Faq | Payment Industry Glossary | Payment Industry Terms Explained

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In Merchant Services Since 2016 2016 2016

Who is a Merchant in Credit Card Processing?

A merchant is a business that applies for a credit card processing account. The merchant requests a payment service provider or merchant account acquirer for a credit, debit, or ACH processing account and signs an agreement with the service provider, known as a merchant account agreement. Merchants can accept transactions in two different ways: over the phone by utilizing the virtual terminal or Moto, or over the website or email by sending a pay now link to the customers for order placement. Understanding who a merchant is in credit card processing is important for businesses looking to accept card payments.

What is a Deposit Only ATM Debit Card

A deposit only ATM card is used by company representatives to deposit checks and cash at bank ATMs. This is a great solution that helps businesses across the nation to deposit funds into their bank accounts.

This type of ATM card does not have a withdrawal function. It offers peace of mind to the company and the business owner that the individual who is using the same can’t withdraw any funds, but can only make a deposit.

The deposit-only card is also blocked for all online and offline purchases. Deposit only cards are also used by runners of the company to deposit printed echecks.

Some banks may offer cards that can only be used to deposit funds at ATMs. However, these cards are not available with all banks as the requirements are very specific. With the availability of internet payment options like IMPS, UPI, ACH, Wire, FedNow, , Mobile Payments and SEPA, these cards are hardly used.”

Who is an Acquirer in Credit Card Processing?

The acquirer is a financial institution that takes the complete risk of onboarding a merchant for credit card, debit card, or ACH processing. This acquirer underwrites the merchant after a deep analysis of the merchant profile and the KYC documents. The acquirer reserves the right to terminate the merchant account at any point in time if the merchant violates any terms mentioned in the merchant account agreement. Acquirers can be direct acquirers, or they can be service providers known as payment service providers.

What is an API in the Payment Industry?

API stands for Application Program Interface. It is a set of rules and protocols designed by a software vendor so that the software connects properly with additional programs and plugins. API connectivity plays a critical role in the payment processing industry, and all payment gateways and merchant account providers utilize API connectivity. Once the merchant account is approved, the API is integrated into the merchant’s website. Understanding the role of APIs in the payment industry is important for businesses looking to accept payments online.

What Is a Virtual Terminal?

A virtual terminal, also known as Moto, is a payment processing platform provided by payment service providers or merchant account acquirers. With the help of the virtual terminal, merchants can easily accept credit card information or electronic check information over the phone and then submit the same on the virtual terminal. It is not easy to get a virtual terminal these days because of the risk. Merchants utilizing electronic checks as an alternative mode of payment processing to get the virtual terminal to process orders over the phone and from the inbound call center. Virtual terminals attract more chargebacks.

What Is a Hosted Payment Gateway?

The hosted payment gateway is external to your business site. When the user clicks on the payment page to pay you, it will redirect to the service provider page. After the transaction, it will redirect back to the merchant’s site. The transactions are secure and PCI compliant. The merchant has no control over the transactional information. Customer’s credit or debit card information does not stay on the merchant’s server.

What Is a Self-Hosted Payment Gateway?

In this type of gateway, the merchant’s website controls the transaction. The merchant collects the customer’s information on their site. They send the information to the payment gateway to process the transaction. The gateway receives the data in a specific format, or some need a secret key or a hash key. The customer doesn’t get redirected to the gateway provider for payment. It enhances the customer’s experience and binds their interest to the merchant’s site. The merchant also has the advantage of storing the information on their server.

What Is an API-Hosted Payment Gateway?

API or Application Programming Interface is a software intermediary. It allows two applications to have communication with each other. Websites, operating systems, or database systems interact via API. Payment Gateway API helps the smooth payment transaction flow on merchants’ sites. It helps in validating and authorizing payments. The API-hosted payment gateway gives full control to the merchant. The SSL Certification and PCI Compliance are the merchant’s responsibility. All the transaction processes happen on the merchant’s site.

What Does It Mean When Online Purchases Are Declined Because Of Scrubbing? What Does Scrubbing Mean And Why Is It Declining My Credit Card Payments?

