Important
merchant account terminology:
Acquiring Bank or also called Merchant
Bank
This is the bank that issues
the merchant account for online businesses.
The acquirer refers to the risk associated
to the merchant account which the bank is
underwriting the merchant's sales slip for
a fee (discount rate) and hence the bank
is called an Acquiring Bank.
Authorization
This is an electronic acknowledgement
that a transaction has been approved or
denied. Approval is based on validity of
the card and the availability of funds in
the cardholder's line of credit. If either
fails, the authorization is denied. If approved,
an authorization code is generated, and
those funds for that particular sale is
set on hold for 72 hours (and credit line
reduced by that amount) until it is either
settled and transferred to the merchant
or it is released back to the line of credit.
Merchant Account
This is not a bank account
as you may know it. It is not a checking
account or a savings account or a similar
kind of account. It is really a 'line of
credit' for allowing a merchant to receive
the funds from his/her sales. If there was
no underwriting by a bank, a merchant would
have to wait for the funds to be paid by
the cardholder's credit card issuer which
could take 30 to 60 days. With a merchant
account the merchant can get the funds to
his sales within 48 hours.
Batch Settlement
Approved transactions are
placed in a "batch" file to be
settled at the end of the day. But the funds
have not actually been transferred out of
the cardholder's account and into the merchant's
business bank account yet. That takes place
when the batch is settled (or captured)
which sends the funds to be transferred.
Chargeback
This is the process of taking
fund back that has already been paid to
the merchant through his/her bank account.
This happens rarely when a customer disputes
a credit card transaction. The merchant
must respond to the charge back and provide
proof that the product or service was provided
to the customer.
Discount Rate
This is a percentage rate
that is charged by the Acquiring bank for
underwriting a merchant's transaction. This
rate can vary substantially and many different
permutations are used to charge the merchant
- often deliberately confusing. Retail based
transactions are charged a lower discount
rate than MOTO, also known as Mail Order
and Telephone Order, Internet, or Card Not
Present transactions.
Gateway or Payment Gateway
This is a software that
processes and manages the transaction processing
and communication between banking networks
that use different network protocols. The
software acts as an interface to all the
hardware and software systems involved in
the authorization and settlement process.
Interchange
The exchange of transaction
information within the banking networks
between the issuing credit card banks and
the processing and merchant banks. Interchange
systems are managed by associations like
Visa and MasterCard.
Interchange Fee
A fee paid for the use of
the Interchange by the Acquiring bank to
the processing network for using the Interchange.
Merchant Service Agreement
A contractual agreement
that outlines the terms for accepting and
processing credit cards between an acquiring
bank the payment gateway software.
Recurring Transaction
A credit card transaction
permitted by a customer that is periodically
charges the customer's credit card account
on a weekly, monthly, quarterly, or annual
basis.
Settlement
The process of sending a
batch file electronically through the processing
networks for capture of funds assigned to
a sale which would then be deposited into
the merchant's business bank account.
Transaction
The automated process of
processing a credit card on behalf of an
online shopper.
Transaction Fee
A per transaction fee charged
by the bank for processing each transaction.
This amount is in addition to the discount
rate. For example: a discount rate of 2.10%
plus 10 cents per transaction. |
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