Agent Bank – A member of a bankcard association that agrees to participate in an acquirer’s merchant processing program. The agent may or may not be liable for losses incurred on its merchant accounts. An agent is usually a small community bank that wants to offer merchant processing as a customer service. Agent banks that participate in an acquiring bank’s program only insofar as to refer merchants are known as referral banks. Referral banks typically do not assume liability for merchant losses.
Authorization – An issuing bank’s approval of a credit card transaction in a specific amount. If a merchant complies with bankcard association rules in obtaining an authorization, by telephone or electronic terminal, payment to the merchant is guaranteed.
Backroom Operations – Operational functions performed by the acquirer or issuer to facilitate the day-to-day processing of credit card transactions (e.g., settlement, fraud, and chargebacks).
Bankcard Association – Visa U.S.A., Inc. and MasterCard International Incorporated are bankcard associations. Banks must be members of an association to offer their credit card services. Membership rights and obligations are specifically defined by the associations. Both Visa and MasterCard require all members of their organization to be banks.
Bank Identification Number / Interbank Card Association (BIN/ICA) – A series of numbers used to identify the settling bank for both acquiring and issuing transactions.
Chargeback – Generated when a cardholder disputes a transaction or when the merchant does not follow proper procedures. The issuer and acquirer research the facts to determine which party is responsible for the transaction. Strict bankcard association rules must be followed.
Debit Card – A card that customers use to pay for a merchant’s goods and services. A debit card also enables a user to transact business at an automated teller machine (ATM). In a debit card transaction, the cardholder is accessing funds from a personal checking or savings account. Debit card transactions
can be on-line or off-line. Discount Rate – The fee, as a percent of sales volume, an acquirer charges a
merchant for processing sales transactions.
Electronic Benefits Transfer (EBT) – The electronic delivery of government benefits using plastic cards.
Electronic Data Capture – Process used when the merchant “swipes” the credit card through an electronic card reader or terminal. The information on the card’s magnetic stripe is entered into the processor’s database electronically.
Factoring – A form of fraud in which a merchant creates false sales transactions, inflates the sales amount, or alters the sales drafts to receive funds from the issuer. The merchant’s intentions could be to obtain
additional money to cover chargebacks or cash flow problems, or the merchant may have ceased operations and plans to abscond with the sales proceeds. If the merchant disappears, the acquirer would be responsible for any remaining chargebacks.
Future/Delayed Delivery – Sales transactions on products or services that are delivered in the future. Such products or services include airline tickets, concert tickets, and travel/tour packages.
Holdback – A percentage of the merchant’s sales deposits that the acquirer holds back to serve as a reserve against future exposure or to cover existing chargebacks.
Independent Sales Organization (ISO) – An organization that provides a variety of merchant processing functions on behalf of the acquirer. These functions may include soliciting new merchant accounts, arranging for terminal purchases or leases, and providing backroom services. An ISO may also be referred to as a member service provider (MSP). The acquirer must register all ISOs/MSPs with the bankcard associations.
Interchange – The electronic infrastructure that processes financial and nonfinancial transactions between financial institutions.
Interchange Fee – A fee paid by one bank to another to cover handling costs and credit risk in a bank card transaction. The interchange fee, a percentage of the transaction amount, is derived from a formula that takes into account authorization costs, fraud and credit losses, and the average bank cost of funds.
Laundering – A form of fraud in which a merchant that holds an account with an acquirer submits drafts for a merchant that does not. The authorized merchant typically receives a percentage of the unauthorized merchant’s sales volume. Several states’ criminal statutes prohibit laundering.
Member Alert to Control High Risk Merchants (MATCH) – This file, formerly known as the combined terminated merchant file (CTMF), is maintained by the associations based on information reported by acquirers. By checking this file before approving a merchant, an acquirer determines whether the
merchant has a history of poor operating practices.
Member Service Provider (MSP) – A nonmember of MasterCard who markets bankcard merchant acceptance on behalf of MasterCard financial institutions.
Merchant Processing – The settlement of electronic payment transactions for merchants. It is a separate and distinct business line from credit card issuing. Merchant processing activity, which is off-balance-sheet, involves gathering sales information from the merchant, collecting funds from the issuing bank, and paying the merchant. Various kinds of third parties may be involved. Merchant Processing 94 Comptroller’s Handbook
Paper-based Transaction – An operation in which the merchant imprints the credit card and submits paper sales drafts to the acquirer for collection. The paper drafts are sent to the processing center where they are processed and transferred to magnetic tape for transmission through interchange.
Rent-a-BIN – An arrangement in which a bank permits ISO/MSPs to use the bank’s BIN/ICA number for credit card issuing or merchant processing.
Retrieval Request – A form used to request a copy of the original sales draft from the merchant. A merchant that fails to send a copy of the sales draft may receive a chargeback. Such chargebacks are not appealable. Issuers might request a copy of the sales draft to verify the signature, to investigate the lack
of an imprint, to carry out a cardholder’s inquiry, or to look into the possibility of fraud.
Secured Socket Layers (SSL) – A protocol providing data security during transmission. SSL uses data encryption, server authentication, and message integrity.
Settlement – The process of transmitting sales information to the card-issuing bank, which collects funds and reimburses the merchant. Various third parties may be involved in all aspects of settlement.
Third-party Organization – Any outside company with which the acquirer contracts to provide merchant processing services. The services could include network and data transmissions, merchant accounting, backroom operations, sales, or customer service.