As with any specialized field, credit card processing uses a number of terms whose definitions may be unfamiliar to the uninitiated. But there’s no need to cringe when reading your contract or talking with your service provider. Here is some quick help for some of the most common terms you will come across:
Acquiring bank – The bank that processes the credit card transaction and deposits the money from the customer’s bank account into the merchant’s bank account (or vice versa during a chargeback). Also called the “clearinghouse bank.”
Address Verification Service (AVS) – A system that automatically checks the billing address the customer enters during the checkout process against the address on file with the bank.
Authorization code – A response code from the customer’s bank (issuing bank) verifying that the transaction is approved.
Authorization fee – A fee charged to the merchant each time the credit card processing software communicates with the authorization network (e.g. to process a credit card, issue a refund, etc.)
Chargeback – A charge reversal that takes place when a customer contests a credit card charge. The customer’s account is credited and the merchant’s account is debited the amount of the original charge.
Chargeback fee – A fee charged by the acquiring bank to process a chargeback.
Credit Card Processor – The company responsible for verifying and initiating the transfer of funds that takes place between the customer’s bank and the merchant’s bank. This company acts on behalf of the acquiring bank and may be the bank itself or a third party. Also called a merchant account provider.
Decline code – A response code from the customer’s bank (issuing bank) signifying that the transaction has not been approved. The code will often specifies the reason for the decline and is the opposite of an authorization code.
Discount fee – The fee charged by the credit card processor for its services.
Interchange – A fee the credit card companies charge the processor for each transaction. It is passed along to the merchant as part of the discount fee. Interchange is the same for every bank.
Issuing Bank – The bank that issued the customer the credit card. They make a loan to the customer each time he or she uses the credit card and sends the money to the merchant by way of the acquiring bank.
Payment Gateway – Software operated by the credit card processor that completes the credit card authorization and transaction process.
MATCH List – The Member Alert to Control High-risk Merchants (MATCH) List is a database of merchants whose credit card accounts have been terminated in the past. An acquiring bank will check a business against this list when determining whether or not to grant them a merchant account.
Merchant Account – A contract between a merchant and a credit card processor (acting on behalf of an acquiring bank) that gives the merchant the line of credit he needs to accept credit card transactions.
Merchant Service Provider – See “Credit Card Processor”
Merchant Services – The services provided by the credit card processor, including use of the payment gateway to authorize and process credit card transactions.
Retrieval request – A request made by the issuing bank for the transaction receipt. This request is often issued when a customer disputes a credit card charge.
Transaction Fee – Is a fee associated with a successful transaction. See “Authorization Fee” for fees associated with Unsuccessful Transactions.