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Merchant Account Glossary of TermsAddress Verification System (AVS) Verifiesto 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 % on those sales. Most merchant accounts come with AVS at no extra charge. This is usually only used online merchant accounts.Authorization This is the process where permission is granted by the card issuer (the financial institution) allowing the payment transaction to proceed. It is during this process that the issuing bank checks that the available credit on the card is not exceeded. Batch Is a collection of credit card transactions that are saved for submitting at the end of the business day. Most companies have itset-up where all your transactions are stored on a host as "batch" until you do what is called a batch close. Batch Close The process of sending a batch to the financial institution for settlement. Basically means send your money to your business account. Chargeback A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder. Typical cardholder disputes involve product delivery failure or product/service dissatisfaction. Cardholders are urged to try to obtain satisfaction from the merchant before disputing the bill with the credit card issuer. If the cardholder can settle their credit card issue with the merchant then they put forth a dispute, at which point it is the merchant's burden of proof to make acase that the transaction was a legit transactions that was initiated by the cardholder. If the merchant cannot provide sufficient proof, then the cardholder will be returned their money and chargeback fee will be issued to the merchant (usually between $15-$50). If a merchant receives too many chargebacks, then their merchant account provider could and will most likely drop them as a client/customer. 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 chargebacks when used in addition to AVS protection. 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 chargebacks when used in addition to AVS protection. Discount Rate This is a fee that the major credit cards charge for handling a transaction. For example if your discount fee was 2.25% and your business sold $1000 worth on one of the major credit cards then your fee for being able to process that $1000 worth of sales would be $22.50. More on Discount Rates. Electronic DataInterchange (EDI) The electronic communication of business transactions, such as orders, confirmations, invoices, etc. between payment processing software and hardware solutions. Electronic Funds Transfer (EFT) The transfer of money initiated through an POS Terminal, credit card machine, electronic terminal, automated teller machine, computer, telephone, or magnetic tape. EFT also applies to credit card and automated bill payments. EFT can add up and merchants need to keep a close eye on the amount of FREE EFT's their bank allows in their business banking account, otherwise a merchant could end-up with a costly surprise at the end of the month. Electronic Data Capture (EDC) To use a Point Of Sale (POS) terminal or card reader for submitting credit card transaction information to a merchant account provider. Factoring It is when a company allows another company to process through their merchant account, 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. If you have a buddy or friend that does not have credit card processing solution and asks you to process a couple transaction through your payment processing solution, be sure to say you cannot because this is illegal and can result in fines and you being banned from your current payment processor. Gateway When a computer server serves as a Gateway node, the gateway node also operates as a firewall and a proxy server. A firewall is a system created to prevent unauthorized admission into a private network. A proxy server is located right between a client application such as a web browser and the real server. The proxy server sees if the client applications requests can be carried out by the real server. A payment gateway is an e-commerce application service provider service that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers, to ensure that information passes securely between the customer and themerchant. Holdback In the payment processing industry this is known as a "reserve". This is a fee held back from a merchant's credit card transactions to cover any possible charge backs, and other disputed charges that a merchant may encounter. Usually, after a time, the hold backs are returned to the merchant. Most merchant account providers are will to have a account reviewed after 6 months or more of processing to have the reserve/holdback removed or lessen if the merchant has a low chargeback ratio. Issuing bank Also known as an "Issuer". This is the bank that maintains a consumer's credit card account and 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 customer for the debt. Independent Sales Organization (ISO) To market merchant accounts, an ISO/MSP must be sponsored by a member bank. This sponsorship requires that the bank verify the financial stability and suitability of the company that will be marketing on its behalf. The ISO/MSP must also pay a fee to be registered with Visa and Mastercard and must comply with regulations in how they may market merchant accounts and the use of copyrights of Visa and Mastercard. One way to verify if an ISO/MSP is in compliance is to check a website orany other marketing material for a disclosure "company is a registered ISO/MSP of bank, town, state. FDIC insured". This disclosure is required by both Visa and Mastercard and will cause a fine of up to $25,000 if it is not clearly visible. In almost all cases, if there is no disclosure, the company is likely to be an uninformed 4th party or worse. In many cases unregistered operators have been responsible for some of the worse horror stories from merchants. Obtaining a merchant account through a registered ISO/MSP is the most common way to obtain an account. The process is usually much simpler than going directly through a bank. One reason is that the merchant approval process and underwriting is streamlined and more favorable to a variety of business types and products sold. ISOs/MSPs also add value to the basic services of card authorization and deposit. Many work directly with the underwriting bank to assure that support and customerservice is targeted to many segments of merchants with unique needs. In many cases, merchant accounts obtained through an ISO/MSP can cost less than if the merchant contracted with the bank directly. Merchant account An account that is established by a merchant to receive payment via credit cards. More on Merchant Accounts. Merchant Identification Number (MID) A number provided by a merchant bank to identify the merchant's 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 Level Salespeople A person who is authorized to represent ISO and/or Merchant Account Bank payment processors. They act more like a broker, similar to the mortgage broker industry. Mail Order/Telephone Order (MOTO) MOTO stands for mail-order/telephone-order and it is when a merchant processes all their sales through, phone, fax, and mail. Merchant Service Provider (MSP) See ISO above. Monthly minimum This is the amount of fees you must meet each and every month, usually $25-40. If month sales do not make the monthly minimum the merchant account holder must make up the difference. Merchant Account Provider (MAP) See ISO above. Point Of Sale terminal (POS) Electronic hardware devices used by retail businesses to process credit card transactions. If the customer is present, they swipe or slide their credit card through the machine. 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. Most merchant account providers will require your shopping card service to be SSL certified before approving your applications. 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. No longer is a customer's credit card number clearly desplayed on merchant receipts. This set-up to protect all parties involved from fruad. Settlement The step in the clearing process when the acquirer credits the merchantaccount with the amount of a credit card purchases, a merchant funds are sent towards their business bank account. Shopping cart program/Shopping Basket As you shop online, you add items to your 'virtual' shopping basket. It is required to make it possible to use merchant accounts for your website. Terminated Merchant File (TMF) Merchants with excessive chargebacks are stripped of their merchant accounts and the ability to accept credit card orders. The merchant isthen 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. This is very, very bad and you do not want to end up on this list. 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