATM withdrawal or pay-by-phone transaction.
Encryption
Method of scrambling data to protect a cardholder’s personal information.
Expiration Date
The embossed date on a bankcard. After that date, the card becomes invalid and should no longer be accepted.
F
Financial Institution
Any organization in the business of moving, investing or lending money, dealing in financial instruments, or providing financial services. This includes commercial banks, thrifts, federal and state savings banks, saving and loan associations, and credit unions.
Fleet Card
Payment card designed mainly for fueling, maintenance and repairs of corporate motor vehicles. Fleet cards are normally used to provide specialized reporting.
Folio
A number assigned by a lodging merchant for tracking a guest’s charges.
Force
The process by which a voice-authorized transaction is key-entered to be settled electronically with a batch of transactions. Also known as a post-auth.
Fraud Investigation
The process of identifying suspicious merchant or cardholder activity.
G
Gateway
Manages the electronic connection between consumers and their financial institutions and transmits data.
Gift Card
A reusable, stored-value card that enables merchants to have an electronic alternative to paper gift certificates.
H
Hard Decline
A declined authorization attempt resulting from a lost or stolen card, pick-up card, etc. A Code 10 call should be made by the merchant to the authorization center.
Houston, Texas
A great city located in the Southeast corner of the State. Otherwise known as the “Bayou City”
I
Imprinter (aka Knucklebuster)
A device used to imprint embossed card information onto a sales draft for payment card transactions. An imprinter is used if the card is present and the POS device cannot read the contents of the magnetic stripe.
Interchange
The exchange of transaction data between acquiring and issuing institutions.
Interchange Fees
Fees paid by the acquirer to the issuer to compensate for transaction-related costs. Visa® and MasterCard® establish interchange fee rates.
Issuer, Issuing Bank
The financial institution and member of Visa® or MasterCard® that holds contractual agreements with, and issues cards to, cardholders.
L
Level I Data
Level I purchasing card data includes the same information captured during a traditional credit card purchase transaction. This includes: total purchase amount, date, merchant category code and supplier/retailer name.
Level II Data
Level II purchasing card data includes the same information captured at Level I, plus the following: sales tax amount, customer’s accounting code, merchant’s tax ID number, applicable minority- and women-owned business status, and sales outlet zip code.
Level III Data
Level III purchasing card data includes the same information captured at Levels I and II, plus the following: quantities, product codes, product descriptions, ship to zip, freight amount, duty amount, order/ticket number, unit of measure, extended item amount, discount indicator, discount amount, net/gross indicator, tax rate applied, tax type applied, debit or credit indicator, and alternate tax identifier.
M
Magnetic Stripe
A panel located on the back of a payment card containing magnetically encoded cardholder account information.
Magnetic Stripe Reader
A point-of-sale device that reads the encoded information from the magnetic stripe when the card is passed through the reader. Readers may read Track Two, which contains the cardholder account number and expiration date, or both Track Two and Track One, which contains the cardholder name.
MasterCard International Incorporated
A member-owned international bankcard association, governed by a board of directors, which licenses members to issue cards or accept merchant drafts under the MasterCard® Program. MasterCard® owns and operates its own international processing network.
Media Retrieval Requests
Media retrieval is the process of obtaining paper documents from a centralized location. There are two types of media retrieval requests: 1) requests for sales records from cardholders, and 2) requests for documentation in defense of a chargeback from card issuers.
Member
A financial institution that is a member of Visa® and/or MasterCard®. A member is licensed to issue cards to cardholders (issuer) and/or accepts merchant drafts (acquirer).
Merchant Account
The written contract between the merchant and acquirer that details their respective rights, responsibilities and warranties.
Merchant Bank
See Acquirer.
Merchant Discount
The fee an acquiring member charges the merchant to cover the costs of providing deposit credit and handling credit card sales transactions. See Discount Rate.
MID #
Merchant Identification Number – The identification number assigned to a merchant by the acquirer.
N
NACHA
NACHA develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments, and electronic benefits services (EBS).
Network
An entire system of communication hardware and software used to transfer electronic information during the authorization and settlement process.
Non Face-to-Face Transaction
Any transaction in which the card is not presented, such as a phone, mail or Internet purchase. See Card-Not-Present.
