Glossary of Terms

ACH– Automated Clearing House; an electronic payment network most commonly associated with payroll direct deposit, recurring payments, and is the network most commonly used to settle merchant card accounts.

Acquirer– the company (typically a federally insured financial institution) responsible for connecting merchants to Visa and MasterCard authorization and settlement systems. Acquirers are one of only two entities (the other being merchant banks) that are the actual signatories to merchant agreements. To sell bankcard services, you must have a signed agreement with an acquirer and acquirer-sponsored ISO.

American Express– Card brand processed just like Visa and Mastercard with Opt Blue introduced in 2015. Assessments are .15%. CNP (Card Not Present) fee .30% International Assessment 0.40% The American Express international assessment applies to gross sales volume involving a card issued outside of the United States.

Assessments– fee paid to MasterCard, Discover, American Express, and VISA for marketing and administrative costs. Assessments are part of the cost paid by the processor to the brands. Major Assessments for Visa and Discover are .13%, MasterCard .12% < $1000 transactions & .14% for transactions > than $1,000, American Express is .15, as of 1/5/2017.

Authorization– an electronic exchange between a card-issuing bank and the merchant-acquiring bank, initiated through a POS terminal, wireless credit card terminal, virtual terminal, or an internet gateway, confirming a cardholder has sufficient credit (or funds in a DDA if it is a pin-based debit transaction) to cover a pending transaction.

Auto Settlement– Specified time for the terminal to settle transactions for the merchant to be paid.

AVS– Address Verification System (AVS) is an optional service that helps protect against fraud by verifying the identity of the person claiming to own the credit card. The system will check the billing address and billing zip code of the credit card provided by the user with the address on file at the credit card company. All merchant accounts with Stillwater Payments come with AVS.

Average Ticket– Average transaction size or ticket size for credit card transactions. To calculate average ticket on credit card transactions, take $ volume and divide by total # of transactions. For example, $5000 volume 50 transactions, the average ticket equals $100.

Back End– the transaction information gathered by the front end is processed for settlement, chargebacks, retrievals and statements.

Basis Point– one one-hundredth of a percent; one basis point is 0.01% or 0.0001; 20 basis points would be 0.20% or 0.0020; 35 basis points would be 0.35% or 0.0035; 100 basis points would be 1.0% or 0.0100.

Batch– Is a group of transactions from the day or a shift. Batches may be opened and/or closed automatically or manually. Most terminals can be programmed to send the batch out automatically at a certain time each day, called a settlement. Synonyms: Batch, settlement, deposit

BIN– bank identification number; a numerical code assigned to each federally insured financial institution for the routing of transactions and other purposes. ISOs board merchants using the BINs of their respective acquiring or merchant banks. Sometimes, a merchant will see BIN sponsorship fees on their merchant statement. With a Stillwater Payments merchant account, there are no BIN sponsorship fees.

Bundled Rate– a discount rate is offered to the merchant that includes both the qualified discount rate and the transaction fee. A separate transaction fee is not billed to the merchant. The mid- and non-qual bumps are added to the bundled qualified rate as normal. This typically is a flawed model, because the processor bases everything on an average ticket. If the processor is not making enough because the merchant missed their average, rate increases are common.

Card Not Present– credit card transactions (for example, Ecommerce or MOTO purchases) for which the customer’s card is not presented to the merchant in person. Interchange is set higher on these transactions because there is an increased risk with these types of transactions. AVS and CVV2 are recommended for all Card Not Present transactions.

Card Type– refers to the brand of card – Visa, MasterCard, Discover, Amex and what type of card – consumer credit, business, check card, rewards, enhanced rewards, purchasing, etc.

Charge Type– refers to the individual kind of card within each card type. The charge type also provides a pattern for downgrades. Some card type/charge types are only available for certain MCC/SIC codes (certain merchant industry types: fuel, hotel/motel, car rental are some examples).

Chargeback– occurs when a cardholder’s bank (the card issuer) reverses all or part of a credit card transaction, leaving the merchant financially liable for the payment and subject to penalties – unless it can be proven the merchant was not at fault. Chargebacks can be initiated by disgruntled customers or by cardholders’ banks (due to procedural errors, for example). We provide tools to help fight unwarranted chargebacks. Soon, EMV will help merchants with chargebacks.

