The Green Sheet Online Edition
January 23, 2017 • Issue 17:01:02
Talking the talk
Like all lines of business, card acquiring has its own vernacular. The Electronic Transactions Association published the Encyclopedia of Terminology for the Acquiring Industry in 2008, and The Green Sheet regularly publishes glossaries specific to payments and other acquiring activities. We culled our resources, updated and added terms, and present here our latest industry glossary. Letters that do not appear as headers have no items beginning with those letters.
ACH (automated clearing house) – Bank-to-bank electronic payment network used for transactions such as direct deposit, automatic bill payment and acquirer to merchant net settlement payments.
acquirer – Bank or other company that accepts merchant card payments for processing and settlement.
acquirer processing fee – Transaction fee assessed by Visa.
activation bonus – Fee paid to an agent once a signed merchant begins accepting card payments.
agent risk reserve – Pool of money, funded out of agent residuals, held by an acquirer/ISO to offset future merchant losses.
authentication – Act of verifying that a credit/debit card number is legitimate.
authorization – Process of ensuring cardholder has adequate funds to cover a transaction; if cardholder does, authorization code is generated and funds are set aside.
average ticket – Average value of bankcard transactions; often used in pricing calculations.
AVS (address verification service) – Authorization service in which cardholder is asked to input code at the point of purchase that is then compared to the address on file.
B2B (business-to-business) – Exchange of goods or services between two businesses.
B2C/C2B (business-to-consumer/consumer-to-business) – Exchange of goods or services between a business and a consumer.
billback – Pricing structure that charges merchants an initial fee per transaction and bills the other fees (like downgrades) at a later date; also known as "enhanced billback" and "blended" pricing.
blockchain – Method of structuring data that underlies crypto-currencies, like bitcoin.
buyout multiples – Used by ISOs and acquirers to value agent residual streams; prices for portfolios are quoted as multiples of monthly/annual residual streams.
C2C (consumer-to-consumer) – Consumer-to-consumer transactions; sometimes called person-to-person or peer-to-peer (P2P) payments.
capture date – Date on which acquirer processes a transaction.
carders – Criminals who buy, sell, steal and/or conspire to purloin individuals' credit card account information.
chargeback – Credit/debit card transaction challenged by cardholder or issuing bank that gets returned to merchant for resolution (in the form of a chargeback request).
check guarantee – Service that, for a fee, guarantees merchants will receive payment for checks returned for insufficient funds or other reasons.
check verification – Fee-based service that provides check-accepting merchants access to a national negative file database of bad check writers and/or closed accounts.
chip card – Credit or debit card with embedded computer chip containing account and other identifying information; can communicate with EMV-compliant POS devices.
clearing account – See merchant account.
CNP (card-not-present) – Transactions in which neither the card nor the cardholder is physically present at the POS.
conversion bonus – Bonus paid by ISOs/acquirers to a merchant level salesperson (MLS) that signs merchant who has relationship with competitor, or for terminal upgrades.
CVV (card verification value) – Three- or four-digit card verification feature (depending on card brand) commonly required in card-not-present transactions to validate customer is in possession of the card being used.
deposit account – Access account, other than a credit account, maintained by an acquirer for processing transactions; different from a depository account, which is the merchant's local bank account.
digital wallet – See mobile wallet.
discount rate – All-in rate charged merchants for transaction processing (includes interchange and processing costs).
dongle – Small device that can be plugged into a smartphone or tablet and used as a mobile credit/debit card reader.
downgrades – Surcharges assessed on certain transactions; can be triggered by how a merchant enters card information, the type of card used, or for other reasons.
dynamic currency conversion – POS service that allows cardholders to make purchases in foreign countries denominated in the currency of their home country, in real time.
ecommerce – Commercial activities conducted via the Internet, which has become the fastest area of growth for retailers. (Ecommerce sales grew at a rate of 16 percent in 2015, while all retail sales grew at 2 percent, according to the U.S. Census Bureau.)
electronic check acceptance – Service that speeds check collection either by converting the payment to an ACH item for clearing or by using image check exchanges; some providers combine electronic check acceptance with verification and/or guarantee services.
