Glossary
Industry Terms
This glossary provides definitions for many of the terms used in the bankcard and prepaid card industry.
Acquirer – A licensed member that maintains the merchant relationship and acquires the data relating to a transaction from the merchant or card acceptor and submits that data into interchange, either directly or indirectly.
AML program – Anti-money laundering program. Prepaid cards are especially vulnerable to being used as money-laundering vehicles. The USA PATRIOT Act passed in 2001 amended the Bank Secrecy Act of 1970. It mandates that all statutory financial institutions establish anti-money laundering (AML) programs.
Authorization – A process defined in operations regulations whereby a transaction is approved by or on behalf of an issuer; commonly understood to be receiving of a sales validation by the merchant, by telephone, or authorization terminal.
Authorization Code – A code that notifies you that you have obtained the authorization for a specific Visa® card transaction. Note: You should print this on the sales draft.
Automated Teller Machine (ATM) – An unattended, magnetic stripe-reading terminal that dispenses cash; accepts deposits and loan payments; enables a bank customer to order transfers among accounts and make account inquiries.
AVS (Address Verification System) – In 1996, Visa®/MasterCard® headquarters introduced a new regulation requiring all businesses who manually key in the majority of their credit card transactions to have a special fraud prevention feature on their credit card processing equipment. This feature is referred to as an address verification system (it 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.
Bankcard -A debit or credit card issued by a bank or other financial institution, such as a Master Card® or Maestro card.
Batch – A collection of credit card transactions saved for submitting at one time, usually each day. Merchants who do not have real-time verification systems must submit their transactions manually through a POS terminal. Batch fees are charged to encourage a merchant to submit his or her transactions at one time, rather than throughout the day.
Cancellation Code – The code that a lodging or car rental merchant gives to a cardholder. The cancellation code confirms that the cardholder did, indeed, cancel a reservation.
Capture – The submission of a credit card transaction for processing and settlement. POS terminals and real-time processing software capture transactions to submit to merchant account providers or credit card processors.
Charge back – A charge back occurs when a card holder disputes a credit card transaction with his or her credit card issuer. The card issuer initiates a charge back against the merchant account. The amount of the disputed transaction is immediately withdrawn from the merchant’s bank account, and the merchant has 10 days in which to dispute the charge back with proof of purchase, signature, proof of delivery, etc. A charge back fee is usually assessed to the merchant on top of the actual transaction. See also retrieval request.
Charge back defense – A customer who does not receive his goods or services, or says he did not place an order, can ask his issuing bank to charge back the merchant. The Issuing Bank sends the charge back request to the merchant bank, which forwards it to the merchant asking to validate the charge. Information such as the amount, an invoice or folio, customer signature, or shipping documents, and the shipping address (used in AVS during the authorization) are needed to defend against a charge back.
Clearing – The process of exchanging financial transaction details between an acquirer and an issuer to facilitate posting of a cardholder’s account and reconciliation of a customer’s settlement position.
Closed loop cards – Cards that merchants sell directly to their customers. But closed loop cards can only be redeemed at the merchant store (or branch location of a chain store) where the card was purchased.
Although usually gift or loyalty cards, closed loop cards can also be defined as cards that allow businesses to keep control over how and where that card is used. For example, universities may offer a closed loop card allowing students to redeem that card at university bookstores, on-campus fast food outlets, laundry rooms or cafeterias. Transit companies issuing closed loop cards as payment for public transportation or tolls is another example.
Cobranded card – A credit card issued jointly by a member bank and a merchant, bearing the “brand” of both.
“Code 10″ Authorization – This is a voice authorization code that you might initiate when you suspect a card is stolen or fake, or when a customer is acting suspicious.
Corporate card – A bankcard issued to companies for use by company employees. The liability for abuse of the card typically rests with the company and not with the employee.
Credit card processors – Merchant services providers that handle the details of processing credit card transactions between merchants, issuing banks, and merchant account providers. Web site operators usually must first establish their own merchant account before contracting for credit card processing services.