Check Cards– a card tied to a cardholder’s DDA bearing the logo of Visa, MasterCard, or Discover. A PIN is not entered at the point of sale and the transaction is assessed through the Visa, MasterCard or Discover Interchange. The transaction does require a cardholder signature, similar to a normal credit card transaction. There are two general types of interchange for check cards, exempt and regulated. Regulated check cards have a consistent interchange of .05% + $0.22 per transaction, due to the Durbin amendment to the Dodd-Frank Consumer Protection Act of 2010.

Check Imager– a counter-top device used to scan images of checks, according to legal specifications, for electronic clearing and settlement. Typically, check imagers are used in check guarantee and check conversion.

CVV– Card Verification Value; a value encoded on the magnetic stripe of the card. CVV is used as a security feature for transactions in person (swiped retail transactions).

CVV2– Card Verification Value 2; a three or four digit number physically imprinted on the back of the card. CVV2 is used as a security feature, and often is mandatory, for card-not-present (MOTO/Internet) transactions. CVV2 data is not embedded in the magnetic stripe. Entering this information correctly with a match will protect the merchant if that card came back stolen.

Daily Discount– Deducting a percentage of the settled transactions and only depositing a portion of each settlement. At Stillwater Payments, some clients like the daily discount, because it reduces the amount deducted at the end of the month. The daily discount is calculated by the interchange fees assigned for the cards accepted by the merchant. These fees are received once we submit the settlement for payment. At the end of the month, the transaction fees and monthly fees are deducted from the merchant’s DDA.

DBA– doing business as; the name under which a business is operating. The DBA name may or may not be the same as the corporate name.

DDA– demand deposit account; also known as a checking account.

Debit Cards– issued by financial institutions and tied to cardholders’ DDAs. Sometimes referred to as online debit cards, these cards carry the logo of one or more debit network and require the input of cardholder’s PIN at the point of sale. The PIN takes the place of the signature. In some instances, these cards are much cheaper for merchants to accept. However, that usually depends upon how the merchant was priced by the prior processor.

Dial-Up– a traditional connection type; the credit card terminal is connected to a dial phone line. Must be analog to ensure the credit card terminal works properly. Call waiting, voicemail, and roll over lines can cause problems with dial up credit card terminals. Stillwater Payments recommends a low traffic or dedicated line or IP, transactions run over the internet through a router or switch.

Discount Rate– Fee expressed as a percentage charged by credit card Processor. A per item fee (p/i) is typically added. Expressed together, .75% + $0.31 would be a discount rate. Stillwater Payments uses interchange pricing on most accounts, so the discount rate is really derived from the card brands’ interchange.

Downgrade– when a transaction does not meet the qualifications for a particular level and it is assessed an additional fee. For example, if a transaction that would normally be swiped is keyed, that transaction will downgrade and will be charged accordingly. Late settlements and retail with tips can also cause downgrades.

EBT– Electronic Benefits Transfer (EBT) is an electronic system that allows a recipient to authorize transfer of their government benefits from a Federal account to a retailer account to pay for products received. 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.

Ecommerce Allows merchants to accept payments integrated via a payment gateway through their website, securely.

EMV or Smart Cards– (Europay, Mastercard and Visa) a different way to accept credit card transaction using a smart chip or a smart chip and pin. These cards will be blended, a magnetic stripe and smart chip, in the near future, until magnetic stripes are eliminated. EMV is a much more secure way for merchants to accept non-cash payments. Liability will switch to the consumer, if the merchant has an EMV/Smart Card reader enabled terminal in 2015. So the consumer and merchant benefit from EMV. Stillwater Payments currently stocks EMV terminals and has deployed them since 2013.

Future Delivery or Travel Merchants– The item purchase has not happened yet. For example, custom furniture, if the client changes their mind, the merchant will need to issue a refund if a credit card was used. Future Deliver increases the risk of chargeback and loss due to change in customer purchase or travel plans.