O
Offline Debit
Debit transaction that occurs when a Visa® or MasterCard® check card is authorized through the credit card system and the amount is debited from the cardholder’s checking (DDA) account.
Offline Transaction
A transaction that is authorized through a voice authorization and later keyed into a POS terminal prior to settlement.
Online Transaction
A transaction that is authorized electronically from the front-end network.
P
PIN
Personal Identification Number – a numeric code used as verification to complete a transaction via a payment card. The number is entered into a keypad and is encrypted to travel along with the authorization.
POS
Point Of Sale – the location at which a payment card transaction occurs, usually by way of a device such as a credit card terminal or cash register.
POS Terminal
Private Label Card
A card issued by a merchant that can only be used in the issuing merchant’s business. An example would be a department store credit card.
Processing Fees
The fees associated with the processing of credit card transactions.
Processor
A company responsible for processing interchange transactions – operated by an acquirer or acting on the acquirer’s behalf.
Purchasing Card
A payment card used by companies to replace paper invoices.
R
Reason Code
A two-digit code identifying the reason a chargeback was initiated.
Re-authorization (re-auth, add auth)
To request an additional amount to be authorized on an existing transaction. Used in the lodging industry when the original authorization is not sufficient to cover the charges.
Recurring Transaction
A transaction charged to a cardholder’s account (with prior permission) on a periodic basis for recurring goods and services, i.e., health club memberships.
Referral
The message received from an issuing bank when an attempt for authorization requires a call to the Voice Authorization Center.
Refund
A refund occurs when the merchant rebates all, or a portion, of an original transaction amount to the cardholder. Refunds are made to the same card that was used for the original transaction. Similar to a Credit.
Retrieval Request
A request by the issuer to the acquirer for a copy of the original sales ticket.
Reversal
When an acquirer successfully represents a chargeback to the issuer, the chargeback is reversed and the funds are returned to the merchant.
S
Sales Transaction Fee
The amount the financial institution charges a merchant for each sales transaction.
Settlement
The process in which a merchant transmits batches of transactions to the acquirer. In interchange, it is the process by which acquirers and issuers exchange financial data resulting from sales transactions, cash advances, merchandise credits, etc.
SIC
Standard Industrial Code – a universal four-digit code that designates a merchant’s industry type. Similar to an MCC code.
Smart Card
A payment card with a built-in microprocessor (chip) that stores information. Smart cards can be used for stored-value cards, credit cards, loyalty programs and security access.
Soft Decline
A declined authorization attempt that does not necessarily mean the card is bad (i.e., call referral, issuer unavailable or cardholder over limit). These transactions may be resubmitted a day or two later in an attempt to obtain a valid authorization.
Split Dial
The capability of a card terminal to dial different telephone numbers to obtain an authorization or settlement of different card types.
Stored Value Card
A stored value card is used by a merchant to issue spending credit to their customers. The merchant’s customers are given a magnetic stripe card in exchange for money received, merchandise returned or other considerations. The card represents a dollar value that the merchant’s customer can either use or give to another individual. There is no security associated with the card itself. The actual record of the balance on the card is maintained on a stored value card database.
Summary Adjustment
A correction to a deposit, made by the acquirer, when there is an error in the submitted deposit.
T
T&E Cards
Cards that are developed for and used primarily in travel-related services.
T&E Merchant
An airline, car rental company or lodging establishment with a primary function of providing travel-related services.
TID
Terminal Identification Number – number identifying a merchant to the front-end network.
Track One
Track One information, stored on the magnetic stripe on the back of a card, has the cardholder’s name in addition to the account number and expiration date stored in it.
Track Two
Track Two information, stored on the magnetic stripe on the back of a card, has the account number and expiration date.
Transaction
Any action between a cardholder and a merchant or member that results in activity on the account, such as a purchase, cash advance or credit.
Transaction Date
The actual date on which a transaction occurs.
Transaction Fee
The amount a merchant pays per transaction for processing.
V
VAR
Value Added Reseller – a third-party that certifies their software to be used on a processor’s system
Visa USA
A member-owned national bankcard association, governed by a board of directors, which licenses members to issue cards and accept merchant drafts under the Visa® Program. MasterCard® owns and operates its own international processing network.
Voice Authorization
Transactions authorized by a voice operator. Voice-approved transactions must be “forced” into a terminal batch for settlement.
