Glossary of Terms

Select the first letter of the word from the list below to jump to appropriate section of the glossary.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

[ A ]

ACQUIRER/ACQUIRING BANK

A principal member of Visa and MasterCard that acquires data relating to transactions from a merchant or card acceptor for processing.

ADDRESS VERIFICATION SERVICE (AVS)

A service to help combat fraud in mail order/telephone order transactions by using the cardholder billing address information in the authorization request.

AMERICAN EXPRESS

A company that specializes in the issuance of Travel and Entertainment (T&E) credit cards. American Express services the cards that they issue. They are their own transaction processor with their own processing network.

APPROVAL RESPONSE

An authorization response when a transaction is approved.

ARBITRATION

The procedure used to determine responsibility for a chargeback-related dispute between two members. Visa or MasterCard resolves the dispute between members and decides responsibility for the fines which may be assessed to the participating members.

AUTHORIZATION

A process where an issuer or authorizing processor approves an authorization request. An approved authorization places a hold against the cardholder's credit limit for the dollar amount approved. Most authorizations have a life cycle of three to five days, then the hold against the cardholder's credit limit is released. A transaction which settles will usually match an approved authorization amount and clear it from the authorization status, thus removing the hold against a cardholder's credit limit.
The Authorization process is different for each Merchant type. Different information must be sent depending on whether you are a restaurant, retail establishment, hotel, or mail order/telephone order (MOTO) Merchant. In the case of MOTO, since the transaction does not take place face-to-face, address verification(AVS) is used to guard against fraud.

AUTHORIZATION CODE

A code that indicates approval or denial for an authorization request. The code is returned in the authorization response message and is usually recorded on the transaction receipt as proof of authorization.

AVERAGE TICKET

The average dollar amount of sales drafts processed within a given time period. Calculate the average ticket by taking the total dollar amount of sales drafts processed and dividing it by the total number of sales drafts processed.

AUTOMATED CLEARING HOUSE (ACH)

A group of processing institutions linked by a computer network to exchange (clear and settle) electronic payment transactions. They electronically processes payment of funds and government securities among financial institutions and businesses. A group of U.S. processing institutions that have networked together to exchange (clear and settle) electronic debit/credit transactions. All EDC (Electronic Draft Capture) merchants receive credit for their deposits via ACH and discount fees are debited from all merchants via ACH.

[ B ]

BANKCARD

A financial transaction card issued by a bank or other financial institution; examples are Visa and MasterCard credit or debit cards.

BANK CARD ASSOCIATION

A group of banks formed either for the purpose of sponsoring a program, (Visa or MasterCard) or to use common processing and administrative facilities.

BANK IDENTIFICATION NUMBER (BIN)

The digit identification number assigned to both cardholder and merchant banks.

BASIS POINT

Basis points are the increments by which discount rates are calculated. 1 basis point is equivalent to .01% or .0001.

BIN

See Bank Identification Number

[ C ]

CAPTURE

Converting the authorization amount into a billable transaction record within a Batch. Transactions cannot be captured unless previously authorized, and authorizations cannot be captured until the goods or services have been shipped or transmitted to the consumer.

CARD ASSOCIATIONS

These are organizations such as VISA and MasterCard that, along with the government, make the rules in regard to acceptance of credit cards. These rules include fees that are charged for interchange. American Express and Discover are different cases. They are both the issuer and acceptors, and Merchants must have a separate agreement with them. This may change as current litigation is resolved.

CARD ISSUER

Any association member financial institution, bank, credit union, or company that issues, or causes to be issued, plastic cards to cardholders.

CARD READER

Any device that is capable of reading encoding on plastic cards. See Magnetic Stripe Reader

CARD VERIFICATION CODE (CVC)

A unique check value encoded on the magnetic stripe of a card to validate card information during the authorization process. The card verification value is calculated from the data encoded on the magnetic stripe using a secure cryptographic process. This method is used by MasterCard.

CARD VERIFICATION VALUE (CVV)

A unique check value encoded on the magnetic stripe of a card to validate card information during the authorization process. The card verification value is calculated from the data encoded on the magnetic stripe using a secure cryptographic process. This method is used by Visa.

CARTE BLANCHE

This is a T&E credit card that competes mainly with American Express, JCB, and Diners Club. See T&E

CASH ADVANCE

A cash loan obtained by a cardholder through presentation of their/her credit card at a bank office or automated teller machine.

CASH DISBURSEMENT

A transaction that is posted to a cardholder's monetary accounts when they receive cash from a teller, an ATM, or by mail.