Currency conversion – The process by which the transaction currency is converted into the currency of settlement or the currency of the issuer for the purpose of facilitating transaction authorization, clearing and settlement reporting. The currency of transaction is determined by the acquirer; the currency of the issuer is the preferred currency used by the issuer, and most often, the currency in which the cardholder will be billed.
DDS (digital data storage) debit card - A financial instrument used by consumers in place of cash. Unlike a credit card, debit card purchases are deducted automatically from the cardholder’s account, like a check. Visa and Master Card now offer debit cards through banks and other financial institutions.
Debit card – A plastic card used to initiate a debit transaction. In general, these transactions are used primarily to purchase goods and services and to obtain cash, for which the cardholder’s asset account is debited by the issuer.
Discount Rate - Also known as Bank Rate.” This is a percentage of each sale that the bank charges as per Visa and Master Card Rate requirements. All banks are required to have at least 3 rate structures. Face to face retail (usually the lowest rate e.g.. 1.49%). Phone, Mail and Internet rates (usually higher e.g.. 2.24%). And a rate for imprinted or phone authorized rates (highest rate e.g.. 2.62%). It is very important to correctly classify the way you will accept credit cards so that you can achieve the best rate structure.
Draft/Sales draft – A record (usually paper) used to document that a good or service was purchased.
Electronic Commerce Indicator (ECI) – A system in which the transaction data from an Internet transaction is tagged with this indicator and sent on to Visa or Master Card. It is a requirement (October 1st, 2000) for all merchants with a majority of sales via the Internet to use an approved and ECI compliant payment gateway. Hand keying of credit card numbers in to standard credit card terminals would not capture and pass on the ECI, therefore this method is not compliant.
Electronic funds transfer (EFT) – A paperless transfer of funds initiated from a terminal, computer, telephone instrument, or magnetic tape.
Equipment – Most credit card transactions are conducted electronically by using Electronic Draft Capture (see EDC). Typically this is performed by terminal (like the Verifone Tranz 330), Software or via the Internet.
Factoring – The purchase of debts owed, or “accounts receivable,” in exchange for immediate payment at a discount. In Ecommerce, the term is often applied to ISOs that offer to process credit card transactions through their own merchant account rather than through an account established by the merchant, in exchange for a percentage of the transaction or other fee. Factoring of credit card debt is illegal.
Floor limit – A specific dollar limit used to determine which Visa card transactions you must authorize. If your business has a floor limit $1,000 ? you must get authorization for any transaction over that amount. Note: All airline, telephone, and mail order transactions must be authorized, even if the amount is under your floor limit.
FSA – Flexible spending account. This type of account tied to a prepaid health care card is typically funded by an employee’s pretax salary. FSA funds can be used to pay for certain expenses not covered by an employer’s health insurance plan. Employers may contribute to the employee’s FSA, but few reportedly do.
Holdback – A portion of the revenue from a merchant’s credit card transactions, held in reserve by the merchant account provider to cover possible disputed charges, charge back fees, and other expenses. After a predetermined time, holdbacks are turned over to the merchant. Note: Merchant account providers almost never pay interest on holdbacks.
HSA – Health savings account. This account is linked to a HDHP, and funds roll over year to year. Employees can make tax-free contributions up to the age of 65. Thereafter, money can be withdrawn penalty-free for any reason. But if the funds withdrawn are not used to cover medical expenses, taxes apply.
Imprint – A physical impression you make from a customer’s card which appears on the draft. This proves that the card was present when the sale was made. Note: An imprint can be created electronically if you use a magnetic-stripe-reading terminal that includes the correct point-of-sale (POS) entry code.
Imprinter -A device to produce an image of the embossed characters of the bankcard on all copies of sales drafts and credit slips.
Interchange fee – The fee that the Card Association charges the merchant to get the funds into his bank (merchant bank) and to get the billing information to the cardholder’s bank (issuing bank). Interchange fees are based on following credit card regulations and capturing appropriate data including card swipe, address, and electronic signature as needed. These fees are also based on the timeliness of the settlement of transactions.
