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Merchant Accounts
   
Acquiring Processor - The processor provides credit card processing, billing, reporting and settlement and operational services to acquiring and issuing banks. Many financial institutions don't do their own bankcard processing because it's more cost-effective to let someone like First Data invest in the equipment and people and do it for them.

Address Verification Service (AVS) - Since 1996 MasterCard / Visa has made available a fraud prevention measure available for taking credit card orders over the phone, mail, fax, or on the internet. The credit card processing company checks the billing address the customer tells you with the billing address on file with the bank that issued the card. If the addresses match, then the card is approved at your basic discount rate. If the addresses don't match, then typically the card will still be approved but a code in your reporting will tell you that AVS was not a match.

You should know what this rate is whether you are "keying" an order into a terminal, accepting an order over the phone, or receiving an order over the internet. Important: If your credit card terminal, PC based software, or Internet based software is NOT prompting your customers to give you their "billing address" then you may be paying what you think is a good rate but in fact all of your transactions are much higher because AVS is not even attempted.

Authorization - The act of ensuring that the cardholder has adequate funds available against their line of credit. A positive authorization (when an authorization code is generated) results in those funds being set aside. The cardholder's available credit limit is reduced by the authorized amount. You are typically charged an authorization fee (transaction fee) even if you void the transaction before you batch out.

Batch - The accumulation of captured transactions waiting to be settled. Multiple batches may be settled throughout the day. Make sure you know if your sales are automatically batched out at the end of the day or if you need to manually batch out. Do not find yourself waiting for your money to hit your bank account because you never batched out your terminal or software.

Capture - Converting the authorization amount into a billable transaction record within a Batch. Transactions cannot be captured unless previously authorized, and authorizations cannot be captured until the goods or services have been shipped or transmitted to the consumer.

Cardholder - Any person who opens a credit card account and makes purchases using a credit card.

Credit Deposit - The value of a merchant's credit card purchases that are credited to its bank account after the acquirer buys the merchant's sales slips. The deposit is credited. It is not funded until the acquirer gets the monetary value from the issuer during settlement.

Discount Rate - The fee a merchant pays its acquiring bank/merchant bank for the privilege to deposit the value of each day's credit purchases. The fee is usually a small percentage of the purchase value.

Interchange - The exchange of information, transaction data and money among banks. Interchange systems are managed by Visa and MasterCard associations and are very standardized so banks and merchants worldwide can use them.

Interchange Fee - A fee paid by the acquiring bank/merchant bank to the issuing bank. The fee compensates the issuer for the time after settlement with the acquiring bank/merchant bank and before it recoups the settlement value from the cardholder. Interchange fees are roughly 1.4% and ten cents per transaction for a typical swiped business and 1.8% and ten cents per transaction for a Mail Order / Telephone Order (MOTO or internet business. This is the money that for the most part goes to the bank that issued the credit card. You could say this is the Merchant Account Provider's cost of sales.

Issuer - The bank that extends credit to customers through bankcard accounts. The bank issues the credit card and receives the cardholder's payment at the end of the billing period. Also call the issuing bank or the cardholder bank.

Merchant Bank - The bank that does business with merchants who accept credit cards. A merchant has an account with this bank and each day deposits the value of the day's credit card sales. Acquiring Processors through the Merchant Account Provider buy (acquire) the merchant's sales slips and credit the tickets' value to the merchant's account.

Settlement - As the sales transaction value moves from the merchant to the acquiring bank, to the issuer, each party buys and sells the sales ticket. Settlement is what occurs when the acquiring bank and the issuer exchange data or funds during that function.

Ticket - Another name for the sales slip or its monetary value that results when a credit card purchase is made.

Transaction - One example of transaction is the process that takes place when a cardholder makes a purchase with a credit card.

(For a complete listing of all the terms relevant to the Merchant Account Industry including internet terms go to the Glossary of this Guide.)

ABOUT THIS GUIDE
About the Author
A Word About Our Membership Community
Frank Merchant knows how to get the best price
The Internet Marketplace
   
UNDERSTANDING IT ALL
What are the advantages (and disadvantages) of accepting credit cards for your business?
6 Benefits of Accepting Credit Cards
Disadvantages of Accepting Credit and Debit Cards
Who are the players? How does the money get in your bank account?
Credit Card Transactions Step By Step
Should I go visit my banker for my merchant account?
How can I tell if I will get good customer service?
Be on the Lookout for Deceptive Sales Practices
How to Avoid Your Money Being Held By Your Non-Cash Transaction Processing Company
Banking Terms You Need To Know
Benefits of Debit as a Payment Option
What You Need To Know About Leasing a Credit Card Terminal
Fraud Protection 101
Cardholder Security: Avoid Monthly Fees, Fines, and Penalties What Is PCI Compliance (PCI DSS)?
   
THE PROCESSES
Four Key Components to Conduct eCommerce Successfully: What They Are, and How They Work
Web Site
Your Merchant Account
Secure Payment Gateway / Payment Transaction Software
Shopping Cart and Catalog
Should I use a third party processor like PayPal?
   
ANALYZING IT ALL
Quick Summary of Costs
Detailed Summary of Setup Fees, Recurring Fees, and Risk Estimate
Total Risk Estimate (TRE)
Total Risk Estimate Worksheet (Low-Medium-High)
   
THE DETAILS
Are you being stung with "Non-Qual" fees for keyed orders?
Have You Ever Felt Betrayed By Your Credit Card Processing Company?
Your Customers' Credit Card Numbers at Risk
Visa: Heartland, RBS WorldPay no longer PCI compliant
PayPal
Marketing 101: Gift and Loyalty Smart Card Technology Ensures Customer Loyalty
Check Warranty and Check Acceptance Policies
How Can I Prevent Credit Card Fraud?
Identity Theft
Merchant Account Comparison Worksheet
Glossary
 
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