CHARGEBACK

A credit card transaction that is in dispute either by the cardholder or cardholders bank. Chargebacks are often compared to canceled checks.

CHARGEBACK PERIOD

The number of calendar days from the endorsement date of a transaction receipt (or processing date, as applicable), during which time the issuer may exercise a chargeback right.

CHECK DIGIT VERIFICATION

An algorithm that is performed on the primary account number (PAN) to ensure that numbers were not transposed or miskeyed. The result is the last position of the account number, or check digit. It is performed to validate a credit card number. Many card issuers use the MOD-10 Check Digit routine.

CHECK VERIFICATION

A system providing merchants with varying degrees of insurance against bad check losses by verifying the authenticity of the check and/or its presenter by using a check processing organization.

CODE 10

A call which allows the merchant to inform the authorization center of a possible fraudulent transaction without alerting the cardholder (or other person presenting the credit card).

COMMERCIAL CARDS

This is the formal name for the following three types of plastic cards: Corporate Card, Purchase Card, and Business Card.
A Corporate card is usually issued to the employees of a corporation, where the corporation assumes all liability for the card's usage. This is usually issued to larger corporations.
The Purchase card is issued to corporations. It allows the corporation numerous parameters to control daily and monthly spending limits, total credit limits, and where the card may be used. Many employees may be issued the same card number.
The Business card is similar to the Corporate card, but issued to a business with a few employees and where each employee is responsible for their purchases.

COMPLIANCE

A process where Visa or MasterCard resolves disputes between members arising from violations of the International Operating Regulations.

CREDIT/RETURN

Return of goods or services initiated by the cardholder. Merchant refunds ("credits") the cardholder's DDA account via the terminal.

CREDIT LIMIT

This is a dollar amount assigned to a cardholder as the limit of credit that they are approved to borrow. Credit card purchases are actually loans to the cardholder by the issuer.

[ D ]

DATA CAPTURE

Also known as electronic draft capture (EDC) or draft capture. A data processing term for collecting, formatting, and storing data in computer memory according to predefined fields, for example, customer name, account number, and dollar amount of purchase.

DBA

Doing Business As - the trading name of a merchant which appears on business signs, customer literature, etc.

DEBIT

A charge to a customer's bankcard account. A transaction, such as a check, automated teller machine (ATM) withdrawal, or point-of-sale (POS) debit purchase that debits a demand deposit account.

DEDICATED LINE

A communications circuit between two endpoints that is permanently connected and always available. Also called a leased line or private line.

DEMAND DEPOSIT ACCOUNT

A commercial checking account which is used as the depository account for a merchant's credit card deposit.

DEPOSIT

Process of transmitting a batch of transactions from the merchant to the acquiring institution in preparation for settlement.

DISCOUNT

Fee paid by the merchant to the merchant bank for processing the merchant's credit card sales (transactions).

[ E ]

ELECTRONIC BENEFITS TRANSFER

Through EBT, USDA Food Stamps and certain government benefits will be converted from paper checks and coupons to secure debit cards.

ELECTRONIC COMMERCE

Sale of goods or services over the Internet.

ELECTRONIC CREDIT APPLICATION

A credit application that is transmitted electronically to a credit evaluation company (such as Equifax) for approval recommendations.

ELECTRONIC DRAFT CAPTURE (EDC)

A method of processing bankcard transactions electronically via a Point of Sale (POS) terminal or other compatible equipment. The transaction information (cardholder account number, transaction amount, transaction date, authorization number) is captured electronically and housed in the POS terminal until the terminal is settled.

ELECTRONIC FUNDS TRANSFER (EFT)

Process of electronically transferring funds to or from an account. This evolved to eliminate the costly and time consuming paper method.

ENCRYPTION

The technique of modifying a known bit stream on a transmission line so that it appears to be a random sequence of bits to an unauthorized observer. It often is done automatically in the terminal or computer before data is transmitted.

EXPIRED CARD

A card on which the embossed, encoded, or printed expiration date has passed.

[ F ]

FRAUDULENT USER

An individual who is not the cardholder or designee and who uses a card (or, in a mail/phone order or recurring transaction, an account number) to obtain goods or services without the cardholder's consent.

FRAUDULENT TRANSACTION

A transaction unauthorized by the cardholder of a bankcard. Such transactions are categorized as lost, stolen, not received, issued on a fraudulent application, counterfeit, fraudulent processing of transactions, account takeover, or other fraudulent conditions as defined by the card company or the member company.

