ACH: automated clearing house; an electronic payment network most commonly associated with payroll direct deposit and recurring payments. The ACH can be used also to clear electronic checks and other DDA transactions. It 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. Acquirers are one of only two entities (the other being merchant banks) that are the actual signatories to merchant agreements.

 

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 debit card) to cover a pending transaction.

 

Card-not-present: card transactions (Internet or Mail order/Telephone order purchases, for example) 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 a greater likelihood of fraud.

 

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).

 

Check scanner: a counter-top device used to scan images of checks, according to legal specifications, for electronic clearing and settlement.

 

Credit cards: can be issued by banks and nonbanks and include such brand names as American Express, Discover, MasterCard and Visa.

 

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

 

Debit cards: issued by financial institutions and tied to cardholders’ DDAs. Debit cards come in online and offline versions and can feature logos of Discover, MasterCard or Visa. Online debit requires customers to enter PINs; offline debit card payments are authorized with cardholder signatures, just like credit cards.

 

EFT: electronic funds transfer; the Pulse and Star networks, for example.

 

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.

 

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 on Visa and MasterCard transactions is calculated as a percentage of the transaction plus change. It can vary widely based on card type, transaction amount, risks and retail sector. Interchange is assessed on all bankcards, even PIN-based debit cards. Visa and MasterCard set interchange for credit cards and signature debit cards; EFT networks (like Pulse and Star) set interchange for PIN debit. For detailed information on commonly-assessed fees in the credit card processing industry, go here.

 

Member (Member Bank): A financial institution that is a member of VISA USA and/or MASTERCARD International. They serve to sponsor Member Service Providers and Independent Sales Organization to the Card Companies.

 

Member Service Provider (MSP): This term, defined by MasterCard, represents a company that is sponsored by a member bank to solicit and support merchants. Terms that are frequent synonyms for MSP are Acquirer and Processor.

 

Merchant discount: interchange plus fees charged to merchants to cover such services as processing, terminal installation, help desks and statement rendering. The merchant discount is set by the acquirer at a percentage of the purchase amount, typically between 1.5 percent and 3.5 percent. For detailed information on commonly-assessed fees in the credit card processing industry, go here.

 

MICR reader: a countertop device used to scan magnetic ink character recognition lines. The MICR line, a sequence of digits at the bottom of a check, provides details about the bank and account on which the check is drawn, and supports authorization and clearing routines.

 

MO/TO: mail order/telephone order; card purchases made through mail-order houses or telesales companies. Because no physical card is involved, these merchants enter card information manually for transmission to the appropriate authorization network. Interchange rates for these transactions are among the highest.

 

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) can result in hefty fines. Often shortened to PCI.

 

PIN: personal identification number; used to authorize card payments.

 

POS: point of sale; the place where retail sales occur and payment transactions are initiated.

 

Prepaid: stored value payment cards that can be used as credit or debit instruments. Prepaid cards can be used in open loop (branded by Visa, MasterCard and so forth) or closed loop (merchant- or mall-branded) environments.

 

Processor: the company that moves transactions on behalf of acquirers between merchants, banks and the card networks. An acquirer can, but need not be a processor.

 

RDC: remote deposit capture; electronic check services that support truncation of paper checks, with electronic clearing and settlement, through either electronic check or ACH systems.