The payment industry has been a victim of fraud from the start. In the e-commerce age, fraudsters use advanced methods to cheat the payment system and push losses worth millions of dollars to the e-commerce ecosystem. To reduce the risk of fraud transactions, modern high-risk merchant accounts use an advanced method called fraud scrubbing. With this technology, each card transaction is checked for various factors, including CVV, AVS, bad card database check, IP check, BIN check, and many more, including velocity check. In simple terms, fraud scrubbing is a technology that helps merchants reduce fraud credit card transactions on the gateway.

What is an Agent Bank and How Does it Work?

An agent bank is a small bank that partners with a larger acquiring bank to participate in merchant acquiring activities. These banks typically handle the activities that involve connecting merchants without acquiring banks. They are not usually held responsible for any financial losses incurred by the acquiring bank because of the referred merchant. Agent banks can be a useful way for smaller banks to participate in merchant acquiring activities without having to invest in the infrastructure required to manage the process.

Understanding AVS or Address Verification System

The address verification system (AVS) is a tool used by merchants to reduce fraud in transactions. The system is provided by the processing organization and matches the address on the card account with the address provided by the cardholder. AVS can be used for both card present and card not present transactions.

What is a Merchant Account Agreement and Why is it Important?

A merchant account agreement is a legal contract between the merchant and the payment processor. This agreement outlines all the clauses that are required to be followed by the acquirer and the merchant. Violating the terms of the agreement can lead to strict action being taken on the account by the merchant account acquirer. It is important to carefully review and understand the terms of the agreement before entering into a merchant account relationship.

What is a Credit Line or Line of Credit?

A credit line is the amount of credit offered by the card issuer to the cardholder. The limit of the credit line is usually increased if the cardholder uses the card as per the terms of service and ensures timely payments of the dues. Understanding the credit line is important to manage your credit effectively and avoid exceeding the limit.

What are CVV and CVC and How Do They Work?

The Card Verification Value (CVV) and Card Validation Code (CVC) are unique numbers present on the back of most credit or debit cards. These numbers are required for a successful transaction, and most online payment gateways will need the CVV or CVC value to be typed by the buyer for the transaction to be completed. These codes are used to reduce the risk of fraud in transactions.

What is a Referral Bank in Merchant Processing Industry?

Referral banks are usually small or local banks that partner with larger acquiring banks in the merchant acquiring process. These banks typically send merchant leads to larger acquiring banks and are not usually held responsible for financial losses arising from the merchant’s activities. Referral banks can be a useful way for smaller banks to participate in the merchant acquiring process.

What is ACH or Automated Clearing House?

Automated Clearing House (ACH) is an extensive network of financial institutions working together for credit and debit of funds in batch mode. Usually, in an ACH transaction, multiple parties are involved, including the payer, receiver, ODFI, RDFI, and third-party ACH payment processing companies. ACH is commonly used for direct deposit, payroll, and other similar transactions.

What is a Chargeback?

The purpose of a merchant acquiring an acquirer is to accept credit and debit card transactions. However, if the merchant fails to deliver the product or service as per the commitment, the cardholder can initiate a chargeback request by contacting the card issuer. In such cases, the merchant has a limited time to offer proof of service or product delivery. If the merchant is unable to provide substantial evidence, they are liable to return the money to the cardholder through the merchant account acquirer. Acquiring banks or merchant acquirers follow strict guidelines and rules to keep the chargeback ratio of any merchant below the prescribed chargeback percentage limit recommended by card brands.

What is Clearing in Credit Card Processing?

Clearing is the process by which the credit card issuer receives transaction details for a specific transaction. These details include vital information about specific charges, as well as the currency of the sale. The acquiring bank sends this information to the card issuer, and the card issuer posts this information onto the card account of the cardholder.

What is a Debit Card?

A debit card is a card issued by the card issuer, and the cardholder can only use the funds that are available in their bank account or card account. A debit card is different from a credit card because the cardholder uses funds that are already available in the card account or bank account. The cardholder can use their funds using ATM withdrawals, POS payments, web payments, and more.

What is MDR or Merchant Discount Rate?