FULFILLMENT

The satisfaction of a retrieval request. The acquirer supplies the issuer with the original slip, a legible reproduction thereof, or a substitute draft if applicable. The fulfillment record confirms the completion of that action and effects reimbursement to the acquirer. See Retrieval Request.

[ G ]

GUEST FOLIO

A lodging merchant's guest record that contains the cardholder's transaction information, including check-in and departure dates, rate, anticipated length of stay at check-in time, applicable charges, and taxes. The check-in date and the dated amount and authorization approval code of each authorization must be included on the folio if not on the sales draft.

[ H ]

HOLOGRAM

A laser-created photograph that produces a three dimensional image used to make counterfeiting plastic cards more difficult.

HOST CAPTURE

Method where transaction data is stored in batches on the host computer at the third-party transaction processor.

[ I ]

IMPRINTER

A device used to imprint the embossed lines of a plastic card on a paper transaction sales draft.

INCREMENTAL AUTHORIZATION

This is a request for an additional dollar amount on a prior authorization. It is used when a transaction is for a greater dollar amount than the original authorization was for.

INDEPENDENT SALES ORGANIZATION (ISO)

A non-member company contractecd by members of VISA or MasterCard to provide merchant or cardholder servicing.

INTERCHANGE

The exchange of information, transaction data and money among banks. Interchange systems are managed by Visa and MasterCard associations and are very standardized so banks and merchants worldwide can use them.

INTERCHANGE FEE

The amount paid by the merchant bank (acquirer) to the cardholder institution (issuer) on each sales transaction. Interchange rates vary according to the type of merchant (retail, travel and entertainment, mail order) and the method of processing (paper, EDC).

[ J ]

JCB CARD

Card issued by JCB (Japan Credit Bureau) International Credit Card Company, Ltd.

JULIAN DATE

Day of the year expressed as a three-position number, with a range of 001 through 366 (for example, 001 on 1 January).

[ K ]

(empty)

[ L ]

(empty)

[ M ]

MAGNETIC STRIPE

A stripe of magnetic information affixed to the back of a plastic credit or debit card. It contains customer and account information required to complete electronic financial transactions.

MAGNETIC-STRIPE READER

A device that reads information from the magnetic stripe and transmits that information to a transaction processor or computer terminal. Also referred to as card reader.

MAGNETIC SWIPES

There are two types of terminal readers for magnetic swipe transactions: Track 1 or Track 2 readers. Terminals with a Track 1 reader will scan the magnetic bar code and obtain the cardholder's name and address. Track 2 terminal readers scan the magnetic bar code for the cardholder's account number and card expiration date.

MAIL/PHONE ORDER MERCHANT (MOTO)

A merchant that transacts business by mail or phone.

MASTERCARD

MasterCard International Inc., and all of its subsidiaries and affiliates.

MASTERCARD ACQUIRER

A member that signs a MasterCard merchant or disburses currency to a MasterCard cardholder in a cash disbursement, and directly or indirectly enters the resulting transaction receipt into interchange.

MASTERCARD ISSUER

A member that issues MasterCard cards.

MEMBER

An entity that is a member of Visa or MasterCard and refers to acquirer, associate, ATM acquirer, charter member, disbursing member, electron acquirer, electron issuer, group member, issuer, merchant bank, participant, principal, Visa or MasterCard acquirer, and Visa or MasterCard issuer.

MERCHANT

Any business that accepts as payment VISA and/or MasterCard bankcards.

MERCHANT AGREEMENT

A written agreement between a merchant and a bank containing their respective rights, duties, and warranties with respect to acceptance of the bankcard and matters related to the bankcard activity.

MERCHANT CATEGORY CODE

Four-digit classification code assigned to the merchant to identify the merchant's principal profession and type of processing, authorization, and settlement.

MERCHANT NUMBER

A series or group of digits that uniquely identifies the merchant for account and billing purposes.

MERCHANT SERVICES PROVIDER

An organization that quotes a discount rate to the merchant and handles the setup with the processors. An MSP can be a merchant bank or an independent sales organization for a merchant bank, called an ISO.

MERCHANT STATEMENT

A summary of merchant transactions which is produced and sent to a merchant on a monthly basis.

MERIT I, II, III

MasterCard's latest series of regulations that are similar to CPS requirements by Visa. Requires 100% issuer-controlled authorizations and minimal transaction clearance periods.

[ N ]

(empty)

[ O ]

OFFLINE

This refers to requesting an authorization non-electronically.

OFFLINE DEBIT

This refers to a debit transaction that gets treated the same as a credit card transaction. It will not debit the cardholder's account immediately, but will be processed through a normal credit card venue settlement.

