Merchant Services Glossary
An Acquirer, also referred to as a Merchant Acquirer, is typically a bank or financial institution that processes Credit Card or Debit Card or wallet payments on behalf of a merchant. They aggregate and separate those payments and then send them to Issuers, normally via the respective Card Scheme networks. The Acquirer is responsible for clearing transactions after they are charged to a cardholder. That is, the Acquirer makes the deposits into a Merchant Account when card or wallet payment transactions are processed.
Address Verification Service/AVS
AVS stands for Address Verification Service. AVS is required for all card-not-present (keyed) credit card transactions. At the time of the transaction, simply enter the street address and postcode along with the card number, expiration date and amount. When the transaction is submitted for authorisation, the address and postcode are checked against the billing address and postcode for the cardholder. The AVS response is provided by the issuing bank and the result is either a match, partial match, no match, or AVS not available/error.
Authorised Deposit-taking Institution
Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF Act)
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) covers the financial sector, gambling sector, bullion dealers and other professionals or businesses that provide services covered by the Act.
The AML/CTF Act is part of a legislative package which brings Australia into line with international best practice to deter money laundering and terrorism financing.
The AML/CTF Act places a number of obligations on reporting entities when they provide designated services, including:
- enrolling and/or registering your business with AUSTRAC
- customer identification and verification of identity
- record keeping
- establishing and maintaining an AML/CTF program
- ongoing customer due diligence and reporting (suspicious matters, threshold transactions and international funds transfer instructions).
The AML/CTF Act and the supporting AML/CTF Rules together implement a principles-based and risk-based approach to regulation.
Reporting entities determine how they meet their obligations based on their assessment of the risk of whether providing a designated service to a customer may facilitate money laundering or terrorism financing.
Refer definition of Card Schemes.
ATM Debit Card
An ATM (Automated Teller Machine) debit card is similar in size and shape to a credit card and features an account number and magnetic stripe on one side. When swiped or tapped through a Point-of-Sale terminal, the cardholder is sometimes prompted to enter a PIN number via a PIN pad. This will create an instant debit transaction, with funds drawn from the customer’s bank account. Funds are authorised in real time, and if there are not sufficient funds in the customer’s bank account the transaction will be declined. In addition to purchases, ATM cards can also be used at ATM machines to make cash withdrawals, deposits and balance transfers, and to check account balances.
This is the term given to the process of validating funds available on a credit or debit card. It is done at the time the transaction is entered or swiped through a Point-of-Sale terminal. When you process a credit card transaction, a response comes back from the issuing bank, all in a second or two. An authorisation is either approved or declined by the issuing bank.
If the authorisation is approved, that means funds are available to be withdrawn from the customer’s account and added to your bank account. When an authorisation is approved, a six or seven digit authorisation code is provided, along with the Address Verification Service (AVS) response. If no authorisation is given, this is a decline, meaning there are either not enough funds in the customer’s bank account (if a debit card) or the customer has most likely reached their limit on their credit card.
The authorisation code is the response code from the issuing bank that is returned to you at the time of authorisation. This code is recorded either by the Point-of-Sale terminal or software, as well as printed on any receipt or sales draft. If doing a phone or voice authorisation, you should record the authorisation code for reference, as it serves as proof of authorisation.
This is the amount charged to you each time a communication happens between your software or Point-of-Sale terminal and the authorising network. The communication can occur either over a dial-up telephone line, leased line or the internet. This fee covers all transaction types: sale transactions, post-authorisation transactions and refunds.
Authorisation Only Transaction
Authorisation Only Transaction
Authorisation Only (Auth Only) is a special type of sale transaction. It authorises an amount on a customer’s card but the item does not settle until a later time, sometime several days or weeks later. The purpose of an authorisation-only transaction is to reserve an amount against a cardholder’s available credit limit for a certain period of time. For example, you may perform an authorisation only transaction if an item ordered is out of stock. When the item becomes available, you settle the transaction, charging the card at that time.
An issuing financial institution’s electronic reply to an authorisation request, which may include:
Approval – transaction was approved
Decline – transaction was not approved
Call Center – response pending more information; in this case you call the toll-free authorisation phone number. This occurs if there is a problem with the cardholder’s card.
Average Ticket Size
Average ticket size refers to the average dollar amount of your credit card transactions. Average ticket size is normally asked when you set up a new merchant account.
When filling out MPH survey - If you don’t yet process credit cards, simply estimate your average credit card sale. (Keep in mind that the average credit card transaction is typically higher than the average cash transaction.) If you already process credit cards, simply divide your total monthly volume by the number of transactions to determine your average ticket size.