ISO (independent service organization) – A firm or organization that offers to process online credit card transactions, usually in exchange for transaction fees or a percentage of sales. Merchants must generally establish a merchant account before contracting for ISO services, although some ISOs claim not to require separate merchant accounts. See also factoring.
Issuer – The member that enters into a contractual agreement with Master Card® to issue Master Card® cards.
Issuing bank – The bank that maintains the consumer’s credit card account and must pay out to the merchant’s account in a credit card purchase. The issuing bank then bills the customer for the debt.
Magnetic stripe – The magnetically encoded stripe on the bankcard plastic that contains information pertinent to the cardholder account. The physical and magnetic characteristics of the magnetic stripe are specified in ISO Standards 7810, 7811, and 7813.
Magnetic stripe reader – A device that reads information recorded on the magnetic stripe of a card. Also known as a card swipe reader.
Mail Order/Telephone Order (MOTO) – A transaction initiated by mail or telephone to be debited or credited to a bankcard account.
Member - An institution that participates in the programs offered by Master Card International Incorporated.
Merchant – A retailer, or any other person, firm, or corporation that (pursuant to a merchant agreement) agrees to accept credit cards, debit cards, or both, when properly presented.
Merchant Account – A specialized bank approved and issued account to process credit card transactions. One of three parts needed to accept credit cards. Other parts required, a local bank checking account (to deposit funds) and a Processing Solution (to access your merchant account).
Merchant bank – A bank that has entered into an agreement with a merchant to accept deposits generated by bankcard transactions; also called the acquirer or acquiring bank.
Merchant Identification Number – The number a financial institution assigns to a merchant to identify your business.
Mondex - The Mondex card may have been the first real prepaid card, released back in the 1990s, and rolled out with the VisaCash card. It was a stored value card test marketed in San Francisco, Atlanta and New York, and hyped as “electronic cash.” The card created quite a buzz at the time but was not widely adopted by consumers. It was soon abandoned.
Monthly minimum – This is a fee that is imposed if your credit card charges (Discount Rate) do not add up to their monthly minimum amount. For example, your monthly minimum is $25 a month. If your discount rate was 2.25% and you processed $1000.00 in credit card volume, $22.50 is charged to the account plus an additional $2.50 (the difference of the $25.00 minimum and actual discount fees).
also: The minimum amount in fees and percentages charged by a merchant services provider in a given month. If account activity does not generate the monthly minimum, the account holder must make up the difference.
MOTO (mail order/ telephone order) discount rate – The discount rate charged by the merchant account provider for credit card transaction in which the actual credit card was not available to the merchant. MOTO discount rates are generally higher than swipe discount rates to account for the increased chance of fraud or nonpayment.
Open loop cards – Open loop or open system cards are branded with a card Association logo such as Visa Inc. or MasterCard Worldwide. Banks or their partners issue open loop cards to be used by consumers at any merchant location around the world that accepts that particular card Association brand.
Payment gateway – The code that transmits a customer’s order to and from a merchant’s bank’s transaction-authorizing agent ? usually a MAP (merchant account provider). See also payment gateway provider.
Payment gateway provider – A company that provides code and/or software for an Ecommerce site to enable it to transfer information from its shopping cart to the acquiring bank, and on through the rest of the credit card transaction. See also payment gateway.
Payroll cards – Reloadable prepaid cards function much like open loop debit cards. Employers load employees’ wages electronically onto the cards, and cardholders use them to purchase items and pay bills. The cards are branded with either the Visa or MasterCard logo and can be used at most automated teller machines.
Payroll cards are popular with employers that have many underbanked or unbanked employees, or have a combination of a few unbanked employees and an automatic direct deposit payroll system.
Personal Identification Number (PIN) – A four-to-twelve character secret code that allows an issuer to positively authenticate the cardholder for the purpose of approving an ATM or terminal transaction occurring at a point-of-interaction device.
