CC Processing 101

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Credit Card Processing 101

Information Guide to Credit Card Processing & Merchant Accounts

Credit Card Processing Glossary

Address Verification Service (AVS)
The AVS service is provided as part of a credit card transactionm, and validates a credit card holder address with issuer records in order to ensure accuracy and minimize fraud. A code is returned with the authorization, which indicates the level of accuracy of the address match-up.

Verifying a credit card has sufficient funds available to cover the amount of the transaction. An approval response code is sent to the merchant terminal from the financial institution that verifies availability of credit in the credit card holder account to make the purchase.

Authorization Code
The code an issuing bank returns to the merchant terminal that indicates approval of the transaction.

Terminal functionality that enables end-of-day batch closing automatically at a specified time.

Automated Clearing House (ACH) File
A file with instructions for the exchange and settlement of electronic payments passed between financial institutions. It contains the the debits from and credits to an account as they occur.

The listing of multiple credit card transactions in a merchant terminal that are waiting to be settled.

Card Not Present
A credit transaction where the credit card is not present at the time of the transaction, such as on a website, phone, or fax order. Credit card information is manually entered, instead of swiping a card through a POS terminal.

A credit card transaction that is billed back to the merchant after a sale. Chargebacks are initiated by the credit card issuer on behalf of the credit card holder.

Credit Reversal
Cancellation of a credit card sale that has not been settled.

Demand Deposit Account (DDA)
The merchant hometown bank account.

Deposit Correction Notice (DCN)
These are debit or credit adjustments made for out-of-balance conditions.

Discount Rate
The percentage rate that a bank card issuer charges the merchant for the settlement of sales transactions.

Interchange Fee
A fee paid by the merchant to a card issuer for transactions that occur through the interchange network. The interchange fee is a percentage applied to each sale based on different criteria. Different interchange rates can apply within a single batch of sales transactions.

Merchant Identification Number (MID)
Number used to identify the merchant during processing of sales transactions.

Non-Qualified Transaction Fees
Sales transactions that do not meet certain Visa or MasterCard criteria and that are processed at a higher interchange rate, such as a retail merchant that manually enters credit card information instead of swiping the card through a POS terminal.

Payment Processor
The company that routes a credit card transaction authorization request from either a point of sale terminal or a payment gateway to the credit card company (Visa, Mastercard, etc) and then coordinates fund settlement payment to the merchant.

Point Of Sale (POS)
The place where credit card transactions are performed with the cardholder present, such as in a retail store. The credit card is read magnetically, with the cardholder signing a receipt for the transaction.

POS Terminal
Electronic equipment used to collect, transmit and/or store credit card transaction information at at the point of sale. Usually used in retail store environments.

Real-Time Processing
Used on ecommerce websites, where a customer places an order online, fills out payment information on an order form or shopping cart, and then waits a few seconds while the transaction is approved. Real-time processing requires a Secure Payment Gateway.

Secure Payment Gateway
Software that utilizes Secure Sockets Layer (SSL) and encryption technology to transmit credit card transaction data over the Internet from the merchant website. The secure payment gatway typically is a third-party service on a different server so that credit card information need not be stored on the merchant's web server.

Shopping Cart Software
Software program that collects and stores shopping information in a website session, including items, quantities, taxes and shipping. Also collects payment billing information from the customer. Shopping cart software typically interfaces with third-party secure payment gateway software that resides on a different server for secure payment transactions.

Virtual Terminal
Software used to collect, transmit and/or store credit card transaction information from an ecommerce website.

Information guide to credit card processing

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