Basis points is the percentage you are charged on a credit card transaction. One basis point is equal to 1/100th of 1 percent. Thus a rate of 2.33% is equivalent to 233 basis points.
Batch or Batch Processing
A batch is a collection of transactions, usually a single day’s worth. Batch processing refers to closing or settling an entire batch of transactions at one time. The Point-of-Sale terminal or credit card processing software can be set on manual batch close or automatic batch close.
The process of acquiring the account information required for processing a payment. This occurs by swiping a credit or debit card through a card reader, inserting the card into a reader or by manually keying in the information.
Card Not Present (CNP)
A payment card transaction where the cardholder/card are not physically present. For example, an online or mail/telephone order.
A transaction where the cardholder and payment card are both present. Sometimes referred to as a face-to-face transaction.
Refers to domestic and international credit, debit and charge card brands such as Visa, Mastercard, eftpos, American Express, Union Pay, Diners Club, JCB and Discover.
Cardholder Preferred Currency
See Dynamic Currency Conversion (DCC).
Occurs when a cardholder disputes a transaction with the card issuer. The issuer initiates a retrieval request against the merchant and the disputed amount is withdrawn from the merchant account until the matter is settled. Merchant are given a set period to dispute the chargeback with proof of purchase or delivery. The merchant account provider imposes a chargeback fee as part of the process.
The process of transmitting, reconciling and in some cases confirming payment instructions prior to settlement; it may include netting of instructions and the calculation of final positions for settlement
Cost of Acceptance
Cost of Acceptance is the cost merchants incur to accept a payment from a particular type of card. The Cost of Acceptance is calculated for each card type and can vary for each payment method. Merchants can on-charge these costs as a surcharge to the cardholder. (See Surcharging for further explanation).
A payment card that is issued by a bank and used by an individual to purchase merchandise or services on credit.
Credit Card Reader
A credit card reader, sometimes called a credit card swiper, is an electronic device used to read data stored on the magnetic stripe of a credit card. When the credit card is swiped, inserted or tapped at the point of sale, the information pertinent to processing the card transaction is read and processed. Typically the data includes the cardholder’s name, credit card account number and expiration date, and also the Card Security Code (CSC), also known as the Card Verification Value (CVV).
CVV2 is an important
security feature for credit card transactions on the Internet and over the
phone. "CVV" stands for "Card Verification Value" (Discover
Card calls it the "Cardmember ID"). It is the three-digit number printed in the
signature space on the back of most credit cards, such as Visa,
Mastercard, and Discover cards. The CVV2 number is always the last group of
numbers in the signature space on the back of the card. It is not part of your
regular credit card number. It is a four-digit number on the front of American
Express cards. It is printed (flat), not embossed like the card number.
The number enhances fraud protection and helps to validate two things: the customer has the credit card in their possession and the credit card number is legitimate.
Card verification value (CVV) is a combination of features used in credit, debit and automated teller machine (ATM) cards for the purpose of establishing the owner's identity and minimising the risk of fraud. The CVV is also known as the card verification code (CVC) or card security code (CSC).
Debit cards are similar to credit cards, except that the funds are immediately withdrawn from the cardholder’s bank account. Credit card charges, on the other hand, are billed to the cardholder each month, and interest charges may be added. Also, a credit card holder need not pay the entire balance due each month, while with debit cards there is no balance to pay off, as the money comes directly out of the cardholder’s bank account.
Dynamic Currency Conversion (DCC)
Is a process whereby when a cardholder makes a payment or withdrawal in a foreign currency, they are offered an option to have the amount converted to the cardholder's country of issue at the time of the transaction. DCC is also referred to as Cardholder Preferred Currency (CPC).
Electronic Benefits Transfer (EBT)
An electronic system used by governments to provide financial and material benefits (including unemployment and food benefits) via debit card or direct deposit into a bank account.
Electronic Fall Back (EFB)
The ability to continue performing transactions on the terminal, even when communication with the bank host system for on-line approval has been lost or the Issuer is unavailable. In EFB mode, transactions are stored within the terminal and manual vouchers are not required.
Electronic Funds Transfer (EFT)
An automated transfer of funds using an electronic medium.
Also known as an e-wallet, it allows the user to charge payment for goods and services to their card without using the card. Software on the user’s mobile device securely stores payment information and works in conjunction with software on your end.
The process of translating data into secret code (encoding) to ensure secure transmission. An effective way to help ensure data security, it is also referred to as end-to-end encryption (E2EE).
Interchange Fees are wholesale fees set by card schemes such as Mastercard, Visa and eftpos that require payments from the merchant's bank (Acquirer) to the cardholder's bank (Issuer) on every transaction. The cost of Interchange Fees is typically passed on to the merchant in the form of a Merchant Service Fee. For a more detailed explanation of Interchange Fees please refer to the news post on this topic - What is Interchange and Why Does it Matter?
