Credit card processing is a challenging topic layered in complicated terms and cryptic fees. In order to navigate your business through this world of payments, it's very important to understand the language used in the industry.
To take the first steps in becoming a payments expert, check out our video below or read through our glossary.
Acquiring Bank: This refers to a registered financial institution within a card network. The acquiring bank acts as an intermediary in all payment transactions by linking merchants to issuing banks. They are responsible for clearing transactions after they are charged to a cardholder. That is, the acquiring bank makes the deposits into a bank account when credit cards are processed.
Associations/Payment Brands/Networks: These terms all refer to Visa, MasterCard, American Express® and Discover®, whose familiar logos appear on the overwhelming majority of credit and debit cards in the U.S. The Card brands regulate card acceptance rules for member financial institutions.
Basis Point: 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.
Cardholder: This refers to a person who buys a good or service from a merchant with a credit or debit card.
Credit Card: A payment card that is issued by a bank and used by an individual to purchase merchandise or services on credit.
Credit Card Processor: An entity that handles the electronic verification and initiation of Electronic Funds Transfers (EFT) into the ACH system on behalf of clients. The term is used interchangeably with merchant services provider, merchant account provider and merchant acquirer.
Debit Card: Debit cards are similar to credit cards, except that the funds are immediately withdrawn from the cardholder’s bank account. Credit card charges, on the other hand, are billed to the cardholder each month, and interest charges may be added. Also, a credit card holder need not pay the entire balance due each month, while with debit cards there is no balance to pay off, as the money comes directly out of the cardholder’s bank account.
Interchange: This refers to the first and largest underlying cost of completing a transaction. When a card payment transaction is processed, funds are transferred from the issuing bank to the acquiring bank. The credit card brands facilitate this activity and place a fee on their member banks. Merchants pay for interchange indirectly. The issuing bank covers the cost and the business owner is responsible to repay the issuer for its services. Interchange fees are non-negotiable.
Issuing Bank: As licensed members of a credit card network, issuing banks provide consumers with credit and debit cards, and are responsible for reimbursing an acquirer for those purchases made by the cardholder. Issuing banks only distribute cards to customers who use certain card networks such as VISA, MasterCard, and American Express.
Merchant: This refers to is any person who sells goods and services. In order to enter a marketplace and receive payment from customers, a merchant must connect with an acquiring bank to set up a merchant account.
Merchant Account: This is a special type of account that is maintained by an acquiring bank and allows a business to accept credit and debit cards from shoppers. Facilitating these electronic transactions does not come without a cost. Typically, these services are subjected to additional fees. These fees can be static dollar amounts per month, a percentage from each transaction, or a combination of the two.
Merchant Processing Agreement: The contract between you and your merchant account provider that outlines the responsibilities and warranties of all parties involved in credit card processing.
Payment Cards: A collective term for credit, debit, prepaid and EBT cards.
Payment Card Industry Data Security Standard: A set of guidelines to ensure that your customers’ information is safe.
Payment Gateway: Software on a third-party’s server that securely sends transaction information to acquiring banks for processing. Payment gateways are responsible for collecting the payment data, keeping it safe, and sharing it between the point of sale and the processor.
Point of Sales System (POS): This is the spot where the customer makes a payment. A point of sales system allows you to manage your inventory and helps facilitate payments both online and in-store.
Processor Markup Fee: This refers to the fee charged by your payment processing company. The processor markup fee is added on top of interchange, so the payment processor makes a profit. These fees can be divided into two parts--per transaction percentage and a static dollar amount.
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