Glossary of terms relating to Credit Cards and Credit Card Processing

Account Number Truncation
The process of not printing the full primary account number and expiration date on a receipt. Typically, only the last four digits of the primary account number are printed.

Acquiring Bank (Merchant Bank)
The bank that is an authorized member of Visa & MasterCard that is in the business of processing credit card transactions on behalf of businesses (merchants)

Address Verification Service (AVS)
A real-time service offered to combat fraud and validate a cardholder's given address (street number and zip code) against the card issuer's records. AVS is used in a non-face to face processing environment (mail order/telephone order). The network response helps the merchant determine the level of accuracy of the address match. AVS only works for US-issued credit cards

American Express (AMEX)
A company that both issues cards and acquires transactions through merchants. This is unlike Visa and MasterCard which are associations of financial institutions

Authorization
The process of verifying with the card issuer that an account has sufficient funds available and is in good standing. The cardholder's available credit limit is reduced by the authorized amount

Authorization Code
A numeric or alphanumeric code sent by the card issuer verifying that the sale has been authorized (approved)

Auto-Close
The process by which daily batches of transactions are automatically summarized and transmitted for end of day settlement processing at a pre-determined time

Automated Clearing House (ACH)
The Automated Clearing House is a batch-oriented electronic funds transfer system which provides for the interbank clearing of electronic payments for participating financial institutions. The Federal Reserve System acts as the ACH operator clearing transactions for financial institutions

Bank Identification Number (BIN)
The first 6-digits of the account number used by the card issuer to identify their institution. The American Express account number range begins with “3”, the Visa account number range begins with “4”, the MasterCard account number range begins with “5” and the Discover account number range begins with “6”

Bankcard
A credit card issued by a Visa or MasterCard member financial institution

Batch Processing
The action of processing transactions together at one time (in a batch) as opposed to individually (one at a time). Typically batch processing occurs in situations where a cardholder signs-up to be billed on a regular basis. This could be a monthly cable TV bill, insurance bill, or subscription service

Card Verification Value (CVV2 – CVC2 – CID- V Code)
The Card Verification Value is the three-digit security code that is printed on the signature panel on the back of a credit card. These numbers provides extra security against unauthorized use during non-face to face transactions. If merchants input the Card Verification Value as part of authorizing a MO/TO transaction, the card issuer will respond that there is a match or no match with what they have on file for this card. By using the Card Verification Value, the merchant is able to make a more informed decision about the validity of the card and the transaction

Card-Swiped Transaction
A transaction where a card is read by a magnetic stripe card reader

Cardholder
The individual to whom the card is issued or who is authorized to use an issued card

Chargeback
A transaction returned by an issuing bank to an acquiring bank. A transaction may be returned because it was non-compliant with association rules and regulations or because it was disputed by the cardholder

Commercial Card
A general name for cards issued to businesses. This includes multiple variations such as Purchasing Cards, Business Cards, Corporate Cards, Travel and Entertainment Cards and Fleet Cards. In some cases, merchants are asked to input additional data as part of the accepting these cards, such as entering the sales tax amount and/or a purchase order number

Credit (Refund)
A transaction where the merchant sends money to the cardholder's account usually because the cardholder has returned merchandise. Credit transactions appear on the cardholder's statement

Credit Card
A card that allows the cardholder to purchase goods or services from a merchant on credit

Daily Discount
The process of deducting the processing fees every day from the merchant's settlement account. Typically this is withdrawn net of the total amount of the sales for the particular day

Debit Card
A card linked to a checking account. Unlike a credit card, debit card transactions are deducted automatically from the cardholder's checking account

Declined Transaction
A transaction that was not approved by the card issuer

Discount Rate
A percentage amount charged to process a transaction

Discover
A company that both issues cards and acquires transactions through merchants. This is unlike Visa and MasterCard which are associations of financial institutions

Electronic Benefits Transfer (EBT)
The processing of federal and state welfare programs via electronic methods. Typically EBT systems replace paper-based processing

