Address Verification System
(AVS)
Checks to see that the billing address given by
the customer matches the credit card. If you opt not to use AVS,
VISA and MasterCard will not support your transactions and will
charge you an additional 1.25% on those sales. Most merchant accounts
come with AVS at no extra charge.
Automatic Clearinghouse (ACH)
ACH can also mean Automatic Check Handling. ACH
is a form of e-payment or electronic payment. There are two ways
payments can be transferred: (1) by wire transfer, or (2) through
an automated clearinghouse. Wire transfer is an e-payment system
that is designed to handle high-dollar, time-crucial payments,
usually between large banks. ACH is designed to be an e-check
or electronic check. Unlike the wire transfer, it is usually used
to process higher volumes or small-dollar payments for settlement
issues within 1 to 2 business days. All ACH transactions are settled
pretty much the same way checks are. The clearinghouse takes all
of the ACH files received daily from member banks, it then divides
them by the originating bank (where the check was either cashed
or deposited) and the paying bank (the bank where the check was
drawn), then it totals the accounts, and credits or deducts the
accounts accordingly.
Acquiring/Merchant Bank
A bank that does business with merchants and provides
merchants and e-business with a credit card merchant account enabling
them to accept credit cards. The acquiring bank transfers credit
card and other purchase information and deposits the value of
the day's credit card sales on a daily basis to a credit card
association, and they in return forward it onto an issuing bank.
Acquirers buy (acquire) the merchant's sales slips and credit
the tickets' value to the merchant's account.
Acquiring Processor
Provides credit card processing, billing, reporting
and settlement, and operational services to acquiring banks.
Many financial institutions don't do their own bankcard processing
because it's more cost-effective to let the acquiring processor
invest in the equipment and people and do it for them.
Addenda Records
Records that may be attached to certain ACH entries
for the purpose of carrying additional information.
Authorization
Refers to the act of insuring that the cardholder
has adequate funds available against their line of credit thereby
resulting in an authorization of the ACH transaction by a consumer
or company. Most authorizations must be in writing and must be
retained for a period of two years. There are 3 types: recurring,
non-recurring, one-time.
A positive authorization results in an authorization code being
generated and those funds being set aside.
The cardholder's available credit limit is reduced by the authorized
amount.
Batch
An accumulation of captured credit card (sales)
transactions that are waiting to be settled at the end of the
business day. Multiple batches may be settled through the day.
Batch Close
The process of sending a batch to the financial
institution for settlement.
Bank Card
A plastic card that is accepted by merchants. They
are used to credit an account for processing a sales transaction.
The credit card is the most common form of a bank card.
Capture
Converting the authorization amount into a billable
transaction record within a Batch for submission, processing and
settlement. Transactions cannot be captured unless previously
authorized and the goods or services have been shipped or transmitted
to the consumer.
Cardholder
An individual or business that has established an
account with a credit or debit card issuer. A cardholder is eligible
to initiate a payment card transaction.
Card Verification Value (CVV2)
Three-digit security number that is printed on the
back of most Visa credit cards. Requiring this number on order
checkouts can reduce credit card fraud and charge-back instances
significantly.
Card Verification Code (CVC2)
Numeric security code that is printed on the back
of MasterCard credit cards. Requiring this number on order checkouts
can reduce credit card fraud and charge-back instances significantly.
Cash Concentration
Companies that have decentralized units use the
ACH to concentrate cash into a centralized bank account - replaces
wire transfer.
Certificate Authority (CA)
This is the service a bank provides that digitally
signs public keys sent to it by a web browser or by the merchant's
server software. It issues and validates digital certificates
associated with SET transactions.
Charge-Back
This is a fee that is charged by a merchant service
provider against a merchant account, for credit card transactions
that have to be removed from a merchants account
Check Truncation
Stopping or truncating a paper check by turning
it into an electronic item at the Point of Sale (POS) or in lockbox
check truncation.
Corporate Payments
Business-to-business ACH Network collection and
disbursement of funds. The Federal government is mandating this
form of payment for corporate taxes and payments to government
vendors.
Credit
The borrowing capacity of an individual or company
or a contractual agreement in which a borrower receives something
of value now and agrees to repay the lender at some later date.
Opposite of debit.
Credit Card
This is a type of bank card that can be widely used
all around the world as a form of payment. The credit card holder
must then reimburse the credit card company for the amount of
the total sales the holder had charged on that particular credit
card.
Credit Card Processors
They handle all of the details of processing credit
card transactions.
Credit Deposit
The value of a merchant's credit card purchases
that are credited to its bank account after the acquiring bank
buys the merchant's sales slips. The deposit is credited but not
funded until the acquiring bank gets the monetary value from the
issuer during settlement.
Debit
An accounting entry that results in either an increase
in assets or a decrease in liabilities or net worth. Opposite
of credit.
Digital Cash
Two main mechanisms in that "digital coins"
can be downloaded to the user's PC from a participating bank,
or the set up of a digital money account with a bank. Both (encrypted)
forms of cash can be sent to merchants for payment.
