ABA Routing Number: This is the unique, nine-digit number that appears on all checks. It is also known as the Transit Routing Number and it’s located next to the bank account number. The ABA routing number is used to identify which bank the account is located at. When you send a bank wire or ACH transaction, you need both the nine-digit number and the bank account number to indicate where the money is coming from.
ACH (Automated Clearing House): Basically, it can be thought of as an electronic payment from one bank account to another. Another way to think of it is that it’s an electronic form of writing a check.
Average Ticket Size: Refers to the average dollar amount for purchase transactions a business processes. This amount is typically higher than the average dollar amount for cash transactions. One of the data points used in assessing the level of risk associated with a specific account.
Authorization Response: When a customer swipes/taps/dips their card for a transaction, the financial institution will respond with one of three responses.
- Approved – Transaction approved
- Declined – Transaction not approved
- Call Center – Response pending more information. Normally occurs if there’s a problem with a customer’s card. With this response, you would call the toll free authorization number
AVS (Address Verification Service: This is required for all card-not-present (keyed) credit card transactions as a defense against fraud. It can also help reduce chargebacks by verifying the credit card information is associated with the correct address. The AVS response is provided by the issuing bank and results in either a match, partial match, no match, or AVS not available/error.
It’s highly recommended that if the credit card information doesn’t match the address information, you seek further information to determine if it is a valid, authorized transaction.
Basis Points: Basis points are the percentage that you are charged on a credit card transaction. One basis point is equal to 1/100th of 1 percent.
Batch/Batch Processing: A collection of transactions, usually a single day’s worth. It refers to the closing or settling of an entire batch of transactions at one time. If a batch isn’t closed, it can delay the funds being transferred to the business owner’s account.
Batch processing can either be manual or automatic. If manual, the company would need to initiate the batch process at the end of each day. Before the batch is settled, changes can be made, like adjusting tips in the restaurant business. In automatic batching, no external intervention is required. Instead, the software automatically runs the batch process at a specific time.
Automatic batching is preferred unless the need to modify transactions are common, like with the previous mentioned restaurant example.
Breach Security Coverage: A value-added service that offers up to $100,000 in coverage to offset the costs of an actual or suspected data breach.
Capture: The process of acquiring the account information needed for processing a payment, which can be done by swiping, dipping (inserting the card in the chip reader), tapping (bringing the card close enough to the reader to be read wirelessly), or by keying the information in manually.
Card Not Present (CNP): A payment where the card is physically not present. This transaction type is most frequently done due to things like mail order, mail/telephone orders, or online orders. Can raise the associated risk level of an account.
Card Present: This refers to when the cardholder and payment card are both physically present.
Chargebacks: When a credit/debit transaction is disputed by a customer, either due to fraud or dissatisfaction with the remedies the business is offering to address the charge, a chargeback can be initiated by the credit card provider at the request of the customer. The funds are then held until a determination can be made. If they rule in favor of the customer, then the money is returned to the customer. If they rule in favor of the business, the funds are released to the business. Having too many chargebacks on a merchant account can affect what rates a company is charged (reaching a certain threshold can increase the rates a business pays per transaction) or can even cause the merchant account to be canceled outright.
You are given ten (10) days to dispute the chargeback with proof of purchase or delivery. The merchant account provider imposes a chargeback fee as part of the process.
Dual-Pricing: A program where the merchant offsets the expense of processing credit cards to the customer by raising the cost of their product and/or service by a specific percentage (usually between 3%-4%, depending on various factors) and setting that as the new list price. If the customer pays by cash or check, the merchant would offer them a discount that mirrors the % increase to set the new list price. The default % increase is normally 4%. Going lower than that runs the risk of not covering all of the transaction fees generated.
With this pricing program, the merchant can offer their customers options when it comes time to pay. If they prefer the convenience of paying by credit card, then they pay the price expected. If, on the other hand, they want to pay by cash or check, they can save money by taking advantage of the discount offered.
An example of dual-pricing is, say the item the merchant sells was originally $100. They increase that price to $104 (using 4% dual-pricing). Then when a customer makes a purchase, the total will come up to $104. If they want to take advantage of the discount offered by paying cash/check, they would only have to pay $100.
Interchange: A fee that is set by the credit card brand and paid to their member banks. Basically, this is the price the credit card processors are charged to be able to access the processing network. This fee is passed along to the end user (the business processing payments for purchases) and makes up the largest portion of credit card processing fees. These fees are non-negotiable.
Merchant Account: A merchant account is what allows a business to accept credit and debit card payments from their customers.
MID (Merchant Identification Number): A unique identifier number that’s created for a merchant when their merchant account is initially set up.
Monthly Minimum: The amount that a processor charges you if its discount rate, transaction fees, and other account fees do no collectively equal a predetermined amount that’s defined in your merchant processing agreement (MPA).
Monthly Processing Limit: The amount of money a merchant service provider will allow you to process each month before incurring additional fees.
Monthly Processing Volume: The gross monthly payment card sales the business processes. This figure is specified in the merchant application, along with the average ticket size. This in part is used to help determine processing fees.
Over-Limit Fee: A fee charged by the processor when you exceed your predetermined processing volume.
Payment Aggregator: A payment aggregator is a company that uses its own MID (Merchant Identification Number) to process credit card charges for others. Examples of payment aggregators would include Stripe®, Square®, and PayPal®. There’s no underwriting involved with getting an account, but there’s also the possibility the payment aggregator can hold funds or outright cancel the account without any prior warning. They also tend to charge a higher rate for transaction fees since they make money from the difference between their rates and the rates they charge the end user. They normally don’t assess monthly minimum processing fees.
Payment Gateway: Software on a third-party provider’s server that handles the transmission between you and your processor that are required to complete an electronic transaction.
PCI-DSS: 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.
PCI Non-Validation Fee: A fee charged to the business if you fail to return a PCI Compliance Validation Certificate, which can be obtained by completing and passing an annual Self-Assessment Questionnaire and/or Quarterly Network Scan.
Surcharging: A program by which the merchant transfer the expense of processing cards to the customer. They do this by tacking on a percentage to the overall bill, raising the price above what the merchant lists. The maximum a merchant can set that percentage increase to is 3% (this limit is set by the different card brands), which may not cover all of the transaction fees due to different Interchange Rates on the cards processed. In some states, the maximum surcharge rate a merchant can charge is 2%. In all cases, going above the maximum surcharge rate can open the business up to significant fines on a per-infraction case.
An example of surcharging is: The bill comes up to $100. If the merchant is charging a 3% surcharge on processing credit cards, then the customer would pay $100 if they pay by cash/check, or they would have to pay $103 if they want to use a credit card.