Glossary of Terms
This glossary provides clear definitions for the common financial and technical terms you will encounter while managing your merchant account and processing payments.
General Processing & Banking
Acquiring Bank (Processor): A financial institution that maintains agreements with merchants to accept credit card payments.
Issuing Bank: The bank that issues credit or debit cards to consumers.
Card Associations: Networks of issuing and acquiring banks (e.g., Visa, MasterCard, Discover, and American Express) that process specific card brands.
Merchant Account: A specialized bank account that allows a business to accept credit card payments.
Merchant Identification Number (MID): A unique ID assigned to your business by your acquiring bank.
Terminal ID Number (TID): A unique number assigned to a specific terminal or POS system.
Employer Identification Number (EIN): A business tax ID issued by the IRS, also known as a TIN.
Transaction Types & Statuses
Authorization: The formal approval of a transaction by the cardholder’s bank.
Batch: A collection of authorized transactions stored in your equipment pending settlement.
Batch Settlement: The process of sending your "open" batch to the processor to finalize transactions and transfer funds to your bank account.
Card-Present Transaction: A face-to-face sale where the physical card is swiped, dipped, or tapped.
Card-Not-Present Transaction: A transaction where the card is not physically present (e.g., online, phone, or mail orders).
Decline: A transaction rejected by the cardholder’s bank.
Void: Canceling an approved transaction before it has been settled.
Debit Transaction: A purchase using a debit card, typically requiring a PIN and drawing directly from a checking account.
Fees & Rates
Discount Rate: A fee (percentage of the sale) charged by the acquiring bank to process a transaction.
Effective Rate: Calculated as
Total Processing Fees / Total Processing Volume. Note: Timing of network fees and one-time occurrence fees can affect this percentage.Interchange Fee: A fee set by card associations, paid by the acquiring bank to the issuing bank to cover processing costs.
Authorization Fee: A flat fee charged for sending transaction data through the network for an approval or decline.
Monthly Minimum Fee: A fee charged if your total monthly discount rate fees do not meet a minimum threshold required by the bank.
Statement Fee (On File Fee): A monthly charge for providing transaction processing statements and customer service.
Security & Compliance
PCI-DSS: The Payment Card Industry Data Security Standard, a set of security requirements all merchants must follow to protect card data.
CISP: Visa’s specific program for ensuring compliance with PCI-DSS.
AVS (Address Verification System): A fraud prevention tool that matches the billing address provided by the customer with the one on file at their bank.
CVV2 / CVC2 / CID: The security codes (3 digits on the back of most cards, 4 on the front of Amex) used to verify the card is in the user's possession.
EMV: "Chip" card technology that stores data on a microprocessor rather than just a magnetic stripe.
SSL (Secure Socket Layer): A protocol for encrypting sensitive information sent over the internet.
Disputes & Regulations
Chargeback: When a customer disputes a transaction through their bank. Common reasons include fraud or dissatisfaction.
Retrieval Request: A request from a bank for documentation regarding a sale. This is not a chargeback yet but can lead to one if not answered.
ACH Reject: Occurs when an ACH (bank transfer) fails, usually due to insufficient funds (similar to a bounced check).
Durbin Amendment: A federal provision that limits interchange fees on certain debit card transactions.
Truth Lending Act of 1968: A federal law designed to protect consumers in their dealings with lenders and creditors.