Glossary Payment System

  • Acquiring Bank or Acquirer. Acquiring bank is a financial institution that develops a relationship with the merchant. The purpose of this relationship is to help merchant accept credit and debit card transactions. The Acquiring Bank opens a merchant account for the business. The Acquirers transfers funds received by the card issuer to the merchant account. After final calculations, Fees deduction and reconciliation, the funds are settled by Acquiring bank into the merchant business bank account. Acquiring banks may directly develop a relationship with merchants and sometimes may also involve other organizations that may include regional banks, PSP’s and ISO’s. The Acquiring Bank initiates settlement no matter what kind of relationship it is direct or indirect.
  • What is an Agent Bank? An agent bank is usually a small size bank that participates in the merchant acquiring activities of a large acquiring bank. Small banks usually only handle the activities that involve connecting merchants without acquiring banks. Most of the time small banks are not liable for any financial losses incurred by the acquiring bank because of the referred merchant.
  • What is AVS or Address Verification System? To reduce fraud transactions merchants use address verification system(provided by the processing organization) to match the address on the card account with the address provided by the cardholder. AVS can be used for card present as well as card not present transactions.
  • What is a merchant account agreement. A Merchant Account Agreement is a legal binding agreement between the Merchant and the Payment Processor. This agreement mentions all the clauses that are required to be followed by the acquirers and the merchant. Most of the time’s merchant account acquirers can take strict action on the account if the merchant is found violating the terms.
  • What is an Authorization approval code. Once the merchant swipes the card over the credit card terminal, the merchant gets an authorization approval code. Without approval code, the transaction generally does not go through.
  • What is Credit line or line of Credit? The credit line is the line 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.
  • What is Card Verification Value(CVV) and Card Validation Code(CVC). On the back of most of the credit or debit cards, these numbers are present. These numbers are unique and are required for the successful transaction. Most online payment gateways will need the CVV or CVC value to be typed by the buyer for the transaction to be completed
  • What is the Referral Bank in Merchant Processing Industry? Referral banks are usually small banks or local banks that participate will a larger acquiring banks in the merchant acquiring process. These referral banks usually send the merchant leads to a large acquiring banks. Referral banks usually are not held responsible for financial losses arising because of the merchant’s activities.
  • What is Authorization in Credit Card processing? An authorization is a process in which the card issuer confirms the approval of a specific transaction initiated through the merchant’s website, Virtual Terminal, Moto, IVR or POS Terminal. The acquiring bank is responsible for the settlement of the received amount into the merchants account after deducting transaction charges and other fees.
  • What is ACH or Automated Clearing House? It 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 that includes Payer, Receiver, ODFI, RDFI and Third party ACH Payment processing company.
  • What is Backroom Operation in Credit Card processing? Multiple activities that are taken care of by the credit card issuer as well as acquiring banks together is called a backroom operation. some of the activities that may be part of backroom operations are Authorisation, Settlement of funds, Authentication, fraud scrubbing, Returns and Chargeback Management
  • What is the bank card Association? We all see different brands of cards these days. These may be credit cards, debit cards, prepaid cards or charge cards. All of these cards are from different brands. These brands(or organizations) are called Bank Card Associations. They are also sometimes referred as payment card schemes or card schemes. Merchant account acquiring banks and card issuing Banks must have valid licenses and membership with the bankcard association to be eligible to offer card issuing and merchant acquiring services for specific card brands.
  • What is a chargeback. The purpose of the merchant contacting acquirers is to accept credit and debit card transactions. In case if the merchant fails to provide the product or service as per the commitment, then the cardholder can initiate a chargeback request by calling the card issuer. In the case of chargebacks, the merchant gets limited time to offer proof of service delivery for proof of product delivery. In case if the merchant is not able to provide substantial evidence of product delivery or service delivery, then the merchant is liable to return the money to the cardholder by initiating return via 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? It is the process in which the credit card issuer receives the transaction details regarding a specific transaction. These details include vital information about specific charges as well as currencies of the sale. The acquiring bank sends this information to the card issuer. Card issuers post this information on to the card account of the cardholder.
  • What is a Debit Card? It is a card issued by the card issuer, and the cardholder can only use the funds that are available in his/her bank account or card account. A debit card is different from a credit card. On a debit card, the cardholder uses the funds that are already there in the card account or bank account. The cardholder uses his funds using ATM withdrawal, POS payments, and Web payments, etc.
