Many new e-commerce business owners ask us what certain words in the merchant account industry mean. You can check out our online payment glossary at Instabill.com for free. However, for your convenience, we have selected some of the most asked about merchant account terms by our merchants and defined them for you below.
Acquiring Bank
An acquiring bank is a special type of bank or other financial institution that provides business owners with merchant accounts and allows them to process credit card transactions.
Address Verification System
The Address Verification System, otherwise known as AVS, compares the cardholder’s billing address with the provided shipping address. AVS does not decline transactions. It provides merchants with information regarding the level of address matching, which helps the merchant decide whether to continue with or decline the transaction.
Approval Code or Authorization Code
The approval code is the six-digit code merchants receive upon approving a transaction.
Authorization
An authorization occurs when a cardholder requests a purchase transaction and his or her credit card account or checking account has the appropriate available funds.
Billing Descriptor
A billing descriptor identifies the merchant and typically provides a customer service phone number. Merchants must display their billing descriptor not only on the customer’s billing statement, but also on their website FAQ (or similar) page, the checkout page, and in the confirmation email.
Chargeback
A chargeback is a type of transaction initiated by the customer when he or she disputes a transaction directly with the issuing bank and requests his or her money back. Too many chargebacks will undoubtedly result in your acquiring bank to suspend or terminate your merchant account.
Chargeback Fee
A merchant receives a chargeback fee for each instance his or her customers file a chargeback. Merchants incur a chargeback fee because the acquiring bank must process the reverse transaction.
Discount Rate
Issued by a merchant’s acquiring bank, the discount rate is the percentage paid to the bank per transaction for being able to use the merchant account.
Payout
A payout is the amount due to the merchant (less the processing fees) for approved transaction funds. Some merchants know this as a settlement amount.
PCI Compliance
Established by major credit card networks in 2006, the Payment Card Industry Security Standards Council, which includes Visa and MasterCard, created a set of 12 requirements that all organizations that store, process, or transmit cardholder data must follow. Meeting these 12 requirements is known as maintaining PCI compliance.
Processing Period
A processing period is a specific period of time (i.e. Monday to Sunday) in which a merchant process transactions.
Refund
A refund is similar to a chargeback in the sense that the customer requests his or her money back. However, the merchant issues a refund directly, as opposed to being issued by the acquiring bank.
Refund Fee
Similar to a chargeback fee, merchants must pay a refund fee for each refund they process.
Setup Fee
The setup fee is a fixed, non-refundable fee incurred when establishing a merchant account and payment gateway.
Transaction Fee
The transaction fee is the amount merchants pay per transaction. This fee is typically a fixed dollar (or cents) amount merchants pay to the credit card processor for each transaction they process.