EMV (Europay, Mastercard and Visa) – Global standard for securing chip cards and POS devices; named for Europay, Mastercard and Visa, the creators of the standard.
encryption – Process of using special algorithms to scramble data and render it indecipherable without access to a corresponding decryption key.
factoring – One merchant submitting transactions initiated from another merchant who lacks an acquiring relationship; sometimes called laundering.
fintech (financial technology) – Sector of companies that leverage technology and innovations to compete with traditional financial institutions in the delivery of payments and other financial services.
floor limit – Maximum transaction amount a merchant may accept without an authorization.
gateway – Software application that facilitates ecommerce authorizations and payments.
gift cards – Single-use prepaid cards; typically branded and distributed by retailers.
interchange – Card-issuer fee; generally assessed as percentage of transaction plus per-transaction fee, and based on card type (for example, rewards, commercial).
interchange plus – Pricing model in which acquirer bundles interchange with network fees, and adds a set markup (usually a combination of basis points and cents-per-transaction); sometimes referred to as interchange pass through.
interchange plus-plus – Relatively new variation on interchange-plus that includes markups for additional fees and assessments.
issuer/issuing bank – Cardholder's financial institution.
issuer identification number – First six-digits in a card account number; used for transaction routing; sometimes called BIN (bank identification number). ISOs pay sponsorship fees for IINs/BINs, typically based on portfolio volumes.
knuckle busters – Traditional credit card imprinters; sometimes called zip-zap machines for the noise they made when operated.
loyalty programs – Used by card issuers and merchants to encourage customers to make payments using specific cards; many are tied to mobile wallets and/or rewards cards.
mag stripe cards – Traditional credit and debit cards with magnetic stripe on back that is encoded with account and related information. EMV adoption is expected to eventually eliminate need for mag stripe cards.
MATCH (Member Alert to Control High Risk) list – Shared database of terminated merchant accounts that lists every merchant denied access from accepting payment cards for any number of violations of card brand rules. Formerly called Terminated Merchant File (TMF).
merchant account – Bank account established at acquiring bank through which merchant-accepted payments are processed and settled.
merchant agreement – Written agreement between merchant and acquirer detailing each party's rights, responsibilities and warranties.
merchant category codes – Four-digit numbers assigned merchants to denote business type/service.
MICR (magnetic ink character recognition) – Numbers imprinted with magnetic ink at the bottom of a check detailing routing/transit, account and check number.
micro merchant – Very small businesses that accept fewer than 100 card payments a year and/or generate less than about $25,000 a year in processing volume. Many micro merchants also accept micro payments.
micro payments – Very small transactions (common in online sales) of $1 or less.
MLS (merchant level salesperson) – Independent agent/salesperson who sells payment processing and other business services to merchants; must adhere to rules for working with ISOs registered with acquiring banks.
mobile POS (mPOS) – Point of sale system or device that is not in a fixed location and enables mobile payment acceptance.
mobile wallet – Mobile payment application that runs on smartphones (for example, Apple Pay, Chase Pay).
MO/TO (mail order/telephone order) – Card transactions that do not occur in person. Instead of capturing card information electronically for processing, it is entered remotely.
NABU (network access and brand usage) – Per-transaction fee assessed by Mastercard, similar to Visa's acquirer access fee.
net payment – Payment made to merchant for sales drafts less credits minus appropriate discount fee and any chargebacks.
net revenue – Discount income less interchange expenses.
net settlement – Netting out of debits and credits owed between card issuers and acquirers; amount is equal to sales less interchange less other fees.
NFC (near field communication) – Short-range, high-frequency wireless technology that enables smartphones to connect to compatible POS devices; supports tap-and-go payments.
offline authorization – Issuer-controlled process that supports authorization without first contacting the issuer when transactions are below a certain floor limit.
omnichannel – In retailing, refers to the ability to offer customers seamless shopping experiences whether they are at brick-and-mortar outlets or using PCs, mobile devices or telephones; concept is rapidly spreading across industries.
open to buy – Cardholder's available credit.
originator – Financial institution that initiates a wire transfer or ACH payment. Also known as originating depository financial institution (ODFI).
PAN (primary account number) – Numeric code embossed on front of payment card and encoded on the mag stripe; identifies the issuer and cardholder's account number and includes validation number.
partial authorization – An issuer's partial approval of a prepaid authorization request; merchants can complete sale with split tender processing.
payfac (payment facilitator) – Merchant services provider that operates a platform for businesses that don't have their own merchant accounts. Considered sub-merchants, these businesses process transactions through a master account owned by the payfac. Payfacs assume full responsibility for all sub-merchant losses and chargebacks.
