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Merchant Processing Dictionary of Industry Terms

Acquiring Bank: (or acquirer) The financial institution (or sponsoring bank) accepting the payments from a credit card holder (customer) on behalf of a Merchant. The Acquiring Bank has a contract (merchant account) directly with the Merchant or indirectly through an independent Processor providing the Merchant with a line of credit. Assessment: A licensing fee, like a royalty, which pays a percentage to the card’s respective Association on every transaction. Visa & Discover charge 0.0925% and MC 0.095% per trans. Association: The association is the brand name of the Card which may be either the Visa Association, MasterCard (formerly MasterCharge) Association, Discover, American Express, Diners Club, Carte Blanche, JCB (Japan) and others. Batch Header Fees: A bogus charge, there is really no such thing. Some processors use this in lieu of a Statement fee (which should not really exceed $5-10) but others charge both anyway. Chargebacks: fees incurred when your customer disputes the validity of a transaction (by filing a complaint) with his or her Issuing Bank who then forcibly reverses the transfer of funds. The Merchant may dispute the validity in which case Acquiring Bank and Issuing Bank shall reach an agreement. NOTE: frequent chargebacks adversely affect privilege to process credit cards. 
There are Four Types of Chargebacks: Technical - Expired authorization, non-sufficient funds or processing error. Clerical - Duplicate billing, incorrect amount billed, or refund never issued. Quality - Consumer claims goods never received as promised at time of purchase. Fraud - Consumer claims they did not authorize purchase or identity theft. CPS: Custom Payment Service refers to Visa cards authorized electronically. Discount Rate: Your percentage rate is set by your processor. Discount Rates depend on factors like your industry type (retail, eCommerce, mail/telephone order, hotel, petrol, grocery, etc.). EBT: Electronic Benefit Transfer (like Food Stamp Program) are electronic cards issued for government benefits from a Federal account to a retailer account to pay for products. EBT is used in all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam. EBT has been implemented in all States since June of 2004. EIRF: Electronic Interchange Reimbursement Fee is a penalty assessed by Visa when address verification fails or transactions are settled (batched) late. 
 Effective Rate: A simple but effective benchmark revealing the real, actual percentage of fees that a Merchant is charged on all transactions. It is calculated by dividing the Total Fees Paid by the Total Volume of credit card transactions. (volume ÷ fees)% Total Fees (example: $ 1,865.00)
 Credit Card Volume (example: $50,000) E.R. is especially meaningful because it helps reveal hidden fees and inflated fees. Example: often a Discount Rate is low because “Back End” fees (surcharges, etc.) offset a low “Front” Rate. Gateway: the middleman providing communication between your company’s software, website or hardware and your Processor. Some Processors ARE the gateway. Most Gateways make software or provide E-commerce solutions (either invisibly on your website or as the shopping cart). Examples of Gateways include Authorize.Net/CyberSource, SkipJack, SlimCD, 3Delta, etc. Gross billing: A method of pricing where the processor’s cost of the transaction (Interchange + Assessment) and the discount rate (processor’s charge) are blended, that is, combined together into one aggregate rate. GSA: Credit cards issued to government agencies and officials. Interchange: Think of this as a Price List, Fee Schedule or Menu each Card Association (Visa, MC, Discover, Amex) assesses for every variation of card that they create, based on risk. Since different cardholders are naturally higher risks the Interchange rates reflect that.