Encryption
The scrambling of sensitive information for security purposes. PIN numbers are encrypted prior to transmission to prevent unauthorized tampering

Gift Card
A plastic card with an assigned dollar value issued to a cardholder for use at accepting businesses. A gift card typically replaces a paper gift certificate

Hand-Keyed Transaction
The process of keying an account number for a transaction versus swiping a card through a magnetic strip card reader to read the primary account number

Imprint
The process of manually making a print of the embossed information from a credit or debit card. This is required in a face to face processing environment where a magnetic swipe card reader is unavailable to swipe a credit card or a receipt printer is unavailable

Interchange Fee
The predetermined amount that the merchant bank pays the issuing bank for a transaction. Visa and MasterCard set Interchange fees based on a variety of categories such as card types, industry types, and processing environment. There is one set of Interchange fees for all Visa and MasterCard acquiring and issuing financial institutions

Invoice Number (Ticket Number)
A merchant-defined alphanumeric field that prints on the customer receipt. The invoice number is also required to help qualify a hand keyed transaction for the lowest possible Interchange level

Issuing Bank
A financial institution that issues cards to consumers and businesses

Loyalty Card
A plastic card that identifies participants in a loyalty program. Loyalty programs reward cardholders as they buy more merchandise

Mail Order/Telephone Order (MO/TO)
A transaction that is not conducted face to face between the merchant and the cardholder

MasterCard
An association of financial institutions set-up to both issue cards to consumers and businesses and accept cards for payment of goods and services by businesses

Merchant
A business that is set-up to accept card-based payments

Merchant Account
The type of account used to accept card-based payments

Merchant Agreement
The agreement that governs the processing arrangement between the merchant and the acquiring bank. This typically includes the rates and fees charged the merchant as well as the terms and conditions

Merchant Identification Number (MID)
The account number given to the merchant account

Merchant Services Provider (MSP)
A company that is registered with MasterCard to represent a financial institution for the purpose providing processing services to merchants

Monthly Discount
The process of deducting the processing fees once a month from the merchant's settlement account. The monthly discount method of billing makes reconciliation very easy for the merchant compared with daily discount billing

Payment Gateway
A combination of software and hardware that provides a secure interface to the processing network

Payment Processor
A company that routes transactions from merchant locations to card issuers for authorization and settlement

Personal Identification Number (PIN)
The secret code that a cardholder inputs to identify themselves during a financial transaction

Primary Account Number (PAN)
The account number given to a cardholder's credit or debit card account. The PAN is typically both printed and embossed on the cardholder's credit or debit card

Real-Time Processing
The action of processing transactions one at a time for instant approval. Typically real-time processing occurs in situations where the merchant wants an authorization immediately such as retail and restaurant locations as well as many Internet processing environments

Receipt
A printed record of a transaction including information such as; merchant name, address, phone number, date and time, amount, approval code, cardholder name, and signature

Recurring Transaction
A periodic transaction permitted by the cardholder. For example a monthly cable TV payment, insurance payment, etc. where the cardholder has authorized the merchant to charge their account on a predetermined basis

Retrieval Request
A request by the issuing bank to a merchant for documentation concerning a transaction usually regarding a cardholder dispute or an improper sale or return

Settlement
The financial reconciliation process between merchants, processors, acquiring financial institutions and issuing financial institutions

Statement
The written record prepared by the financial institution, usually once a month, listing all transactions for an account including deposits, withdrawals, and fees

Terminal Identification Number (TID)
An identifying number assigned to a device to process transactions

Transaction Fee
A per transaction amount charged to process a transaction

Truncation
The process of not printing the full primary account number and expiration date on a receipt

Visa
An association of financial institutions set-up to both issue cards to consumers and businesses and accept cards for payment of goods and services by businesses

Voice Authorization
An authorization that is obtained from the card issuer through an interactive voice system