A bank or financial institution that is a licensed member of a Card Scheme. It provides cardholders with a line of credit for purchases or cash advances (for Credit Cards) or access to a transaction account (for Debit Cards), and is responsible for reimbursing an Acquirer for purchases made by the cardholder. The Issuer then bills the cardholder.
Know Your Customer (KYC)
Know your customer (KYC) is the process of a business verifying the identity of its clients and assessing potential risks of illegal intentions for the business relationship.
An AML/CTF program must provide for the collection of certain minimum KYC information.
A Merchant Account is a type of bank account that allows businesses to accept and settle payments by debit cards, credit cards or wallets.
Refer definition of Acquirer.
Merchant Service Fee (MSF, or Discount Fee)
A percentage fee, levied on the sales value, charged by a Merchant Services Provider to its clients for payments processing services. The fee typically covers the Merchant Services Provider's margin, plus Card Scheme Interchange Fees and assessments paid directly to the Issuer and Card Schemes. This is also referred to as a Discount Fee.
Merchant Services Provider
The entity that provides a merchant with the products and services needed to process payment transactions. The provider is responsible for depositing proceeds into the Merchant Account. This term is typically used in relation to Acquirers (typically financial institutions) while the term Payment Services Provider is used for organisations that are not financial institutions.
Mobile Credit Card Processing
Processing payment card transactions from a mobile device or smartphone.
The amount that a processor charges you if its discount rate, transaction fees and other account fees do not collectively equal a pre-determined amount that’s defined in your merchant processing agreement(MPA).
Monthly Processing Limit
The amount of money that a merchant service provider will allow you to process each month before incurring additional fees, as outlined in your merchant processing agreement.
Monthly Processing Volume
The gross monthly payment card sales
that you process. This figure is specified in your merchant application
for card processing along with the average ticket size. Both are used to
help determine processing fees.
Abbreviation for mail order/telephone order.
Multi-Currency Processing (MCP)
Is a service that enables merchants to price and accept payment for goods and services in a foreign currency, while processing and settling these transactions in either the foreign currency or the local currency.
These are card payment transactions where the Acquirer of the card is also the Issuer of the card.
A fee charged by your processor when you exceed your pre-determined processing volume.
A collective term for credit, debit, prepaid and EBT cards.
Software on a third-party provider’s server that handles the transmissions between merchant and processor that are required to complete an electronic transaction.
Payment Services Provider (PSP)
The entity that provides a merchant with the products and services needed to process payment transactions. The PSP is responsible for depositing proceeds into the merchant bank account.
PCI-DSS stands for Payment Card Industry Data Security Standards, a set of requirements established by the credit card networks to protect cardholder information and reduce the risk of data theft. The standards apply to you, merchant account providers, issuing banks and the credit card networks. Meeting these requirements is known as being PCI compliant.
The Personal Identification Number is the digital code that PIN-based debit cardholders enter at the terminal when making a purchase.
Hardware a PIN debit cardholder uses to enter their PIN at the Point-of-Sale. Also called a keypad.
Abbreviation for Point-of-Sale, which is the place where a customer makes payment. While POS once referred specifically to credit card terminals at the cash register, technology has expanded its application to include mobile, wireless and virtual terminals.
The electronic equipment used to capture, transmit and receive the information necessary for electronic payment card transactions.
The ability to approve or decline a payment card transaction in seconds while the customer waits.
A transaction charged to a cardholder on a designated periodic basis (weekly, monthly, annually) as payment for products or services. Two examples of recurring billing are club memberships and subscriptions.
Retrieval is the first step in the chargeback process. In a disputed transaction, the issuing bank requests a copy of the physical sales ticket for the transaction in question.
RITS – Reserve Bank Information and Transfer System
Settlement – the discharge of obligations arising from fund transfers between two or more parties
RTGS (real-time gross settlement)
A payment system in which processing and settlement take place in real time (continuously)
SSL stands for Secure Socket Layer, a system for encrypting payment card data sent over the internet.
Surcharging provides merchants with the ability to pass the cost of accepting more expensive payment methods back to the customers who use those methods.
Terminated Merchant File
Also called MATCH, this database is maintained by third-party processors, banks and other financial institutions. It lists the names of merchants whose privileges to process credit cards and other electronic transactions have been terminated by an acquirer for violation of a merchant processing agreement.
A low-tech processing solution (typically used by low-volume merchants) which requires you to call an authorisation centre to process a transaction and receive authorisation.