Bank Card Glossary
Acquirer:
An Acquirer is a Visa / MasterCard Affiliated Bank or Bank/Processor alliance that is in
the business of processing credit card transactions for businesses and is always Acquiring
new merchants.
Acquiring Financial Institution:
An acquiring financial institution (or “acquirer”) contracts with the bank and merchants
to enable credit card transactions. The acquirer deposits the daily credit card totals and
debits the end-of-month processing fees from the merchants’ accounts.
Address Verification Service (AVS):
The process of validating a card holder’s given address against the issuer’s records, to
determine accuracy and deter fraud. This service is provided as part of a credit card
authorization for mail order/telephone order transactions. A code is returned with the
authorization result that indicates the level of accuracy of the address match and helps
secure the most favorable interchange rates.
Adjustment:
An adjustment is initiated by the acquirer to correct a processing error. The error could be
a duplication of a transaction or the result of a card holder dispute. The acquirer debits or
credits the merchant DDA account for the dollar amount of the adjustment.
Audio Response Unit (ARU):
This is an electronic authorization and capture product where the merchant uses a touch-
tone telephone to process transactions.
Authorization: The process of verifying the credit card has sufficient funds (credit) available to cover the
amount of the transaction. An authorization is obtained for every sale. An approval
response in the form of a code sent to a merchant’s POS equipment (usually a terminal)
from a card issuing financial institution that verifies availability of credit or funds in the
card holder account to make the purchase. Also see Point-Of-Sale.
Authorization Response:
An issuing financial institution’s electronic message reply to an authorization request,
which may include:
Approval — transaction was approved
Decline — transaction was not approved
Call Center — response pending more information, merchant must call the toll-free authorization phone number.
Authorization Code:
A code that a credit card issuing bank returns in an electronic message to the merchant’s
POS equipment that indicates approval of the transaction. The code serves as proof of
authorization.
Auto Close:
A terminal feature that allows an end-of-day batch closing to occur automatically at a
specified time, without having to be initiated by the merchant.
Automated Clearing House (ACH) File:
A file with instructions for the exchange and settlement of electronic payments passed
between financial institutions. It represents debits and credits to be deducted from an
account automatically as they occur.
Average Ticket (Average Sale):
The average dollar amount of a merchant’s typical sale. The average ticket amount is
calculated by dividing the total sales volume by the total number of sales for the specified
time period.
Bankcard:
A credit card issued by a Visa or MasterCard-sponsored financial institution. (American
Express, Discover, Diners Club, JCB, etc., are issued directly from their respective
operations, rather than through banks.)
Batch:
The accumulation of captured credit card transactions in the merchant’s terminal or POS
awaiting settlement.
Capture:
The submission of an electronic credit card transaction for financial settlement.
Authorized credit card sales must be captured and settled in order for a merchant to
receive funds for those sales. Also see Settlement.
Cardholder:
Any person who holds a payment card account (bankcard or otherwise). Person that uses
a credit card to purchase goods and services.
Card Issuing Bank: An EFT Network Member-Bank that runs a credit card or debit card “purchasing service” for their account holders. An example is CitiBank and the CitiBank Visa Card that they
issue.
Card Not Present: A transaction where the card is not present at the time of the transaction (such as mail
order or telephone order). Credit card data is manually entered into the terminal, as
opposed to swiping a card’s magnetic stripe through the terminal.
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 card holder. Typical card
holder 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.
Close Batch:
The process of sending the batch for settlement.
CNP:
Stands for Card Not Present.
Code 10 Authorization:
If you suspect a card is fraudulent at the time of the transaction, the merchant can call
their voice authorization phone number and ask for a code 10. The voice operator will
instruct the merchant on how to proceed.