Void
The process of deleting a transaction, usually because of operator error. Once a transaction has been voided, the corrected transaction can be entered and processed.

for more information:

239-449-6040

Naples Merchant Services
12th Avenue South
Naples, FL 34102

239-449-6040
888-601-0801 fax

info@naplesmerchantservices.com

www.naplesmerchantservices.com

Credit Card Processing Methods

Today a majority of credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Various methods exist for presenting a credit card sale to "the system." In all circumstances the magnetic strip is read by a swipe through a credit card terminal, a computer chip is read, or the credit card information is manually entered into a credit card terminal, a computer or website.
The earliest methods, submitting credit card slips to a merchant processing bank by mail, or by accessing an Automated Response Unit (ARU) by telephone, are still in use today but have long been overshadowed by electronic devices. These early methods used two-part forms and a manual device for mechanically imprinting the embossed card number information onto the forms.

A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card's information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment that only processes credit cards although it is common for related transactions including gift cards and check verification to also be performed.
A credit card terminal typically must be plugged in to a power supply and connected to a telephone line. However, some terminals may be powered by batteries and communicate over the Internet or through a cellular phone data network. When a credit card is processed (either swiped through the magnetic stripe reader or keyed-in to the keypad), it contacts the network to verify if the credit card can be authorized. The transaction is then stored on the machine until the polling window is opened. The machine will either upload the electronic funds directly to the merchant bank, or a polling service provider will dial in to collect, process then submit the data to the merchant bank. The most popular credit card terminals consist of a modem, keypad, printer, magnetic stripe reader, power supply and memory card. They have had the same basic design since the 1980s. As with computers, there is a wide range of memory capacities and other features like built-in printers and debit card pinpads that affect the manufacturing cost of a credit card terminal.

A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is the equivalent of a physical POS (point-of-sale) terminal located in most retail outlets. A merchant account provider is typically a separate company from the payment gateway. Some merchant account providers have their own payment gateways but the majority of companies use 3rd party payment gateways. The gateway usually has 2 components: a) the virtual terminal that can allow for a merchant to securely login and key in credit card numbers or b) have the website's shopping-cart connect to the gateway via an API to allow for real time processing from the merchant's website.

For any questions or to clarify these explanations please contact Naples Merchant Services


239-449-6040

Naples Merchant Services
239-449-6040
888-601-0801 fax
info@naplesmerchantservices.com

http://www.naplesmerchantservices.com/

Merchant Statement Fees Explained

Authorization fee

The Authorization fee (actually an authorization request fee) is charged each time a transaction is sent to the card-issuing bank to be authorized. The fee applies whether or not the request is approved. Note this is not the same as Transaction fee or Per Item fee.

Statement fee

The statement fee is a monthly fee associated with the monthly statement that is sent to the merchant at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result.

Many times, the statement fee is not directly linked to "paper" statements but rather general overhead. This means that a provider would not waive this fee if a merchant chose to have a "paperless" statement.

Monthly minimum fee

The monthly minimum fee is a way to ensure that merchants pay a minimum amount in fees each month to cover costs from the provider to maintain the account and to create minimal profits. If a merchant's qualified fees do not equal or exceed the monthly minimum they will be charged up to the monthly minimum to satisfy their minimum fee requirements.

Example: A merchant has signed a contract with a $25.00 monthly minimum fee. If all the fees for the most recent month of processing total only $15.00, this merchant will be charged an additional $10.00 to meet their monthly minimum requirements. Sometimes there are fees that are charged that are not a part of the monthly minimum, such as statement fees. It is industry standard to charge a monthly minimum.

Batch fee

A batch fee (also known as a batch header fee) can be charged to a merchant whenever the merchant "settles" their terminal. Settling a terminal, also known as "batching", is when a merchant sends their completed transactions for the day to their acquiring bank for payment. Some providers perform this automatically. It is important to close a batch every 24 hours or a higher rate will be assessed by Visa or Mastercard.