Point of Sale (POS) terminal – A device that allows you to slide the credit card through to make a charge. This is what most retail stores have. It is fast, easy and accurate to make a charge on a customer’s credit card within seconds. It is also known as a terminal machine.
Private label cards – Also known as closed loop cards, these cards – most often gift cards – are primarily issued by a merchant and redeemable only at that merchant’s outlets.
Purchasing card – Designed to help companies maintain control of purchases while reducing the administrative cost associated with authorizing, tracking, paying, and reconciling those purchases.
Real-time processing – Having your customer’s credit card information validated and processed for you automatically. The credit card will be charged and the money will be deposited into your bank account all automatically. This is perfect for an internet-based business.
Recurring fees – Regular, usually monthly, charges for maintaining a merchant account. Recurring fees include the discount rate, transaction fees, statement fee, and monthly minimum.
Reserve account – See “Holdback.”
Retailer gift card – Private label cards, usually closed loop, branded with a particular retailer’s name and redeemed only at that retailer’s location(s).
Retrieval request – A retrieval request is what happens when a cardholder cannot remember a credit card transaction, or the bank wants order information for some reason. The card issuer initiates a retrieval request, in which the merchant has 10 days to respond with the order information or the retrieval request will turn into a charge back. There is usually a retrieval request fee issued against the merchant also in these cases.
SSL (secure socket layer) – A system for encrypting data sent over the Internet, including Ecommerce transactions and passwords. With SSL, client and server computers exchange public keys, allowing them to encode and decode their communication.
Settlement – The process by which merchant and cardholder banks exchange financial data and value resulting from sales transactions, cash disbursements and merchandise credits.
Setup fees – Fees charged for establishing a merchant account, including application fees, software licensing fees, and equipment purchases.
Smart card – A plastic card containing a computer chip that can store electronic “money.” Unlike a credit card, a smart card can only spend out the dollar amount its owner has already put into the card account. It’s similar in function to a prepaid calling card but is available for all purchases.
Stored value cards – Another term for prepaid cards. Stored value was originally coined to describe prepaid cards, but prepaid has become the most prevalent descriptor. The term “stored value” sometimes has been differentiated from “prepaid” to mean products for which prefunded value is recorded directly on the payment instrument, whereas prepaid has the value recorded at a remote database. But, in general, stored value is used interchangeably with prepaid. Travel cards: Preloaded cards that enable cardholders to make purchases at retailer locations and withdrawals from ATMs around the world that accept Visa- or American Express Co.-branded cards. Travel cards replicate the security of traveler’s checks; if your card is lost or stolen, AmEx or Visa issues a new card or refunds the unused balance.
Swipe discount rate – The discount rate charged by a merchant account provider for transactions in which a credit card is available for inspection by the merchant. Swipe discount rates are generally lower than MOTO discount rates because the merchant can match signatures and perform other checks for fraud or misuse.
Transaction – Action between a cardholder and a merchant or a cardholder and a member that results in activity on the cardholder account.
Transaction date – The date a cardholder effects a card purchase of goods, services, or other things of value, or effects a cash disbursement.
Transaction fee – A charge for each credit card transaction, collected by the MAP (merchant account provider) or ISO.
Transaction fees usually fall between $0.20 and $1 (U.S.).
Unbanked – Consumers with no access to traditional demand deposit accounts (bank checking and savings accounts from which funds can be withdrawn at any time) or credit cards. Individuals may choose to be unbanked, but many have no access to a bank account either because of their immigration status or they lack the funds to regularly meet minimum deposit requirements.
VAR: Value added reseller – In the prepaid sphere, VARs are generally manufacturers of prepaid products. By associating with a particular VAR, an ISO or merchant level salesperson (MLS) can offer a package of complementary products and services (processing plus equipment, or a kiosk, and so forth). Under VAR agreements, ISOs and MLSs frequently receive merchant leads from their VAR partners.