Commercial Cards: Credit or charge cards issued to businesses to cover expenses such as travel and
entertainment and procurement. Includes the multiple payment card brands of purchasing
cards, business cards, corporate cards and multi-utility fleet cards. Visa and Master Card
now have special procedures for passing billing information back to the card issuing bank
so that it can be displayed on card holder statements; this is a program for promoting the
use of credit cards for business purchases by providing purchase tracking to business
users. New regulations require that this billing information be passed back with the
transactions, otherwise a higher pass through fee will be incurred.
Corporate Card: Charge card designed for business-related expenses, such as travel and entertainment.
Please see Commercial Card.
Credit (Reversal): Nullification of an authorized transaction (sale) that has not been settled. If supported by
the card issuer, a reversal will immediately “undo” an authorization and return it to the
open-to-buy balance on a card holder’s account. Some card issuers do not support
reversals.
CVV/CVC Code: Stands for CARD VERIFICATION VALUE CODE.
CVV is an authentication procedure established by credit card companies to further
efforts towards reducing fraud for internet transactions. It consists of requiring a card
holder to enter the CVV number in at transaction time to verify that the card is on hand.
The CVV code is a security feature for “card not present” transactions, and now appears
on all major credit and debit cards. This is a three- or four-digit code which provides a
cryptographic check of the information embossed on the card.
The CVV code helps ascertain that the customer placing the order actually possesses the
credit/debit card and that the card account is legitimate. Each credit card company has its
own name for the CVV code, but it functions the same for all major card types. (VISA
refers to the code as CVV2, MasterCard calls it CVC2, and American Express calls it
CID.)
DDA Account: This is the merchants Demand Deposit Account, otherwise known as the merchant’s
home town bank account.
Debit Card: Payment card whose funds are withdrawn directly from the cardholder’s checking
account at the time of sale (online debit on a Debit Network) or after batch settlement
(off-line debit on a Credit Card Network).
Deposit Correction Notice (DCN):
Adjustments (debits or credits) made for an out-of-balance condition due to various
problems in the transmittal. The correction is made by the merchant’s acquirer at the time
of capture prior to being sent out for interchange.
Discount Rate: The percentage of sales amounts that the bankcard acquirer or T&E card issuer charges
the merchant for the settlement of the transactions.
Edit Rejects: The rejection of a sales draft by Visa or MasterCard before a transaction processes
through interchange, but after it has been paid by the acquirer.
Electronic Cash Register (ECR):
A device used for cash sales. Can also be integrated to accept credit cards.
Electronic Date Capture (EDC):
Process of electronically authorizing, capturing and settling a credit card transaction.
Fleet cards:
Private label credit cards designed mainly for repairs, maintenance and fueling of
business vehicles.
Footer:
Text printed at the bottom of a sales draft. A merchant can customize the footer (i.e.,
Have a Nice Day, No Refunds, Thank You for Shopping With Us, etc.).
Independent Sales Organization (ISO):
An ISO is an Independent Sales Organization that represents a Bank or Bank/Processor
alliance. The ISO has an agreement to sell the services of the Bank or Bank/Processor
alliance, and is allowed to mark up the Fees and sign up merchants.
-These entities are classic Middle Men, as they are typically not performing the services
sold. They typically match the banking services they sell with “Front End” solutions for
accepting transactions in order to offer merchants a working system.
-Their Front End Systems can be anything from Verifone or Hypercom POS Terminals to
PC based Dial-Out Credit Card Processing Software, to Shopping Carts paired with a
Secure Payment Gateway. (In all cases, the Front End solution must be compatible with
the Processor in order to function.)
merchant location. This number is used to identify the merchant during processing of
daily transactions, rejects, adjustments, chargebacks, end-of-month processing fees, etc.
Magnetic Stripe: A strip of magnetic tape affixed to the back of credit cards containing identifying data,
such as account number and card holder name.
Mail Order/Telephone Order (MOTO):
Credit card transactions initiated via mail, email or telephone. Also known as card-not-
present transactions.
Network: Company and system used to authorize and capture credit card transactions.