Customer Service fee

The customer service fee (also known as a maintenance fee) can be charged by some providers to pay for the cost of customer service.

Annual fee

The Annual fee can be charged by some providers to pay for costs of maintaining the merchant's account. Sometimes these fees can be quarterly. The fee can be from $79–$399.

Early Termination fee

The early termination fee can be charged by some providers if the merchant ends the contract before the end of the contract term. While contract terms of 1–3 years are typical, some providers have terms of up to 5 years with a one year prior notice to cancel or the fee will be assessed. Some providers also assess all statement fees and monthly minimums remaining when the contract is terminated. Some providers may also assess a "lost profit" fee based on an assumption of profits they concluded they would have earned during the full term of the contract.

Chargeback fee

The chargeback is the largest risk that is presented to banks and providers. This is not to be confused with a refund, which is simply a merchant refunding a transaction. In the Visa and Mastercard rules, the merchant's processing bank is 100% responsible for all the transactions that the merchant performs. This can leave the provider open to millions of dollars of potential losses if the merchant operates in an illegal or risky manner and generates many chargebacks. The providers pass this cost on to the merchant, but if the merchant is fraudulent or simply does not have the money, the provider must pay all the costs to make the card holder whole. The chargeback risk is the largest part taken into consideration during the contract application and underwriting process. Some banks are much more stringent than others when assessing a merchant's chargeback risk.

If a merchant encounters a chargeback they may be assessed a fee by their acquiring bank. A potential chargeback is presented on behalf of the card holder's bank to the merchant's credit card processing bank. A reason code is established by the card issuer to properly identify the type of potential chargeback based on the card holder's complaint. The most common complaint is that the card holder can not remember the transaction. Usually, these potential chargebacks are corrected when the merchant's processing bank sends over more details about the transaction. Some providers charge a fee for this service, known as a "Retrieval Request". A chargeback can also be related to a fraud or similar dispute that the card holder is claiming to the merchant. This fee can be charged by some providers whether the chargeback is successful or not and is not dependent on the amount of the chargeback.

Currently both Visa and Mastercard require all merchants to maintain no more than 1% of dollar volume processed to be chargebacks. If the percentage goes above, there are fines starting at $5000 – $25,000 to the merchant's processing bank and ultimately passed on to the merchant.

In all cases, a chargeback will cost the merchant the chargeback fee, typically $15–$30, plus the cost of the transaction and the amount processed.

Payment Card Industry Data Security Standard (PCI DSS)

PCI DSS was created by the Security Standards Council as a set of rules merchants must adhere to in order to reduce fraud throughout the industry. The goals of the PCI DSS Standards and corresponding rules are as follows:

• Build and Maintain a Secure Network
• Install and maintain a firewall configuration to protect cardholder data
• Do not use vendor-supplied defaults for system passwords and other security parameters
• Protect Cardholder Data
• Protect stored cardholder data
• Encrypt transmission of cardholder data across open, public networks.
• Maintain a Vulnerability Management Program
• Use and regularly update anti-virus software or programs
• Develop and maintain secure systems and applications
• Implement Strong Access Control Measures
• Restrict access to cardholder data by business need-to-know
• Assign a unique ID to each person with computer access
• Restrict physical access to cardholder data
• Regularly Monitor and Test
• Track and monitor all access to network resources and cardholder data
• Regularly test security systems and processes
• Maintain an Information Security Policy
• Maintain a policy that addresses information security for employees and contractors

For any questions or to clarify these explanations please contact Naples Merchant Services

239-449-6040

Naples Merchant Services
239-449-6040
888-601-0801 fax
info@naplesmerchantservices.com

http://www.naplesmerchantservices.com/

Credit Card Pricing Explained - 3 Tier Method

3-Tier Pricing

The 3-Tier Pricing is the most popular pricing method and the simplest system for most merchants. In 3-Tier Pricing, the merchant account provider groups the transactions into 3 groups (tiers) and assigns a rate to each tier based on a criterion established for each tier.

