Merchants have successful businesses to run and rarely is there time to learn the numerous credit card terms and payment processing terms that make up the payments industry. In a previous blog, we offered 4 Tips to Understanding Merchant Statement Fees. Another blog, the "Who's Who of Payment Processing", explains the role of every player in the payment process. Informed merchants are in a better position to negotiate lower rates and improved overall service. We have created this list of top the 40 credit card processing terms as a quick and easy reference guide for industrious merchants. Our thought process is simple: the more you understand about the most common and confusing terms, the better prepared you are to negotiate your best rates.
Knowledge is power and we know that savvy merchants want powerful, integrated payments solutions for their businesses. In this blog, we will list the top 40 credit card processing terms that include the credit card processing fees and pricing, process, and security.
Credit Card Processing Terms
Fees and Pricing
Address Verification Service (AVS) - AVS is required by Visa, MasterCard and American Express for card-not-present sales. Transactions without AVS will result in higher fees.
Authorization Fee - This fee takes place each time an authorization request occurs between the merchant and the authorizing network. Fees include sales, post-authorization, and refunds.
Chargeback - When a customer disputes a purchase with their card issuer, the acquirer will reverse the sale and charge the merchant for the disputed transaction. Be sure to monitor your chargeback to sales ratio and avoid a 1% or higher ratio of your total sales. If you go over 1%, you may be penalized or your account canceled.
Flat Rate - Flat rate pricing is simple and easy to understand but may not be the best solution for most businesses. A flat rate is a simple, non-negotiable fee charged either per transaction or per dollar amount. With a flat rate, you will end up paying more per transaction than tiered pricing but can sometimes avoid incurring extra fees. This option works best for merchants that process a very low monthly volume. As your business grows, it’s in your best interest to look at your rates and conduct a full analysis to see how you can cut costs and reduce rates to fit your needs.
Hidden Fees - Hidden or ancillary fees are often "the devil in the details" of your contract. If you don't ask the right questions, you may be paying for things that could be negotiated out. Some examples are; annual/monthly fees, batch fees, support fees, PCI-DSS non-compliance fees, PCI-DSS compliance fees, settlement fees, clearing fees, Level 3 data feed fees, return discount fees, 3rd-party gateway fees, early termination fees, statement fees, monthly service fees monthly minimum fees. There are others not listed so be prepared to ask your payment service provider to disclose all fees when you negotiate your plans.
Interchange Fees - Interchange plus is also known as cost-plus, pass through pricing, or wholesale pricing and it may be the best option to reduce your fees. The interchange fee is charged by the credit card networks and they are paid out by the issuer bank.
The interchange rate and assessment fees controlled by Visa, MasterCard, and the other card brands are fixed costs and non-negotiable for both the payment service provider and the merchant. Interchange rates have the potential to change only twice a year – in April and October - but for the most part stay the same. All payment processing companies have to charge the same interchange and assessment fees, but differ by how much markup they charge on top of the interchange rate and the additional services and functionality they offer.
Level 3 Processing: Level 3 Processing reduces rates on processing for qualified business to business and business to government transactions. Qualifying for Level 3 has the most comprehensive data requirements and not all credit card processing companies offer Level 3 rates.The best payment service providers for Level 3 Processing will offer an automated and integrated solution that automatically pulls the required data without manual entry and reduces the risk of human error.
Level 1 Data - Level 1 requires the most basic data to be collected and has the highest rate. Level 1 collects the total sale price, credit card number, credit card expiration date. This is for B2C not B2B transactions.
Level 2 Data - Level 2 supplies Level 1 data plus the tax amount, shipping amount, and PO number/customer code. This is for B2B transactions only.
Level 3 Data - Level 3 includes Level 1 and Level 2 data plus 15 other data points. Merchants get the best rates with Level 3 for business to business (B2B) and business to government (B2G) transactions. Standard B2C cards do not qualify for Level 3 discounted rates.
Merchant Statement - It is important for your business that you get comfortable with reading your merchant statements. Before you can effectively negotiate or shop around, you must first review some basics on how to interpret your statement, so you can understand the different fees and costs. Luckily, APS Payments offer free merchant statement audits and analysis where you can walk through your statement line by line and get answers to any questions you may have come up.
Processor costs - These are often non-negotiable by the merchant. May or may not include markup by the payments company to cover costs generated by the merchant, including: support, technology fees, PCI compliance fees, and more.
Rewards - Businesses pay increased fees for rewards programs like cash-back, airline miles, hotel points and more. If you have a rewards card, you should assess the cost/benefit results.
Tiered Pricing - Tiered pricing, also known as "bundled pricing", includes 3 rates; qualified, mid-qualified, and non-qualified. Qualified are the lowest rates for swiped transactions with consumer cards only. Mid-qualified includes manual key entered, card not present, telephone orders or swiped rewards cards. This pricing model is often compared to flat rate pricing as the better of the two but it depends on the specifics of your business and processing needs. Tiered pricing can be expensive if the contract is full of hidden fees and surcharges. These fees are set by the processing company and can vary by provider.
If your reporting and merchant statements are confusing, you won't know if you've been over paying for months or years. It’s important to find an industry expert that you trust to do a full merchant statement analysis with you to look for any hidden fees.
Authorization - Once a credit card is processed, an encrypted transaction is called out to the cardholder's issuing bank. In a matter of seconds, the sale will either be approved or declined. If there is a problem with the card, you will receive a call center response to call the customer's card issuer. Once it is approved, a request is sent by the card issuer to the merchant's bank to pay the merchant. If the sale is declined, it is usually due to a low balance for debit cards or the credit limit has been reached for credit cards.
