This is an updated version of a post originally published in November 2014.
There is a lot of credit card jargon in the industry, so we’ve rounded up some of the most important payment terms you need to know.
An acquirer is also known as an acquiring bank. They solicit, underwrite, and own the merchant account that merchants need to accept credit cards. They may provide the technology that allows the merchants to process transactions, take on chargeback risk of a business, and deposit funds into a merchant’s bank account.
2. Application Programming Interface (API)
An API is a set of requirements that dictates how one application talks to another to perform a service. For eCommerce businesses, a shopping cart platform will communicate transactions to a payment processor via an API.
Authorization is the process by which a transaction is approved or declined by the issuer. Merchants use this to ensure a customer has sufficient funds available on their credit limit at the time the request is being made. Think of hotel or car deposits.
4. Average Transaction Size (ATS)
The ATS is the average dollar amount of each transaction. New businesses setting up their merchant account will always be asked about their ATS because acquirers need to know normal processing volumes. Providing an accurate ATS ensures there are no delays with your funding.
5. Card brands
Card brands (Visa, MasterCard, etc.) are also known as card associations and are commonly referred to as the credit card and debit card companies. Their role is to govern the policies pertaining to their bank cards, monitor processing activity, and oversee the clearing and settlement of transactions. Currently, VISA is the most popular card brand with 56% of the purchase transaction.
6. Card Not Present (Keyed Transactions)
These are transactions where the physical card is not present at the time of the sale, such as an online purchase or telephone order. Credit card data is manually entered instead of swiped. Typically, card not present transaction rates are higher as they are associated with more risk.
7. Card Skimming
Card skimming is a fraud method where employees who have access to sensitive customer information copy (either manually or electronically) the data. Examples of skimming include basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ card numbers.
8. Card Verification Value (CVV)
The Card Verification Value (CVV) is a unique 3 or 4-digit number found on the back, and in some cases the front, of a credit or debit card. A CVV is an extra layer of security to minimize unauthorized transactions.
A chargeback is a return of funds to a consumer after they disputed a transaction. The customer requests the refund directly from the bank. Common chargeback reasons can be due to fraud, faulty goods or services, or technical errors (double charge). But more often than not, chargebacks are fraudulent, such as when a customer falsely reports they didn’t receive a package. Chargebacks that are not successfully disputed may incur a chargeback fee or even account termination.
10. Credit Card Fraud
Credit card fraud is a wide-ranging term for theft and fraud committed using or involving a credit card. It’s either theft of the actual card or sensitive card information and then the use of either without the knowledge of the cardholder.
Interchange is a fee that the acquiring bank pays to the issuing bank. Each type of credit card has a different interchange rate that’s set by the card brands.
The issuer, also known as the issuing bank, provides the cardholder with their credit and a physical card. They’re responsible for approving and declining transactions, billing, and collecting the owed funds from the customer.
13. Merchant Account
A merchant account is a type of bank account that allows businesses to accept credit, debit, and mobile payments. It’s established under an agreement between a business owner and an acquirer for the settlement of payment card transactions.
14. Merchant Category Code (MCC)
An MCC is a four-digit code assigned to a business by card brands to identify the type of business. For example, 5661 is the MCC assigned to all shoe stores.
15. Merchant Identification Number (MID)
An MID is a unique number issued by the acquiring bank to identify a merchant.
16. Near Field Communication (NFC)
NFC is the technology that allows the transfer of information through radio waves when two enabled devices are in close proximity.
17. Payment Processor
Payment processors are organizations that partner with acquirers to open merchant accounts, handle support, manage payment processing, and build technology on behalf of acquirers.
18. PCI Compliance
PCI compliance is a set of security and compliance standards that ensure all merchants that come into credit card information maintain a secure environment.
19. Point of Sale (POS)
Often referred to as checkout, the POS is the location where payment is accepted or transactions occur, with a terminal or cash register.
20. Recurring Payments
Recurring payments are automatic and periodic payments under a pre-authorized agreement for an ongoing product or service.