Navigating the world of card processing can sometimes feel like learning a new language. For merchants, understanding the terminology is crucial for managing payments efficiently and enhancing customer experiences. In this blog post, we’re breaking down some common card processing terms to help demystify the jargon. Whether you’re new to the field or just need a refresher, this guide is for you.
Card Processing Terminology Demystified
- Merchant Account: This specialized account allows businesses to accept credit and debit card payments. The merchant account acts as an intermediary, holding funds from card transactions before transferring them to the business bank account.
- Payment Gateway: A technology used by merchants to accept debit or credit card purchases from customers. The payment gateway securely transfers payment information from the customer to the acquirer and then through the payment networks to the issuing bank to process a payment.
- Acquirer (Acquiring Bank): A bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer settles card transactions and credits the merchants’ accounts.
- Issuing Bank (Issuer): The bank that issued the customer’s credit or debit card. The issuer is responsible for paying the acquirer for the transactions made by the cardholder.
- Authorization: The process of checking that a cardholder has enough funds to cover the transaction and securing those funds. An authorization places a hold on the funds and ensures they are available for the eventual transaction.
- Capture: This occurs after authorization and is the process of collecting the authorized funds from the customer’s issuing bank. Only after capture is the merchant’s account credited.
- Settlement: The process by which transactions are finalized and funds are transferred from the acquiring bank to the merchant’s account.
- Interchange Fees: Fees paid by the acquirer to the issuer to compensate for transaction-related costs. Merchants indirectly pay interchange fees as part of their total processing fees.
- Chargeback: A demand by a credit card provider for a retailer to make good the loss on a fraudulent or disputed transaction. Chargebacks protect consumers but can be costly for merchants if not managed properly.
- PCI DSS (Payment Card Industry Data Security Standard): A set of security standards designed to ensure that all companies accepting, processing, storing, or transmitting credit card information maintain a secure environment.
- Batch Processing: The process of submitting multiple transactions as a single group for processing. Transactions are collected in a batch and sent to the payment processor at the end of the business day.
- EMV (Europay, MasterCard, and Visa): A global standard for credit cards equipped with chip technology for processing chip-card transactions. EMV cards are more secure than magnetic stripe cards because the chip generates a unique transaction code that cannot be reused.
- Gateway Fee: A fee charged by the payment gateway provider for each transaction processed. This fee is in addition to other transaction fees charged by the merchant account provider.
- Address Verification Service (AVS): A fraud prevention system that checks the address provided by the customer during a transaction against the address on file with the credit card issuer.
- Rolling Reserve: A risk management strategy where a percentage of each transaction is held in reserve by the payment processor to cover potential chargebacks or disputed transactions.
- Merchant Identification Number (MIN): A unique code assigned to merchants by their payment processor. This number is crucial for identifying transactions and managing accounts.
- Independent Sales Organization (ISO): These are third-party companies that partner with banks to sell processing services to merchants. ISOs can set their pricing and often offer personalized service packages.
- Interchange++ (IC++): A pricing model where the merchant pays the interchange fee, assessment fee, and a markup fee directly to the processor. This model promotes transparency by detailing the costs associated with each transaction.
- Deposit Correction Notice: A notification sent to a merchant when a deposited transaction doesn’t match the sales draft or has missing information. This notice requires the merchant to correct the discrepancy.
- Demand Deposit Account (DDA): Typically known as a checking account, a DDA allows for funds to be withdrawn at any time without advance notice. This is where merchants receive funds from processed transactions.
- Acquirer Reference Number (ARN): A unique number that tags a credit card transaction when it goes from the merchant’s bank (acquirer) through the card scheme to the cardholder’s bank (issuer). This number can be used to track transactions.
Adding these terms to your arsenal can enhance your understanding of the payment process, aiding in more informed decision-making and strategy development. Whether it’s managing fees or resolving transaction discrepancies, knowledge is power in the complex world of payment processing.
For merchants navigating these waters, Transapay offers consultancy services tailored to your unique needs. From finding the perfect payment partners to optimizing approval rates and managing risk, Transapay is dedicated to improving your payment processing systems and supporting your business growth.
Stay informed and in control of your payment processes by familiarizing yourself with the critical terminology and best practices in the industry.