Bank Terms You Need To Know
These terms are in alphabetical order. Please scroll through the definitions until you find the term you are looking for, or you can read all the terms pertaining to familiarize yourself with these common phrases.
Note: Real time credit card processing is excellent for membership sites and other online sales such as software downloads. There are however, some restrictions on charging a customer's credit card and not shipping a product or providing a service immediately. You need to ask this question before signing up for a real time credit card processing services.
Acquiring Bank/Merchant Bank - The bank that does business with merchants who accept credit cards. A merchant has an account with this bank and each day deposits the value of the day's credit card sales. Acquirers buy (acquire) the merchant's sales slips and credit the tickets' value to the merchant's account.
Acquiring a Processor - The processor provides credit card processing, billing, reporting and settlement and operational services to acquiring and issuing banks. Canadian banks do not do their own credit card processing because it's more cost effective to let someone like Arvic to invest in the equipment and people and do it for them.
Authorization - The act of insuring that the cardholder has adequate funds available against their line of credit. A positive authorization results in an authorization code being generated, and those funds being set aside. The cardholder's available credit limit is reduced by the authorized amount.
Batch - The accumulation of captured transactions waiting to be settled. Multiple batches may be settled throughout the day.
Address Verification - AVS will verify if the address given by the cardholder actually matches their billing address when they applied for the credit card. When these don't match this sends a flag to the merchant to implement more safeguards to ensure they aren't being ripped off by a thief. Please see AVS for detailed information.
Capture - Converting the authorization amount into a billable transaction record within a batch. Transactions cannot be captured unless previously authorized, and authorizations cannot be captured until the goods or services have been shipped or transmitted to the consumer.
Cardholder - Any person who opens a credit card account and makes purchases using a credit card.
Credit Deposit - The value of a merchant's credit card purchases that are credited to its bank account after the acquirer buys the merchant's sales slips. The deposit is credited. It is not funded until the acquirer gets the monetary value from the issuer during settlement.
Discount Rate - The fee a merchant pays its acquiring bank/merchant bank for the privilege to deposit the value of each day's credit purchases. The fee is usually a small percentage of the purchase value.
Interchange - The exchange of information, transaction data and money among banks. Interchange systems are managed by Visa and Master Card associations and are very standardized so banks and merchants world wide can use them.
Interchange Fee - A fee paid by the acquiring bank/merchant bank to the issuing bank. The fee compensates the issuer for the time after settlement with the acquiring bank/merchant bank and before it recoups the settlement value from the cardholder.
Issuer - The bank that extends credit to customers through credit card accounts. The bank issues the credit card and receives the cardholder's payment at the end of the billing period. Also called the issuing bank or the cardholder bank.
Settlement - As the sales transaction value moves from the merchant to the acquiring bank, to the issuer, each party buys and sells the sales ticket. Settlement is what occurs when the acquiring bank and the issuer exchange data or funds during those functions.
Ticket - Another name for the sales slip or its monetary value that results when a credit card purchase is made.
Transaction - One example of a transaction is the process that takes place when a cardholder makes a purchase with a credit card.
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