Gift Card- Electronic stored value card not tied to a card brand, but typically tied to a small business or chain. An electronic gift card program is a way for the merchant to increase sales and accuracy of redeemed gift transactions over a paper system. For example, gift cards are available for purchase and use at Cabela’s and Scheels and Kroger. Card brands also issue gift cards with their brand logo on them.

Gross Effective Rate– A simple way for a merchant to calculate on average what a credit card costs him or her to accept. Simple calculation is done by dividing total fees by total sales volume from the merchant statement, & multiplying by 100 to get a %. For example, total sales $20,000 total fees $800. $800/$20000 = .04 * 100 = 4%. If this is your gross effective rate, please give us a call. We will save you some money.

Interchange– The fee charged by Visa, Mastercard, or Discover to the Processor for the specific card type presented to the merchant and batched to the processor for payment. For example, Visa CPS rewards 1, interchange is 1.65% + $0.10 per item. The exact Interchange fee charged to the processor by the brands is effected by how the transaction is transacted (over the internet or face-to-face) and again the specific card type, which is set by the card issuing bank.

IP– internet protocol; refers to the connection type of merchant’s point of sale set-up. Examples of IP connections are high-speed Internet connections, T1 lines, cable modems, DSL, etc. IP is the fastest way to authorize and settle transactions.

ISO– an independent sales organization that is registered with Visa and MasterCard to sell and process bankcard transactions or an independent sales organization that works with and does business under the name of such a registered ISO.

Loyalty Program– Electronic way for a merchant to track customer spending either by visits, dollar value, or points. Typically, a reward is given to the customer at certain levels. Mobile loyalty without the use of a card is gaining steam.

Merchant Bank Sponsor– a bank that sponsors an acquirer into the MasterCard and Visa card systems.

Mid Qualified Discount Rate– discount rate and transaction fee charged for transactions that are key-entered, batched out within 24 hours of the transaction time, have AVS (Address Verification Service), and Order Number and reply to the Mail/Telephone Order prompt with an “Exact match;” sometimes referred to as a mid-qual bump. Mid-qualified includes most reward cards in tiered pricing structures. Stillwater Payments uses interchange pricing on most merchants, so this rarely applies to a Stillwater Payments merchant.

Mobile Payment– The ability to use a smart phone or tablet with internet access or data coverage to process a credit card transaction or ACH.

Monthly Discount– All discount, transaction, and monthly fees will be deducted at the end of the month from the merchant’s DDA.

Monthly Minimum– Fee charged to generate a minimum amount of fees. If a $25 minimum, then merchant has to do at least $25 in qualified fees. If merchant does $10 in fees, then $15 is typically added to make the $25 minimum. At Stillwater Payments, we use monthly minimums once in a great while. Mostly, monthly minimums are used for free terminal placements.

MOTO– Mail Order/Telephone Order; 100% keyed merchant environments, or the majority of transactions are not magnet card swiped or EMV.

MSP– Member service provider; an ISO or other company registered with a Visa or MasterCard member financial institution to sell bankcard services.

Non-Qualified Discount Rate or Surcharge– discount rate and sometimes transaction fee charged for transactions that do not meet the qualified or mid-qualified requirements. Additionally, Visa/MasterCard/Discover business card transactions, key-entered rewards and key-entered foreign card transactions will always be charged the non-qualified rate. Stillwater Payments uses interchange pricing structures, so this rarely affects our merchants.

NFC– Near Field Communication is a set of ideas and technology that enables smartphones and other devices to establish radio communication with each other by touching the devices together or bringing them into proximity to a distance of typically 10 cm (3.9 in) or less. Apple Pay and Samsung Pay are examples

Payment Gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, retailers with an online presence, or traditional brick and mortar. Synonyms: virtual terminal, gateway

PCI DSS– Payment Card Industry Data Security Standard; established for securing payment card information. Annual PCI certification is required for most merchant accounts. Failure to adhere to the standard (by any party that handles card information, including merchants and ISOs) can result in substantial fines; often shortened to PCI.