PCI DSS (Payment Card Industry Data Security Standard) –Standards and procedures for protecting cardholder information before, during and after a payment transaction has taken place. Managed by the PCI Security Standards Council.
phishing – Fraudulent emails/text messages, purportedly from trusted entities (such as banks), seeking to dupe recipients into providing sensitive information (for example, passwords and account numbers).
PIN (personal identification number) – Number used by an individual cardholder to authenticate transactions; most commonly used with debit cards.
PIN authorization request – Procedure enabling card issuer to validate cardholder's identity.
PIN pad – Device used to enter PIN that can be part of a POS terminal or a peripheral.
point-to-point encryption – See encryption.
prepaid card – Debit card that can be used to spend only up to an amount pre-deposited into the card account; can be single use or reloadable, network-branded or private label (issued by banks or nonbanks).
processor – Organization linked to the card brands that provides authorization, as well as payment clearing and settlement services.
qualified transaction – Signifies the transaction was swiped, the mag stripe was read and the cardholder signed for the purchase; also known as swiped rate. If one or more conditions is unmet it becomes a mid-qualified transaction. If the transaction is key-entered, is delayed entering the collection stream, or there are other problems it is deemed non-qualified.
QR (quick response) code – Two-dimensional code with large storage capacity that can be decoded at high speed; used in some mobile wallet schemes (for example, Starbucks).
RAM scraping – Attack in which thieves hack a POS device and retrieve payment card data from random access memory as it is being processed by the device.
reference number – Transaction identifier assigned by an acquiring organization.
residuals – Payments made by acquirers to an MLS after the MLS signs merchant; contracts dictate size, duration and other factors influencing residuals.
response code – Number provided by card issuer to merchant that verifies transaction was accepted or explains why it was not accepted.
rewards cards – See loyalty programs.
RFID (radio frequency identification) – Wireless technology used to transfer data for mobile payments.
sales draft – Hard-copy documentation of a transaction; also called sales/charge slip.
security code – See CVV.
settlement – Exchange of payment data between acquirer and issuer that completes card transactions.
settlement bank – Financial institution authorized to execute settlements on a given processing network.
shopping cart – Ecommerce tool that draws its name from brick-and-mortar world; refers to software that enables online shoppers to select items for eventual purchase.
signing bonus – Incentive, paid by ISO/acquirer, to get MLSs to sign more deals.
skimming – Stealing credit/debit card information by means of small electronic devices that can scan for and store information contained on cards' magnetic stripes.
smart card – See chip card.
startup kit – Supplies provided to newly signed merchants; include sales slips, batch header tickets, return envelopes, signage and instructional documents.
store card – Retailer-issued credit/debit/prepaid card.
super ISO – Very large independent sales organization that sponsors and services hundreds of thousands of small retailers and smaller ISOs; provides a full suite of technology- and marketing- oriented products and services.
surcharge – Specific fee charged by merchants to customers using credit and/or debit cards as opposed to cash; merchants are required to notify card brands in advance of plans to surcharge.
switch fee – Charge assessed by acquirers for PIN-based POS debit card payments.
tiered pricing – Pricing technique that assigns transactions to different pricing "buckets" based on acquirer-set criteria, such as risk factors. At least three buckets are typically used, designating that transactions are qualified, mid-qualified or non-qualified.
TIN (taxpayer identification number) – Identification assigned a business by the Internal Revenue Service.
TMF (terminated merchant file) – See MATCH list.
tokenization – Use of non-decipherable data substitute to reference cardholder data to protect sensitive information during payment processing.
transaction authentication number – One-time authorization code that helps secure online payments.
transaction identifier – Unique, 15-digit identifier that creates an audit trail through the lifecycle of a card payment.
transaction number – Number assigned by acquirer to identify individual transactions.
3DES or Triple DES – Type of encryption used to secure transaction and account information; describes function of Triple Data Encryption Algorithm, which applies Data Encryption Standard (DES) cipher algorithm three times to each data block encrypted.
underwriting – Process of analyzing the risk of a prospective ISO or merchant and setting acceptance criteria intended to mitigate those risks.
validation code – Unique, four-character value Visa includes as part of the CPS/ATM program in each authorization response; ensures that key authorization fields are preserved in the clearing or settlement record.
zero floor limit – Policy requiring that all transactions be authorized, regardless of amount.
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