First Tier - Qualified Rate

A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as "standard" by their merchant account provider using an approved credit card processing solution. This is usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified.

Second Tier - Mid-qualified Rate

Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:

A consumer credit card is keyed into a credit card terminal instead of being swiped
A special kind of credit card is used like a rewards card or business card
A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates.

The use of "rewards cards" can be as high as 40% of transactions. So it is important that the financial impact of this fee be understood. So therefore, merchants will be charged the qualified plus the mid qualified rate. Example) If your qualified rate is 1.5% and the mid qualified rate is 1 %, your effective rate would be 2.5 %.

Third Tier - Non-qualified Rate

The non-qualified rate is usually the highest percentage rate a merchant will be charged whenever they accept a credit card. In most cases all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:

A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed
A special kind of credit card is used like a business card and all required fields are not entered
A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization.
A non-qualified rate can be significantly higher than a qualified rate and can cost the provider much more in interchange costs, so the merchant account providers do make a markup on these rates.

For more information:

Naples Merchant Services

239-449-6040

888-601-0801 fax

info@naplesmerchantservices.com

www.naplesmerchantservices.com

Check Verification Service

Check Verification Service

Negative check database
Some check verification services will use a Negative Check Database. A Negative Check Database contains a comprehensive list of people who either wrote a bad check at a retail location, paid a bill with a check that was returned, also called "bouncing a check."

Historical data check verification services that use a national network with a negative check database can be difficult for consumers and businesses to remove themselves from once they get on, even is case of errors.


This type of verification is usually linked to the person writing the check and runs the verification using their drivers license number. This type of information is a valuable tool for loss prevention because it identifies historically or habitual check bouncers who are more likely to re-offend.

Use of this type of system can also cause customer service issues between retailers and their own customers, because it bases past history that could stretch back up to 10 years or more.

Account history database
Other check verification services will offer a database with historical data on the account itself, and not just the person writing the check. This type of system keeps records of the account number for all checks that don't clear and can tell if that particular checking account has had returns in the past.

Because this type of system is based on the history of all checks written against the account, it can provide valuable information, just like the negative check database except the information is not based on the identity of the person writing the check.

This is particularly valuable for taking business checks or company checks because often the identity of the person writing the check has little to do with the company check. In the account history database, a good account with no flags would receive full approval, regardless of the status of the employee who writes the check because identity is not verified.

Account current status verification
There is also a checking account validation network that can poll the results of the actual bank account to get the current status from the bank. Newer systems provide a result that is based on the bank account's actual status provided by the bank as of that business banking day are increasing in popularity for companies that take checks by phone, manage monthly check payments, or automatic billing with bank drafts, or who process ACH transactions received by phone or for monthly billing.

Account status verification systems give you the status of the account as of the beginning of the business banking day. They tell you if there is an open active account at that bank and if the check is likely to clear. Status messages such as closed account, NSF, stop payment or invalid account can help determine if a check or ACH transaction will be good.

The results are based on account validity, so there is no way to know if the check will actually clear when it is presented, or if the exact dollar amount is going to be available.

This type of system is used less at retail establishments, and more for companies that do checks by phone sales, monthly check drafting, monthly billing via ACH and online sales. It reduces the number of bad payments that are deposited due to human error, fraud or account status.

Merchant funds verification
Often called "verifying funds" or "merchant funds verification," it was common practice until recently that any business or individual could call the bank where the check was drawn and ask for check verification. The bank would ask for the account number, the name on the check, the amount and the check number and just look up the account.

Due to banks now issuing privacy policies designed to protect identity and fraud, telephone merchant funds verification by calling the bank directly is now rare for any bank or credit union to offer this service.

Some banks still offer merchant funds verification, while others are limiting the information they will provide to telling you if the account is open with a positive balance, only.

Other banks provide this service as a pay-per-call, or offer bank validation for a fee. The majority of banks do not provide any direct telephone account verification.