As of April 2009, Visa has 38 card types ranging from debit, rewards, business and international while MasterCard carries 44 with similar variations. Discover & Amex have much fewer. Interchange Plus: A method of pricing rates where the discount rate (processor’s charge) is isolated from Interchange. Because the costs are transparent, it is more honest as it discloses where the fees are really going. However, it may confuse merchants who are not used to seeing “assessment” and “interchange.” ISO or Independent Sales Organization: A company or individual contracted with a Processor to acquire new Merchants. Many ISOs provide customer support, technical support and installation support to its customers on behalf of the Processor. However, ISOs who are prepaid an advanced commission have little incentive to continue customer service and support. Issuing Bank: the bank who issues the cardholder the credit card and assumes the greatest risk. This banking entity approves the cardholder based on their credit, assesses his or her credit limit, sets his or her APR and terms, and then funds (fronts) the Merchant money for the purchase in advance before actually being reimbursed by the cardholder within/after a grace period. (may or may not be where customer holds checking/savings, or institutions like Capital One, Discover, American Express, B of A, General Motors, Ford, Chase, Citibank, Shell Oil, etc.) Interchange Compliance: there is no such thing. Merit: MasterCard calls its basic consumer cards Merit cards. Merit III means swiped, Merit I is keyed in (card not present) which is assessed a higher rate. Network: The electronic bridge made up of telephone/T1 wires connecting bank computers, Processors, and Credit Card Terminals all over the world. Each Network speaks its own language, a proprietary encryption code that is shared only with its partners. Some Bank Processors own their own Network, like First Data, Chase/Paymentech, but most are independent and charge Processors a fixed transaction fee for each access ranging from 2¢ to 6.5¢, where high speed connections are cheaper and dialup connections are faster. Pin-based Debit Networks are both faster and more reliable because authorizations happen in real time and instantly transfer money into the Merchant’s bank within 36 hours. With credit cards, however, Issuing Banks have to wait until the cardholder pays their bill. Examples of Credit Networks include T-Sys (Total Systems originally called Vital and VisaNet, is the largest single payment platform in the world), CardNet, Omaha, NDC, Nova, Global & Concord. Examples of Pin-based Debit Networks include Pulse, STAR, NYCE, Maestro, Interlink, AFFN, Shazam, Accel, MPact, Instant Teller, Tyme, Alaska Option, Credit Union 24 and Jeanie. Debit networks have been growing increasingly greedy by not only charging transaction fees as high as 18¢, but also insisting on a percentage of the transaction as high as 0.75%, which varies depending on which Debit Network used for the cardholder’s bank or credit union. PCI Compliance: Major Issuing Banks created PCI (Payment Card Industry) compliance standards to protect personal information and ensure security when transactions are processed. However, you should not be charged a PCI compliance fee because there is really no such thing. This would be akin to your mailman charging you for his driver’s license renewal NOTE: This applies mostly to businesses and institutions which process credit cards using a computer where cardholder information is stored or card numbers are transmitted online. However, if a Gateway completes the online transaction, the Gateway usually assumes the responsibility for PCI compliance. (more info) Banks, Processors, Gateways and Merchants ALL must follow PCI standards in order to accept credit cards. Failure to comply could result in fines or revoking your ability to accept credit cards, although it is not governed by Law. There are Six (6) Standards which must be met. (see here) Processor: A bridge between your customer’s bank (that issued card) and your business bank account. The Processor must either be or also have an Acquiring Bank if it is a non-Bank Processor, like TransFirst). Processors assume risk because they guarantee the Issuing Bank that the charge was secure, legitimate (no fraud involved) and assume additional risk because they cover network fees, gateway fees and Interchange fees while waiting to recoup expenses for these fees at the end of the statement period. NOTE: Some processors may withdraw fees daily. Processors also provide customer service, terminal support, software support and/or gateway support. Processors usually get new business by contracting with ISOs (Independent Sales Organizations). Rebates: A portion of the rate are given back to processors when customers pay merchants with a debit card, because debit cards carry very little risk (since the funds are immediately charged to customer’s bank account). The processor may or may not pass this rebate on to the merchant. Often, banks and processors keep this rebate as an extra profit for themselves. Standard: A higher transaction rate penalized for verification failure or missed data entry. Surcharges on a gross statement refers to the difference between a basic consumer card at its lowest rate (commonly called vanilla or plain card) and the rate of the actual card used. Example: a Visa Reward card is 0.11% above a basic Visa. Therefore the Visa Rewards ‘surcharge’ is 0.11% or 0.0011. NOTE: Surcharges only apply to Gross billing statements because Interchange Plus lists all card types separately, without reference to other cards. for additional terms not listed here, visit the Glossary on the FDIC site here PCI_Compliance.htmlPCI_Compliance.htmlhttp://www.fdic.gov/regulations/examinations/credit_card/glossary.htmlhttp://www.fdic.gov/regulations/examinations/credit_card/glossary.htmlshapeimage_5_link_0shapeimage_5_link_1shapeimage_5_link_2shapeimage_5_link_3
 
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