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Merchant Account Glossary
The following definition of terms will help you when making your decision regarding a new merchant account. These terms are common to the payment processing industry. Having an understanding of the glossary of merchant account terms will equip you when assessing the best merchant account program for your business.
As always, feel free to contact us directly for additional clarification regarding a merchant account, terms, and/or definitions.
3DES: Also called triple DES, an extremely secure encryption system that encrypts data 3 times, using 3 64-bit keys, for an overall encryption key length of 192 bits.
ACH, Daily Discount or Batch Fee: A fee charged for settling a batch at the end of the day. If no transactions were made on any given day, this fee should not be charged.
Acquirer: Also called the acquiring bank, the financial institution that creates and maintains a merchant account, receives transactions from the merchant, and initiates the interchange via VISA/MasterCard. The acquirer must be a licensed member of MasterCard or VISA.
Address Verification Service (AVS): Generally utilized by online/mail order merchants, a service that verifies the cardholder's address. However, AVS does not guarantee that a transaction is valid.
Annual Fee: Similar to credit card accounts, merchant accounts charge an Annual Fee. This is billed for running an account throughout the year.
Application/Set Up Fee: A fee charged upon account set up. Some providers omit this fee.
Batch: A group of accumulated transactions that have been captured, but not yet settled. Merchants generally settle their batches at the end of each day.
Cancellation / Termination Fee: Since there are fees involved in setting up a merchant account (administration costs, credit checks, server maintenance, etc.,) providers have a Cancellation/Termination Fee in place, which is paid if a contract is terminated prematurely. Depending on which provider is chosen, this fee may be based on the length of time a merchant has remaining on their minimum account period, or their monthly average fee.
Card associations: Payment networks such as VISA® or MasterCard® (and others) that act as a gateways between acquirers and issuers for authorizing and funding transactions
Cardholder: The owner of the credit or debit card that is being used to make a purchase
Chargeback: A transaction that has been disputed by the cardholder or issuer, is sent back through interchange to the acquirer, and must be resolved by either the acquirer or the merchant.
Chargeback / Retrieval Fee: In light of credit card scams, fraudulent transactions and disputes made on sales, merchant account providers want to recover the time spent resolving these issues. If a dispute occurs, a Chargeback/Retrieval Fee will be added. This fee usually runs around $25 and is only applied if a dispute arises.
Check conversation: A check protection service by which a merchant scans a check image and converts it into an electronic transaction, similar to a PIN-based debit, for which the merchant is paid immediately. Check conversion requires a check imager peripheral.
Check guarantee: A check protection service by which a merchant guarantees she/he will receive payment for a check, even in the event of insufficient funds. Check guarantee requires a check reader peripheral.
Clearing: The exchange of transaction details between an acquirer and an issuer, which posts the transaction to the cardholder's account and reconciles it for settlement.
CVV2: Card verification value 2. A 3-digit security code printed on the back of a card, which helps to dissuade fraud via Internet and phone transactions. CVV2 ensures that the credit card number is viable and that the card is in the possession of the purchaser.
Discount rate: The amount charged to a merchant by the acquirer for processing the merchant's daily credit card transactions.
DUKPT: Derived Unique Key Per Transaction. An encryption technique for secure key-management that uses a unique key for each separate transaction to prevent the disclosure of any previously used key.
Electronic Benefits Transfer (EBT): A government-funded, cash assistance program that distributes payments such as Food Stamps and Temporary Assistance for Needy Families (TANF) on cards that can be swiped and used with POS terminals.
Imprinter: A manual device used to imprint embossed card information onto sales drafts for transaction records. An imprinter cannot authorize a transaction, merely capture card information. Imprinters are primarily used as a backup when other processing equipment is unable to read a card's magnetic stripe. For merchants without an electronic printer, an imprint is needed to prove a card was present if a key-entered transaction is disputed.
Interchange: The process of authorization and settlement of card transactions through VISA or MasterCard. Interchange includes the transmittal of cardholder information, transaction data, and fees.
Interchange Fee: The amount card associations charge acquirers for each card transaction they process. Card associations pay interchange fees to the issuer as compensation for expenses incurred in providing lines of credit to cardholders. The acquirer's cost is passed on to merchant as a part of the discount rate.
Issuer: Also called the issuing bank, the financial institution that issues a credit card to a cardholder. The issuer must be a licensed member of MasterCard or VISA.
Internet Gateway Fee: A monthly fee for Internet gateway services that can amount to as much as $30 and doesn't include other fees a provider charges per transaction. An additional gateway transaction can also be charged that averages between 5 and 20 cents per transaction.
Merchant: A business that has contracted with an acquirer for card processing services and accepts credit cards as a method of payment for goods or services.
Merchant Accounts: The contract between a merchant and an acquiring bank for providing card processing services.
Message Authentication Code (MAC): A data security feature that produces a unique code for every digital message, which allows the recipient to verify that data has not been altered since being transmitted by the sender.
Monthly Minimum Fee: The amount that a vendor pays towards their merchant account expenses, should their monthly transactions fall below the amount predetermined by the merchant account provider at the time of account setup. If you do not fall below the minimum amount for a given month, then this charge would not apply.
Monthly Statement / Support / Service Fee: A monthly fee of approximately $10 to $15 charged for services. A merchant account provider should provide the vendor with a toll-free number for full back-up support and assistance when needed.
PIN Debit Transaction Fees: A fee that applies when PIN numbers must be entered manually. This fee is normally a flat rate (no discount percentage added) and runs around 70 cents.
Point-of-sale terminal (POS): Also called a card-processing terminal, a device used to record and transmit card transactions electronically for authorization and processing. POS terminals can transmit information via a regular telephone line, broadband Internet connection, or wireless signal.
Reprogramming Fee: A fee that applies whenever it is necessary to update a portion of transaction set up, which covers the cost of reprogramming both hardware and software.
Secure Socket Layer (SSL): A security feature that keeps Internet communications private and ensures they have not been forged or tampered with.
Settlement: The exchanging of data or funds between the acquirer and the issuer. Settlement includes funding the merchant for the transaction and paying any necessary fees due to the issuer or acquirer for processing the transaction.
Shopping Cart: A software application needed for e-commerce and online transaction processing. Shopping cart software collects the items a cardholder selects for purchase, maintains a running total, and may calculate taxes and shipping.
Surcharge / Partially Qualified / Non-Qualified Fees: This fee usually ranges anywhere between 0.5% to 2.5% and applies to certain credit cards such as company credit cards, rewards cards, government cards and those used internationally. When speaking with different merchant account providers, get clear answers regarding these fees before signing on the dotted line.
Transaction Fees: Simply put, this is the cost incurred when a transaction takes place, and is usually linked with the discount rate. A transaction fee is charged regardless of whether the transaction is approved or not. The average transaction fee is usually between 20-30 cents, depending on the type of sale.
Virtual terminal: Also called an online payment gateway, an Internet-based interface used for processing card transactions. May be used as a way to process card transactions online without a POS terminal or card processing software. Online merchants must have an online payment gateway to enable their business for e-commerce.
Voice Authorization Fee: A fee charged in the case that it is necessary to complete a transaction via phone. This fee normally ranges between 75 cents to $1.50 and will only apply on rare occasions.
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