Routing number verification
Yet another form of check verification is to cross reference the Routing transit number, also called the Routing Number or ABA Number, with the bank to check against the actual item being presented. The routing number verification can provide the bank's name, address for processing, and phone number.

Some routing number verification systems use an algorithm to validate the routing number, rather than cross reference the results in a database.

Routing number verification is limited to verifying the bank name, address and phone number and cannot determine if the checking account is valid of perform funds verification. It can be valuable in locating fraudulent checks or drafts, and in getting contact information for the bank for merchant funds verification or account validation. Using the bank phone number, a business can attempt merchant funds verification if the bank offers the service.

To find out more how this service can benefit your business contact us:

239-449-6040

Naples Merchant Services
239-449-6040
888-601-0801 fax
info@naplesmerchantservices.com

www.naplesmerchantservices.com

Merchant Funding / Cash Advance

Merchant Funding / Cash Advance


Merchant funding is a perfect alternative to a small business bank loan. It is ideal for small to medium sized businesses that do not want the hassle of monthly payments, high interest loans, and long-term debt.

It simply borrows against your future business revenue through your Visa and MasterCard transactions. A percentage of these transactions are deducted and paid to the provider. These small fees are deducted until your business cash advance is repaid. Merchant funding and business cash advances are used for a variety of reasons. Many business owners have ideas for growing their business but simply "need money to make money". If you are a small to medium sized business and would like to see your business expand, renovate or start a marketing campaign, a business cash advance may be just what you are looking for. There is no timeline for repayment, because we are paid when you are paid. Merchant funding is absolutely the fastest and most simple way to help grow your business.

- Open new locations, remodel or renovate existing locations
- Debt Consolidation, Payroll
- Build business credit
- Seasonal or clientele cash flow fluctuations
- Purchase new equipment and inventory
- Launch advertising and promotional programs
- Buyout a partner
- Acquire or merge with a competitor
- Increase Marketing


If you need funds for your business now and do not want to apply for a bank loan give us a call:


239-449-6040

Naples Merchant Services
239-449-6040
888-601-0801
info@naplesmerchantservices.com

www.naplesmerchantservices.com

Credit Card Terminal or Credit Card Machine

Credit Card Terminal or Credit Card Machine

A Credit card terminal is a device that can do transactions with a debit card or a credit card. Several types of credit card terminals are available to merchants. Most have the same basic purpose and functions. They allow a merchant to swipe or key in required credit card information and transmit such data to the merchant service provider. Most new models processes credit cards, gift cards, and are expandable to perform check verification. The majority of credit card terminals transmit data over a standard telephone line or the internet. Wireless terminals can transmit card data using either cellular networks or satellite networks. Some also have the ability to store data and transmit over a standard telephone line when one becomes available.

Using a Smartphone and the appropriate software, a merchant can replace the functionality of a dedicated hardware credit card terminal using a credit card terminal app running on their Smartphone. These credit card terminal apps support manual entry of the credit card number. The apps may work with hardware devices known as swipers or credit card readers to transfer the credit card track data to the app. An app which is capable of reading the credit card track data will help the merchant receive a better discount rate on their credit card processing costs.

Key functionality of a Credit Card Terminal.

The credit card terminal of today has multiple facets. Depending on the needs of the merchant and the type of transactions processed by the card issuing bank, key operations and functions include:

•Acceptance of credit, debit and charge cards (both domestic and international)
•Key Entry (mail and telephone order)
•Tips
•Refunds and Adjustments
•Settlement (including Automatic)
•Pre-Authorization
•Remote Initialization and Software update
•POS Integration
•Multi-merchant Capabilities
•Pen or PIN
•Surcharge Function
•Secure Password Operation

For the best terminal for your business and the best price see us before you purchase, lease, rent, or accept a free terminal. If it is free there is some cost built in to you processing charges to pay for the terminal.

Naples Merchant Services
239-449-6040
888-601-0801 fax
info@naplesmerchantservices.com

www.naplesmerchantservices.com