Batch Processing - Batch processing refers to the merchant processing many transactions at the same time. This technique is used to save money and labor over time by automating and processing multiple transactions as a single group.
eCommerce Sales - eCommerce is the merchant's internet storefront that collects sales orders and authorizes the credit card transactions in real-time. eCommerce orders allow merchants to streamline B2C or B2B orders with an integrated sales order and credit card processing solution.
Merchant Account - A type of bank account that enables businesses to accept payments in multiple ways, typically debit or credit cards. A merchant account is established through an agreement between the acquiring bank and the acceptor (merchant) for the settlement of payment card transactions
Integrated Credit Card Processing - When you integrate credit card processing with your ERP, eCommerce, POS, or Mobile application, you save time and money. You cut out manual data entry, reduce the risk of error, decrease fees, and grow your revenue. APS integrates hundreds of business applications, including Acumatica, AccountMate, Adagio, Sage, SAP Business One, Magento, WooCommerce, and more. It is also important for merchants to know that not all integrated payment processing solutions are created equal. While some integrations will pull information from your POS or web solutions into your ERP, a fully integrated solution will seamlessly flow between all your necessary integrations from backend to back again, automatically pulling and retrieving information without additional manual intervention. APS Payments is proud of our seamless fully-integrated solutions built to provide the best experience for our partners and merchants.
Point of Sale (POS) - POS hardware allows merchants to collect credit card data within stores, over the phone (keyed entry), or out in the field with a mobile card swiper.
Recurring Billing - Recurring billing automates the invoicing for products or services in the ERP or accounting system for subscription or club membership customers. This could be set for weekly, monthly or annual renewals. Be careful because not all payment processing providers offer automated recurring billing.
Underwriting - the system that a processor and acquiring bank has in place to evaluate risk when deciding whether or not to grant a merchant account to any business. Underwriting involves the bank acquiring risk on behalf of the merchant, providing a guarantee for payments to card issuers.
Wireless Payment Terminal - Any payment terminal used to collect credit cards through the internet that is connected wirelessly.
Cryptography - Cryptography is the mathematical process of encrypting or scrambling text to protect the data while it is entered, stored and transmitted. Decryption takes place once the data is ready to be read by the receiver.
Europay, MasterCard, and Visa (EMV) chip technology - EMV chips reduces the risk of fraud that was more common with magnetic stripe swipers.
Payment Card Industry Data Security Standard (PCI-DSS) – PCI- DSS was formed in 2004 by Visa, MasterCard, Discover and American Express to set up and enforce secure policies and procedures for all businesses that process credit cards. Security focuses on network, firewalls, wireless LAN, hacker prevention, authentication and password protections.
PCI Compliance - All merchants or businesses that process, store or transmit credit card information maintain a secure environment. Any business that handles cardholder data must be PCI Compliant. Most payment service providers charge an extra fee for understanding and becoming compliant. While charging PCI Non-Compliance penalties is universal within the industry, many credit card processing companies will charge a PCI Compliance fees regardless of your current compliance status. Be sure to review all fees from your merchant statement after achieving PCI Compliance to see whether or not this fee is applied. APS Payments provides PCI Compliance service free for our merchants and will never charge hidden fees.
Self-Assessment Questionnaire (SAQ) - Merchants are required to fill out a SAQ annually to confirm they are meeting the standards of PCI Compliance.
Virtual Private Network (VPN) - A VPN is a secure connection to the internet using encryption to transmit sensitive data.
Data Encryption - Data encryption makes data useless to cyber-attacks by criminals when it's made unreadable by cryptography. Only the intended recipient of the data can de-code the information. Any system that stores and or processes credit cards must encrypt the data to ensure PCI compliance. SEE Cryptography
Gateway - While the payment processor connects merchants to credit card networks, the payment gateway connects the merchants with the processor. Just like the physical point of sale terminal at a brick and mortar store, the payment gateway acts as the liaison to link transactions taking place on a website and the payment processor. Gateways are required to provide a secure connection to transmit information and maintain safety compliance and standards.
Tokenization - Similar to encryption, tokenization takes the primary account number (PAN) and issues a different number called a token. If your data is hacked by cyber-criminals, they will have no use for the tokens.
Virtual Payment Terminal - No POS hardware is required with a virtual payment terminal. You simply log into your payment account and process cards online. This is used for eCommerce or card-not-present, or phone orders. Merchants use batch processing to upload multiple orders when real-time entry is not required.
By understanding these Top 40 credit card processing terms, you can be a more informed merchant and better understand how to secure the best solutions that will meet your unique operational needs. However, the terms alone are only one piece of the puzzle. For further reading, you may want to see the Who's Who of Payment Processing. You may find that you need industry experts to help guide you in navigating the complicated industry of payment processing. APS Payments assists with this process, and our helpful industry experts are standing by for your free merchant statement analysis and audit. APS Payments functions as a credit card processing service provider/merchant service provider (MSP), ISV, integrations developer, and gateway so that our merchants can have all their payment needs met under one roof and with a much lower cost. Our emphasis on customer support and low fees ensures that our merchants get the most from their card processing experience. Our commitment to transparency while providing the best business processing solutions help us to help thousands of merchants just like you.
Still feeling lost? Let the experts at APS Payments review your merchant statement fees for free!