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Mini Dictionary of
Merchant Account Terms

The following are some of the most common words and merchant account terms you are likely to encounter while seeking a merchant account.

Authorization

The process where a transaction is approved by the issuer of a credit card, supported by delivery of a sales validation to the merchant.


Batch

A collection of transactions that have been made in a single day. Rather than batching several times during the day, most terminals and real-time processors collect all of the transactions and submit a batch at the end of day.


Cardholder

The customer to whom a credit card is issued and any other individual authorized to use the card.


Charge Back

A charge disputed by the credit card holder, resulting in chargeback fees against the merchant. If the cardholder is successful in his dispute, the disputed funds are debited from the merchant account. Funds are often taken out during the period that the dispute remains unresolved, pending its resolution.


Credit card

The plastic card bearing an account number assigned to a cardholder. Credit cards are issued with a set credit limit and expiry date.


Currency conversion

A process where the currency involved in the transaction itself is converted into the currency of settlement or the currency of the issuer, so the transaction can be authorized, cleared and reported.


Debit card

The plastic card used to complete a bank account withdrawal from a cardholder's bank account. 


Discount Rate

The fee charged by Visa, MasterCard, Discover or American Express, being a percentage of each sale.


Electronic funds transfer (EFT)

A paperless transfer of funds initiated by transmission from a terminal, computer or telephone.


Issuing Bank

The bank that issues the customer the credit card and transmits funds to the seller's merchant account when the card is utilized by the customer. The issuing bank then debits the cardholder's account for the amount of the purchase.


Mail Order/Telephone Order (MO/TO)

Transactions initiated by the customer using the mail or telephone, rather than through retail terminals or over the Internet.


Merchant

A retailer or any other person or corporation that accepts credit cards.


Merchant Account

A special bank account used to receive the proceeds of credit card transactions. The merchant bank is responsible for debiting the funds from the customer and depositing them into the merchant account.


Merchant Bank

The bank that provides merchant accounts to merchants, thereby giving the merchants the ability to accept credit cards.


Merchant Provider

A third party company providing merchants with merchant accounts. Providers generally have an established relationship with a number of banks that operate merchant accounts. Providers either have their own processing system to process and validate transactions, or they act as resellers of third parties' processing systems.


Monthly Minimum

The minimum monthly charge a merchant must pay in Discount Rate fees. If the merchant's sales for the month result in his paying Discount Rate fees greater than or equal to the agreed minimum monthly amount, no further fee is involved. However, if the merchant's sales for the month result in his paying Discount Rate fees less than the agreed minimum monthly amount, the merchant must pay the deficiency.


Payment Processor

A company that attends to the actual processing of a credit card transaction, to be distinguished from the merchant account bank which merely acts as the recipient of the transaction proceeds.


Personal identification number (PIN)

A secret code that allows the issuer of a card to positively authenticate the cardholder for the purpose of approving a transaction.


Point of Sale Terminal (POS)

The physical machine that allows a merchant to swipe a credit card through to initiate a transaction. Most common in retail environments.


Processing Solution

A terminal, software or virtual product enabling the merchant to transact with his merchant account and payment processor, for the purpose of verification and approval of transactions.


Real-Time Processing

Credit card processing completed online, while the customer is still visiting the website.


Reserve

A portion of a merchant's funds in his merchant account that are held by the merchant account provider as security for future contingencies, including chargebacks. Usually only required from certain high-risk merchants.


Secure Socket Layer (SSL)

A secure web protocol designed to ensure cardholder information is safe during the ordering process. 


Transaction Fee

A per-transaction charge, expressed in dollar and cent terms, that a merchant provider or processor charges merchants for each transaction processed.

 

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