Digital Certificate
Online identification that authenticates a consumer,
merchant, and a financial institution. Digital certificates are
used to encrypt information exchanged in SET transactions. A certificate
is a public key that has been digitally signed by a trusted authority
(the financial institution) to identify the user of the public
key.
Digital Money
The same as digital cash but can also involve the
use of software-based secure credit card transactions.
Digital Signatures
An electronic signature, which cannot be forged.
Instead it is generated from a computed digest of the text that
is encrypted and sent with the text message. The recipient decrypts
the signature and retrieves the digest from the received text.
If the digests match, the message is authenticated and proved
to be from the sender.
Direct Deposit
The disbursement of funds to consumer accounts.
Includes payroll, interest, trust disbursements, expense payments,
dividends, pension payments, etc. This is the most widely used
ACH service.
Direct Payment
The collection of funds from consumer of business
accounts. This normally would be used to collect payments for
monthly dues as in: health club membership, rent, phone, utility
bills, newspaper bills, trash collection, mortgage payments, lease
payments, etc.
Discount Rate
This is a fee that the major credit cards charge
for handling a transaction or the fee a merchant pays its acquiring
bank/merchant bank to handle a transaction and deposit the value
of each day's credit purchases.
This fee is usually a small percentage of the purchase value.
E-commerce
The processing of buying and selling via the Internet.
Electronic Check Re-presentment
An ACH Network service that allows for the electronic
re-presentment of a returned paper check marked non-sufficient
funds (NSF). Provided that certain guidelines are fulfilled, the
check can be collected electronically.
Electronic Data Interchange (EDI)
The electronic communication of business transactions,
such as orders, confirmations and invoices.
Electronic Funds Transfer (EFT)
The transfer of money from one bank account to another
bank account initiated through an electronic terminal, automated
teller machine, computer, telephone, or magnetic tape that utilizes
the ACH Network. EFT also applies to credit card and automated
bill payments.
Electronic Data Capture (EDC)
To use a Point Of Sale (POS) terminal for submitting
credit card transaction information to a merchant account provider.
Encryption
Scrambling of an electronic message (usually e-mail)
in a way that only the sender and receiver can read the message.
Factoring
When used in e-commerce, the term is applied to
companies that offer to process credit card transactions through
their own merchant account rather then having the merchant purchase
their own, in exchange for a percentage of the transaction. This
is an illegal practice and will result in heavy fines. Also known
as credit card "laundering".
Gateway
See "payment gateway".
Interchange
The exchange of information, transaction data, and
money among banks.
Interchange systems are managed by Visa and MasterCard
associations and are very standardized so banks and merchants
worldwide can use them.
Interchange Fee
A fee paid by the acquiring bank/merchant bank to
the issuing bank. This fee compensates the issuer for the time
after settlement with the acquiring bank/merchant bank prior to
it recouping the settlement value from the cardholder.
Internet Commerce
A term that covers all commercial transaction activity
on the Internet.
Internet Initiated Entries - (WEB)
A consumer authorizes a Receiver or Merchant to
debit their account via the Internet.
Issurer/Issuing Bank
This is the issuing or cardholder bank that extends
credit to customers through bank card accounts and maintains a
consumer's credit card account. This cardholder bank will pay
out to a merchant's account when the consumer makes a credit card
purchase. At the end of the month the issuing bank will bill the
cardholder for the debt.
Lockbox Check Truncation
Also called Accounts Receivable Truncation System
(ARTS) is the process of turning checks received in the mail by
a biller into electronic items.
Mail Order/Telephone Order (MOTO)
MOTO is a short version to describe businesses that
conduct sales via mail and telephone/fax.
Merchant
Collective term applied to Web-based e-Tailers who
may have online storefronts.
Merchant Account
An account that is established by a merchant to
receive payment via credit cards.
Merchant Account Provider (MAP)
Either a bank or other institution that will host
a merchant account and process credit card transactions.
Merchant Bank
This is the bank that holds the merchant account.
When someone buys a product and/or service from a merchant, the
merchant bank will place the needed funds into a merchant account
in exchange for the right to collect the debt that is owned by
the purchasing consumer.
Merchant Identification Number (MID)
A number provided by a merchant bank to identify
the merchant in an e-commerce transaction.
Merchant Service Provider (MSP)
This is a bank or other firm that provides processing
for credit card transactions. Most MSP's provide merchant accounts.
NACHA
The National Automated Clearing House Association
is the chief rules making and interpretation body of the ACH.
NACHA is the cooperative governing body for 36 regional ACH associations.
Non-Recurring Payment Authorization
An individual or company authorizes the debit of
their account for a varying period and/or amount. Notification
must be sent 10 days before the effective date with the amount
to be debited.
Non-Sufficient Funds (NSF) Check
A paper check that has been returned by the banking
system due to Non-Sufficient Funds. These can be electronically
represented through the ACH Network using Electronic Check Re-presentment.
Notification of Change (NOC)
An advice from an RDFI to an ODFI that entry information
requires corrections and includes the correction details.