MDR is a collective fee that includes various charges, which the merchant pays to the acquiring bank. It is usually a specific percentage of the transaction value.

What is E-commerce?

E-commerce refers to the process of buying and selling products or services online through a website. Today, businesses create websites to sell their products and services online, and customers can use these sites to purchase products by submitting credit or debit card information. Websites that allow merchants and buyers to conduct business transactions online are called e-commerce websites.

What is Electronic Data Capture?

When the cardholder gives the card to the merchant for swiping on the credit card terminal, the credit card terminal captures electronic data information from the magnetic strip of the card. This process of collecting the card information and sending it to the processor’s infrastructure is called electronic data capture.

What are Future or Delayed Delivery Products and Services?

In some industries, service delivery may not happen instantly. This may include hotels, airlines, cruise liners, seminars, and custom-made tangible products. In most of these business models, service delivery is not done immediately. These kinds of products and services where the customer receives the delivery after a considerable time interval may be considered as future or delayed delivery products and services. Merchant account acquirers or acquiring banks prefer to work with merchants who deliver the product to the customer in the shortest time possible. Faster delivery ensures better customer satisfaction, and that is why for these types of businesses, getting a merchant account may be difficult.

What is a Gift Card?

In the modern world, different kinds of gifts are available. There are multiple gift cards available. To buy these gift cards, people usually visit local supermarkets or departmental stores. After paying the money to the cashier, the buyer gets the card. Sometimes the buyer may have to activate the card online or by calling a support number. Most of the gift cards can be used online as well as on the point of sales devices.

What is a Fixed Reserve or Rolling Reserve?

Reserve is a risk mitigation step in the payment processing industry. A fixed reserve holds a specific amount usually for 180 days. In the case of a rolling reserve, the acquirers may deduct a particular % from each transaction. The reserve amount is held to handle future disputes and chargebacks.

What is an ISO?

ISO stands for Independent Sales Organization. These organizations work with the acquiring bank for the objective of connecting merchants with the acquiring banks. ISOs also handle various activities that include pre-approval, activating reserves, helping the merchant with integration, etc. Acquiring banks are liable to register their ISOs with the card brands or bank card associations.

What is an ISC in the Payment Industry?

The term ISC stands for Independent Sales Contractor. QuadraPay is an ISC and works independently to assist payment processors in finding the merchants. The role of the ISC is only to introduce merchants to processors. The processing company reserves the right to accept or reject any application.

What is Interchange?

Interchange is the technical infrastructure that powers payment processing between different financial institutions. What is an interchange fee or interchange cost? It is the charge that is paid by the financial institutions in the process of credit and debit card transactions. The MDR usually includes the interchange fee.

What is TMF or MATCH (The Member Alert to Control High-Risk (MATCH))?

It is a database that is maintained by a credit card scheme. The acquiring banks and acquirers submit information to this database about merchants and their activities. In the underwriting process, the underwriters can try to fetch information about a potential merchant and identify if the merchant has a bad history of operations. This database was previously known as Combined Terminated Merchant File or CTMF. Sometimes it’s also referred to as TMF or Terminated Merchant File.

What Is Retrieval Request?

A retrieval request is a process initiated by a buyer in a credit or debit card transaction to report a fraudulent or unauthorized transaction. The card issuer will ask the merchant to provide a copy of the authorization for the transaction. If the merchant is unable to provide the proof of authorization, the transaction may turn into a chargeback, and if the buyer wins the chargeback case, the merchant will have to refund the payment.

What Is Settlement In Credit Card Processing.

Settlement is the process in which the acquiring bank sends payment requests to the card issuer, and the merchant’s bank account is funded from the merchant account. Settlement ensures that the merchant receives the payment for the transaction and the card issuer gets the information about the payment request.

How Long Does A Credit Card Payment Take To Process?

The time it takes for a credit card payment to process can depend on several factors, including the payment method and the card issuer’s processing time. Generally, electronic payments made online or by phone during business hours on a business day will post faster than paper checks. Card issuers can provide an accurate estimate of when a payment will post to a buyer’s account and reflect in their available credit.