Non-Qualified Transaction Fees (NON-Qual):
Bankcard sales transactions that do not meet set Visa/MasterCard criteria for that
particular merchant and are processed at a higher interchange rate. An example of this is
a merchant that is retail (card present) that processes a card-not-present transaction (or
manually enters card data rather than swiping the magnetic stripe through the terminal).
The merchant will pay the difference between what they should have paid on retail and
what they actually qualified for (card not present). This difference is called non-qualified
interchange fees.
PCI-DSS: Payment Card Industry Data Security Standard. Set up by the providers (Visa, Mastercard, Amex etc.) to provide a guide to merchants to protect vital customer
data.
PC Software: A software program that is designed to perform a specific function on a computer system.
Examples would be accounting systems, manufacturing systems, order entry and
fulfillment, ticketing, reservations, etc. The application is either purchased or built by the
merchant, and must be interfaced with a credit card authorization system in order to
provide on-line transaction processing.
Private Label Cards:
Credit, debit or stored-value cards that can be used only within a specific merchant’s
store. Also referred to as proprietary cards.
Point Of Sale (POS):
A location where credit card transactions are performed with the card holder present,
such as a retail store. The card is read magnetically, and the card holder’s signature is
obtained as insurance against the transaction. This is the most secure form of credit card
commerce.
POS Terminal: Equipment used to capture, transmit and store credit card transactions at the point of sale.
Examples are Verifone terminals.
Processor:
A Processor is the company that actually routes an Authorization Request from a Point of
Sale device (such as a Verifone credit card terminal) to Visa or Master Card, and then
arranges for Fund Settlement to the merchant. Such processors are traditionally accessed
via direct dial out modems connecting to their system.
-Processors need to have a Sponsoring Bank in order to gain access to the Visa and
Master Card networks. When a Processor or other entity has made such an arrangement
with a Sponsoring Bank to resell their services, they are called an Agent of that bank.
-Any entity that sells Visa or Master Card must disclose themselves as an Agent of their
Sponsoring Bank. Such sales entities may be a Processor, or an ISO/Agent of the
Processor or Processor/Bank alliance.
-Many banks are also their own processors, while other banks will use a Third Party
Processor to handle this processing for them (in their own brand name in some cases).
Processing Network (Vendor):
The medium of data transport between the merchant application and the processor. This
company authorizes and captures credit card transactions. Some examples of processing
networks are FDR, MAPP and Envoy.
Procurement/Purchasing Cards:
Charge cards used by businesses to cover purchasing expenses, such as raw materials or
office supplies.
Real-Time Processing Real-Time Processing means that when a web site’s customer conducts an online
purchase, that the check or credit card information is conveyed to the Processor at that
exact
time so that an authorization can be requested and received at that moment. Real-Time
Processing always implies that a Secure Payment Gateway is being utilized, whether
proprietary or third party. Please see Secure Payment Gateways and Real Versus Non-
Real Time Processing.
Reserve Account
One method that ACH Processor’s use to mitigate risk, is to require that merchants
maintain a Reserve Account at the Processor’s Sponsoring Bank. This allows the
Processor to issue a Hold on funds in this account when fraud has been detected or an
excessively large number of returns is received. Merchants with good credit and history
can usually meet the expectations of ACH Processors for covering returns and so are not
always required to keep a reserve account. In cases where a reserve is required, the
minimum-reserve-balance in the account is set at about 20% of the anticipated processing
volume. New merchants are usually allowed to build up their reserve by sending in
transactions which are not withdrawn until the minimum reserve balance is achieved;
after that, the merchant is allowed to withdraw the excess funds for transfer to their home
town bank.
Sales Draft (Ticket): A form showing an obligation on the card holder’s part to pay money (i.e., the sales amount) to the card issuer. This is the piece of paper that is signed when making the
purchase. Sales draft data can be captured electronically and sent to be processed over the
phone lines. Also see Electronic Data Capture.