Originating Depository Financial
Institution (ODFI)
The bank that initiates an Electronic funds transfer
through the ACH Network on behalf of the Originator.
One Time Payment Authorization
An individual or company authorizes a one-time debit
of their account. The authorization is usually a written authorization
but in some instances a recorded telephonic authorization may
be used.
Originator
An individual or a company that initiates an ACH
transaction.
Original Entry
A debit or credit ACH transaction directed to an
account at an RDFI.
Payment Gateway
This is the code that will transmit a customer's
order to and from a merchant's bank transaction authorizing agent.
Personal Idenification Number (PIN)
Used to identify a person attempting to use a credit
card, or other type of bank card. Can be either an alphanumeric
or numeric code.
Point of Sale (POS)
A term used to describe an ACH transaction at the
time of purchase - for example at the check out counter.
Point Of Sale terminal (POS)
Electronic device used by retail businesses to process
credit card transactions. If the customer is present, they swipe
or slide their credit card through the machine.
Pre-Notification
Or Pre-note is an ACH entry with no value that is
sent to an RDFI to verify account information prior to sending
a live entry.
Processing Bank
The bank that processes the transaction once a credit
card number is entered.
Real-Time
Processing
The processing of a credit card transaction immediately
after the purchase has been made. Real-Time is the preferred choice
for Internet-based merchants.
Receiver
The individual or company that holds an account
to which an ACH entry is sent.
Receiving Depository financial Institution (RDFI)
The financial institution that receives an ACH transaction
for a holder of an account.
Recurring Fees
Usually means fees that are billed each and every
month.
Recurring Payment Authorization
An individual or company authorizes the periodic
debit of their account for the same period and amount.
Returned Check (RCK)
Refers to and represents the electronic check process
for electronic re-presentment of paper NSF checks - Electronic
Check Re-presentment.
Return Reason Codes
Or, R Codes are rejections of original ACH entries
by the RDFI.
Return Entry
The return of an original entry that either could
not be posted or was not able to be identified by the RDFI - closed
account, NSF, wrong account number, etc.
Secure Socket Layer (SSL)
Used to encrypt and protect data usually on an order
from an online merchants web site. Once the order has reached
its destination the encrypted data is decoded.
Secure Electronic Transactions (SET)
A secure payment protocol developed by MasterCard
and Visa designed to ensure security for bank card transactions
over the Internet. In denying merchants access to credit card
information, details are secured between the shopper and the bank.
Settlement
The step in the clearing process when the acquirer
credits the merchant account with the amount of a credit card
purchase, and the bankcard association (such as Visa and MasterCard)
credits the acquirer and debits the card issuer for the transaction.
Setup Fees
A fee that is charged by a merchant services provider
for establishing a merchant account.
Shopping Basket/Cart
As you shop online, you add items to your 'virtual'
shopping basket. The basket is simply a list of the items you
have selected to buy, together with the necessary details (number
selected, price of each item etc). You can review what's in your
basket at any time as you shop.
Shopping Cart Program
Software used to aid customers when ordering a number
of products/services from a merchants web site.
Smart Cards
Similar to a credit card, but has a small microprocessor
built-in to the card that holds information about the cardholder.
T-Commerce
The ability to order certain products and/or services
directly from your television. Still a very new concept that is
being tested in Europe.
Telephone Initiated Entry
(TEL)
An entry initiated through a telephone authorization for a one-time
debit for collection of funds for payment of goods and services.
A TEL is valid only when there is an existing relationship between
the parties or, if no existing relationship, the consumer initiates
the telephone call.
Terminated Merchant File (TMF)
Merchants with excessive chargebacks are stripped
of their merchant account and the ability to accept credit card
orders. The merchant is then placed on the TMF match list that
all Merchant Service Providers have access to. Being placed on
this file can keep you from obtaining another merchant account
for several years.
Third Party Processor
Any processor that participates in a relationship
within the ACH processing flow - usually as an Originator of transactions
for clients.
Ticket
Another name for the sales slip or its monetary
value that results when a credit card purchase is made.
Transaction
This is the process that takes place when a cardholder
makes a purchase with a credit card, i.e., any action between
a cardholder and a merchant that results in activity on the account,
such as an authorization and settlement. Merchants and financial
institutions also conduct follow-on transactions that affect the
cardholders' account, such as a capture and credit.
Transaction Fee
A fee charged by a merchant account provider for
each credit card transaction completed.
Truncation
In ACH, it normally refers to stopping or truncating
a paper check as in POS or lockbox check truncation and turning
that paper check into an electronic item.
U-Commerce
Stands for "Universal Commerce". The ability
to conduct secure commerce anywhere, anytime, with any type of
device.
Visa PAS (Payment Authentication
Service)
Under Visa's PAS, cardholders must authenticate
themselves by verifying their identity with a password when buying
from a Web storefront. The ultimate aim is to secure merchant
databases against compromise by hackers, and to password-protect
card numbers that may be stored in a database.
WEB
Internet Initiated Entries