ONLINE

A method of requesting an authorization through a communications network other than voice, to an issuer, an authorizing processor, or stand-in processing.

OVERLIMIT

This refers to a cardholder's account that has surpassed its credit limit with a transaction. (Their outstanding balance is beyond their credit limit.)

[ P ]

PIN PAD

A numeric key pad, which is connected to a terminal or POS, used by the cardholder to enter the PIN and/or other information.

POINT OF SALE (POS)

Location in a merchant establishment at which sale is consummated by payment for goods or services received. Can also refer to the direct debit of a purchase amount to a customer's checking account.

POS SYSTEM

Point-of-sale system that processes sale and other transactions, such as an electronic cash register with specialized software.

PRIOR AUTHORIZATION

An authorization usually done before a transaction takes place. The approved authorization request may be held for an extended length of time before a card is present or not.

PROCESSING DATE

The date on which the transaction is processed by the acquiring bank.

PROCESSOR

A company (often a third party) that handles credit card transactions for Merchant Banks.

PURCHASING CARD

A bankcard designed for smaller business purchases made by corporations.

[ Q ]

(empty)

[ R ]

RECEIPT

A hard copy document recording a transaction that took place at the point of sale, with a description that usually includes: date, merchant name/location, primary account number, amount, and reference number.

REPRESENTMENT

The second stage in the chargeback process. This step includes the acquirer's response to an issuer chargeback by returning the disputed transaction to the issuer.

RETRIEVAL REQUEST

An issuer's request for a copy of an original sales draft. This issuer uses this request to resolve a disputed transaction or fulfill a cardholder inquiry.

REVERSAL

An online financial transaction used to negate or cancel a transaction that has been sent through interchange in error.

[ S ]

SALES DRAFT

The paper form used by the merchant and signed by the cardholder to document the transaction.

SETTLEMENT

The process by which acquirers and issuers exchange financial information and value relative to credit card sales. As the sales transaction value moves from the merchant to the acquiring bank, and then to the issuer, each party buys and sells the sales ticket. Settlement is what occurs when the acquiring bank and the issuer exchange data or funds during that function.
Settlement also means the process by which a merchant closes/balances out their terminal in order to transmit their credit card transactions.

SMART CARD

A credit or debit card embodying a computer chip with memory and interactive capabilities used for identification and to store additional data about the cardholder, cardholder account, or both. Also called an integrated circuit card or a chip card.

[ T ]

T&E MERCHANT

An airline, car rental company, or hotel whose primary function is to provide travel-related services. A travel agency can be a T&E merchant to the extent that it acts as the agent of an airline, car rental company, or hotel.

TCP/IP

Transport Control Protocol/Internet Protocol. A standard format for transmitting data from one computer to another. TCP deals with the construction of the data. IP routes the data from one computer to another.

TERMINAL

A small box-like device that is placed at the merchant location to electronically process credit cad transactions. Attached to a telephone line at the merchant location, the terminal is capable of authorizing, capturing and settling credit card transactions.

TERMINAL CAPTURE

Method where transaction data is stored in the POS terminal until the batch is settled.

THIRD PARTY PROCESSOR

An organization that is not an association member contracted by issuers and acquirers to provide authorizations, processing, merchant services, and cardholder services.

TRACK 1

Bank discretionary data encoded on a magnetic stripe. Includes credit card account number, card holder name, and expiration date.

TRACK 2

Bank discretionary data encoded on a magnetic stripe. Track 2 includes credit card account number and expiration date.

TRANSACTION

Action between a cardholder and a merchant or a cardholder and a member that results in activity on the cardholder account, for example, a purchase, cash advance, debit or credit adjustment.

TRANSACTION DATE

The date on which a transaction between a cardholder and a merchant, an acquirer, or a carrier, occurs.

[ U ]

(empty)

[ V ]

VOICE AUTHORIZATION

Authorization of a credit card sale obtained by telephoning a "live" operator.

VISA

Visa International Service Association and all of its subsidiaries and affiliates.

VISANET

The systems and services, including the V.I.P. system and BASE II, through which Visa delivers online financial processing, authorization, clearing, and settlement services to members.

VOID

Nullifies a transaction that has been recorded for settlement, but not yet settled. This removes the transaction from the batch of transactions to be settled.

VOICE AUTHORIZATION

An approval response obtained through interactive communication between an issuer and an acquirer, their authorizing processors, or stand-in processing, through telephone, facsimile, or telex communications.

[ W X Y Z ]

ZERO-FLOOR LIMIT

A floor limit with a currency amount of zero (meaning authorization is required for all transactions).