Per Transaction, High Ticket Limit– Flag on many merchant accounts, used by loss prevention personnel to manage account risk. When the merchant exceeds a high ticket limit, typically their account is placed in suspense and funds are withheld. Stillwater Payments uses soft caps based on monthly volumes, not a per transaction high ticket.

PIN– personal identification number; used to process PIN-based debit transactions.

POS– Not what one might think… point of sale; the place where retail sales occur and payment transactions are initiated; commonly used to describe POS systems (such as cash register systems) and/or computer software programs used for electronic payment processing or tablet-based, limited hardware systems, which can be extremely cost effective for merchants.

Processor– the company that moves transactions on behalf of acquirers between merchants, banks, and the card networks.

Qualified Discount RateTiered Pricing terminology, which is typically the lowest rate the merchant will pay. The exception is if they have a four tiered pricing structure, where a check card qualified discount rate is supposed to be lower than the qualified discount rate. For a retail merchant, this will be a swiped consumer credit or check card transaction. For a MOTO or Internet merchant, this will be a keyed consumer credit or check card transaction using AVS, including an invoice number. For both retail and MOTO or Internet merchants, the transaction must be batched out within 24 hours of the time of the transaction. Since Stillwater Payments uses interchange pricing structures, this rarely applies to Stillwater Payments’s merchant clients.

QSR– quick serve restaurant; no signature required for transactions under $25.00 for certain MCC/SIC Codes. Makes for quick checkout, but no tips can be taken.

Reserves– Amount of transaction volume or upfront cash held by a processor, typically for higher risk merchant accounts or high risk merchant accounts. Stillwater Payments works with a processor that has a great reputation approving merchants without reserves. A back up high risk processor is used only when our primary is unable to approve the merchant without a reserve.

Retrieval Request– when a chargeback is initiated, the merchant’s processing bank sends to the issuing bank additional information about the transaction. There is a fee of $15.00 per Retrieval Request. The Retrieval Request fee is billed to the merchant regardless of the outcome of the chargeback.

Seasonal Merchant Account– Merchant account open for a specified month or months. Can be open any number of months and the months can be sporadic. For example, the merchant can have a seasonal account and have one month, October to process. They could have October-December, and May and July. Any combination or singular month is acceptable.

Settlement– The process by which members exchange financial data and value resulting from sales transactions, cash disbursements, or merchandise credits, which are ultimately billed to the cardholder’s account. A settlement consists of a batch or group of transactions, typically from a day or shift. For a merchant, a settlement means, please deposit this money in my bank account. These transactions are good. Most terminals and gateways can be set for auto settlement. Some merchants, such as those taking tips (like salons or restaurants), need to manually reconcile their tips and then manually settle their terminal to ensure accurate batches and the most advantageous cost associated with those transactions. Settling daily after close of business is ideal for two reasons. First, daily settlements ensure the lowest possible cost assessed by Visa/Mastercard and Discover. Secondly, daily settlement allows for the most consistent deposits into the merchant bank account.

Small Ticket– pricing available on the interchange for certain MCC/SICs when the average ticket is less than $15.00. Used to be really beneficial before the Durbin amendment changed the transaction fee cost from $0.04 to $0.22 for regulated small ticket check cards.

Tiered Pricing or Bucket Pricing– Pricing model where terms, such as qualified, mid-qualified, non-qualified, check card qualified or offline check cards are used. Many times in this pricing format card type disclosure is neglected. Without card type disclosure, this pricing structure is easy to hid fees. Often times, this is the marketing seen on the internet, where only one rate is shown. Understanding there are upwards of 300 different interchange categories or costs that a credit card processing company pays, hopefully will instruct that some “hook” rate and no discussion of any other rates or the discounting of the importance of those other rates will be a significant cause for concern. Please see the examples in the FAQ tiered vs interchange.

Wireless Credit Card Terminal- A credit card terminal that uses a self-contained cellular connection for authorization and settlement of credit/debit card, gift card, and check transactions.

 

References:

Visa Interchange rate table.

Mastercard Interchange rate table.

MasterCard Merchant Rules Guidelines for all businesses that accept MasterCard credit cards.

Visa USA – Accepting Visa Guide and information for fraud and security.

USDA Supplemental Nutrition Program

Wikipedia