  • What is MDR or Merchant Discount Rate. The merchant pays a specific percentage to the Acquiring Bank. MDR is a collective fee that includes various charges.
  • What is e-commerce? In today’s world businesses have started selling their products and services online. These businesses create websites and sell their services and products online. These websites are used by customers to buy products after submitting the credit or debit card information. These kinds of sites that allow the merchant and the buyer to perform a business transaction online are called E-commerce website. In simple terms, E-Commerce is the process of buying and selling on the internet via a website.
  • 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 to the processor’s infrastructure is called electronic data capture.
  • What are Future or Delayed Delivery Products and Services? Some industries the service delivery may not happen instantly this may include Hotels, Airlines, Cruise Liners, Seminars, Custome made tangible products. On 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 of the 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 kind of gifts 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. Fixed Reserve holds a specific amount usually for 180 days. In case of 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 Organisation these organizations work with the acquiring Bank for the objective of connecting merchants with the acquiring banks. ISO also handles 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 interchange? Interchange is the technical infrastructure that powers payment processing between different Financial Institutions.
  • What is 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.
  • 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 as TMF or Terminated Merchant File.
  • What is a Merchant Account? It is a special purpose Bank account. Merchants get this kind of accounts from Acquiring banks or Payment service providers. The purpose of this account empowers the merchant with credit debit card processing. The acquiring Bank releases funds from the merchant account to the business bank account of the merchant.
  • What is merchant processing? The process of onboarding the merchant, handling transactions and managing chargeback etc. is called merchant processing. This process is quite extensive and does involve additional activities like clearance, settlement, handling returns and proactive analysis of Merchants activities to reduce fraud and losses.
  • What is Mobile Processing? Mobile processing is sometimes also known as wireless payment processing. It is the process of accepting credit and debit card transactions with the help of mobile terminals also known as Point of sales devices or point of sales terminals.
  • What is Retrieval Request? In a Credit or Debit card transaction, the buyer receives a buyer protection feature from card brand. In case if the buyer confirms that the transaction was fraudulent and was not authorized then a retrieval request can be generated. The merchant is supposed to send the copy of the authorization. In case if the authorization is not available then the transaction may turn into a chargeback. If the merchant did not provide the proof of authorization the buyer would win the chargeback case.
  • What is Settlement in Credit Card processing. A settlement is a process in which the card issuer gets the information about payment request from the Acquiring Bank. It also involves funding the merchant’s bank account from the merchant account.
  • What is Termination fee in Merchant Processing? Some acquirers add a termination clause. They may charge an early termination fee if the contract is broken before a specific time frame.
  • Echeck. An echeck is a digital form of a check or electronic form of a check which is used to make payments online. It is also known as online checks, internet checks and debit checks.
    To make a payment through echeck, you must have to provide e with a few pieces of information like :
    i. Your bank routing number
    ii. Your bank account number
    iii. The name on your bank account
  • Payment gateway. A payment gateway is a service that is given to a merchant to accept payments from their customer directly into their bank account. It is a consumer user interface where a consumer enters his details into the checkout portal to process the payments. The Point Of Sale (POS), which we generally find in retail stores are also a payment gateway where the customer swipes their card details to make payment.
  • Certificate of Incumbency.¬†Certificate of Incumbency is an official document issued by Limited Liability Company (LLC) that lists the names of all its current directors, officers, and, occasionally, principal shareholders. It is also known as Certificate Of Officers or Secretary Certificate. Incumbency Of Certificate is needed when opening a new account, or while opening a new branch within the country, and it is also required when you are working with external companies.
  • Certificate of incorporation.¬†A certificate of incorporation is a licence or legal document issued by the state government to form a company or corporation. This is an essential document needed while opening a business account. The Incorporation Certificate contains the following details.
    i. Name of the Company.
    ii. Date of Incorporation
    iii.Unique Entity Number (UEN)
    iv.Nature of the company, i.e. private limited or public limited.
  • Recurring Transaction. This type of transaction are charged to the cardholder periodically. It can also be said as an agreement between the cardholder and merchant that the cardholder will be charged for the service or product periodically like monthly, quarterly, half yearly or even annually. The sum gets automatically deducted from the cardholder account, and it eliminates the account receivable risks.

Disclaimer:- The above information may have errors and shall never be considered accurate.