Signing up for credit card processing can feel a bit overwhelming with lots of unfamiliar terms. Don’t feel bad; payment processing is a technical industry with plenty of acronyms and jargon. This basic glossary will help you understand the terms you will see and hear to make informed decisions and understand exactly what you will be paying.
Card Present/Card Not Present
Card present refers to transactions in which the debit or credit card and cardholder are both present in a face-to-face transaction. Card Not Present (CNP) refers to transactions in which they are not physically present such as online and phone transactions.
A chargeback happens when a transaction is billed back to the merchant after the payment is already processed. Chargebacks work in favor of the customer and they may occur for many reasons, including fraud or dissatisfaction with the product or service provided.
A batch is a group of credit card transactions that are submitted by the merchant to the processor for settlement and funding all at once. Batches are usually a full day’s activity. Bath processing is when a full batch of transactions are processed at the same time, which may be done automatically at the end of the day or manually.
This is a percentage fee that the merchant account provider charges for processing services along with fees paid directly to issuing banks.
If you accept payments in person, you will likely use a credit card machine. A payment gateway is a credit card processing solution for e-commerce sites that works like an online point-of-sale terminal to protect the cardholder’s data during the transaction.
This is the fee Mastercard and Visa charge to complete transactions and deposit money in your merchant account. This fee is an underlying cost of accepting card transactions. There are hundreds of different interchange rates based on the type of transaction, the type of card, and the type of business. Some merchant services use a pricing model called “Interchange+” which means the exact fee is passed on to you “plus” a bit extra. Other payment processors bundle this fee into tiers that make it difficult to determine what you will pay on each transaction.
Discover and American Express do not participate in this interchange process by handling all areas of card transactions. They essentially act as their own issuing bank, merchant bank, and card association.
This is essentially a bank account that authorizes you to accept card payments. You will need a merchant account to use a payment gateway and process transactions. There are many types of merchant accounts based on how you will accept payments.
This is an amount the credit card processor charges you if the discount fee, transaction fees, and account fees do not add up to a pre-determined amount.
Point of Sale (POS)
This is the application through which payments are processed, the credit card machine that processes transactions, or an organization’s entire point-of-sale management system.
The credit card processor is the entity that initiates Electronic Funds Transfers into the ACH system and handles electronic verification. A processor is also called the merchant acquirer, merchant account provider, or merchant services provider.