Ignite Payments
learning center

Ignite Payments
* Glossary of Credit Card Processing Terms

* Lets look at various common credit card processing terms. As a merchant offering credit card payments, it's imperative that you understand the lingo associated with the process.

Acquirer or Acquiring Bank - Also known as Merchant Bank. The financial institution or organization that conducts business with merchants who wish to accept credit cards for payment of goods or services. The Bank processes the merchant's transactions and credits payment to the merchant account.

Authentication - Identification of individuals and businesses through the use of digital certificates.

Authorization - The process, where it is verified if the credit card has sufficient funds available to cover the amount of transaction. Authorizations can be performed via telephone, POS terminal, or via the Internet.

AVS - Address Verification System - The AVS system compares the statement billing address on file with the credit card issuer with a customer's billing address provided with each order. The process helps in establishing the legitimacy of the cardholder and deters fraud.

Account Number - A unique number assigned to the cardholder that serves as a unique identity.

Batch- Also known as Batch Settlement File. A group of credit card transactions that have to be settled with the merchants acquiring financial institution. Batches can be submitted for processing throughout the day or continue to grow until their value is sufficiently large enough and worthwhile to process.

Card Not Present - A transaction where the card is not present like in case of mail order or telephone order, it is termed as Card not present transaction.

Card Present Account - A transaction where the consumer and the card are required to be present at the same location. For a card present transaction, the credit card is typically swiped through a card reader (or physical point-of-sale terminal), and the consumer signs an authorization slip, or sales receipt.

Cardholder - The person who holds debit credit or charge card issued by issuer bank with an account established. A cardholder is eligible to make a payment by card.

Corporate Card - A Card used for covering business related expenses such as travel and entertainment.

Chargeback - Chargeback occurs when the cardholder is not satisfied with the quality of product/service or on the occurrence of fraud. In this case, the credit card holder requests to debit the amount from Merchant's deposit account.

Charge back Fees - Are the fees levied in the event of charge back.

Credit Cards - These are the Cards issued by Issuing Banks to customers with which to charge for the purchase of products and services. The first general use credit card was introduced in 1958, from the Bank of America; called BankAmericard which was later renamed the VISA card. Meanwhile, the MasterCharge card appeared later renamed the MasterCard.

Debit Card - Card, which deducts the amount of purchase directly from holders checking or savings account to pay the merchant.

Discount Rate - Rates set by a Merchant Bank as a privilege fee for using their account services. This rate is arrived by taking into consideration the charges of number of factors, including charge volumes, risk models, size of the business, methods of submission, bank policies, etc.

Encryption - The process where data is scrambled and unscrambled using mathematical equation when sent over the Internet. Data encryption ensures that only the intended recipient has the ability to read and understand the information.

Gateway - An application that accepts order transactions from merchants and sends them.

Interchange - A system managed by Master and Visa to bring global standard in exchanging data and money between banks.

Issuer - Organizations or financial institutions like banks, building societies that extend credit to their customers (Cardholders) through payment cards, such as credit or debit cards.

Late Settlement - Fees paid to MasterCard or VISA by a merchant for late processing of settlement.

Merchant - Any business operation that accepts payment cards for goods or services.

Merchant Account - The bank account the merchant establishes with the Merchant Bank (aka as the Acquirer Bank) into which the amounts of the credit card charges made at the Merchants business are deposited.

Third Party Processor - Companies that enter into third party agreements with Issuer and acquirer banks to process settlements.

Transaction - Refers to the purchase or transfer of money through credit card. Transactions are either offline or online in nature, Offline transactions are those that happen at physical establishments.