Must-Know Payment Processing Terms

Across all segments of the payments processing sector – from accepting fees to security – there are terms that you’ll hear regularly as a business owner. It’s important that you are familiar with these terms and that you understand them so you know what you are agreeing to, and the potential implications they have for your business.

Although this list isn’t exhaustive, it does look at some of the most common terms you’ll hear across all areas of payment processing. We’ll start with chargebacks.

Chargebacks

Unfortunately, this term is one that will become familiar to every business owner sooner or later. Chargebacks occur when a consumer contacts their credit card company to claim their money back for a transaction that they don’t recognize. Chargebacks can also happen if a buyer considers an item isn’t as described, or if it doesn’t arrive.

Friendly Fraud

A type of chargeback that occurs when a customer fraudulently claims they haven’t received an item. The ‘buyer’ will go to their credit card company to claim their money back, potentially leaving the retailer with a loss. Friendly fraud is a growing problem, especially for smaller businesses.

Payment Fee Terms

It’s imperative that you understand all the terminology set out in the terms and conditions you’ll be agreeing to. However, many merchants would agree that understanding the numerous terms associated with payment fees is one of the most crucial aspects.

Here are some of the terms you’ll hear most often:

Interchange Fees

This is a fee taken by merchant’s bank for processing the payment. As explained by Visa, these fees go towards investment in new technology and it contributes to the costs involved in processing the payment.

Under the Durbin Amendment, it was proposed these fees could be set at a maximum of 21 cents per credit card transaction and up to 0.05 per cent of the total payment. Credit card companies set their own rates; these are reviewed at regular intervals.

Monthly Minimum Fees

Sometimes referred to as the minimum monthly service charge. This fee applies when the business owner doesn’t meet the monthly minimum amount of transactions.

Setup Fees

When you first sign up with a payment processor, they might require you to pay a fee to cover the costs of getting started. These fees vary considerably from company to company, but not all payment processors charge them.

Batch Fees

When the working day comes to an end the completed transactions will be sent together in one batch to your bank; this attracts a batch fee.

Security Terms

PCI DSS

Stands for Payment Card Industry Data Security Standard. It’s a standardization that is used worldwide to reduce fraud and to ensure data is stored securely.

Encryption

Stores data as code to protect sensitive details like credit card information.

Tokenization

A form of encryption that replaces letters with ‘tokens’ for greater data security. It’s considered more secure than standard encryption.

Multi-Factor Authentication (MFA)

Requires more than one form of identification. MFA provides enhanced security for data and other information that could otherwise be exploited.

The PCI Security Standards Council has recently introduced new guidance for the implementation of MFA, and it can be found here.

General Terms

Card Not Present (CNP)

Refers to transactions taken over the phone, via the Internet or mail.

Liability Shift

A move introduced in October 2015 that made merchants liable for counterfeit card fraud under certain circumstances. Any merchant who is not EMV compliant is now considered to be more vulnerable to the charges associated with counterfeit chargebacks.

EMV

Takes its name from Europay, MasterCard, and Visa. EMV uses chip technology to make credit card transactions safer.

Address Verification System (AVS)

Allows merchants to verify a customer’s address details by checking the house/apartment number and the zip code of the buyer.

Customer Profiling

Allows merchants to create a profile of their usual customers/customer behavior. Merchants can then set standards that will help determine if a transaction should be marked as suspicious.

Payment Processing Terms

Virtual Terminal

A software system that allows the retailer to take card not present payments via the Internet, mail order, phone, and in some cases, fax. It requires an internet connection to work.

Level II Data

A term used in B2B payment processing. Level II data transactions require an enhanced level of transaction data to be supplied; this allows the B2B merchant to qualify for Level II pricing.

Level III Data

Another term related to B2B payments. It refers to the level of information required to verify a payment transaction. Level III data requires quantities, product descriptions and any applied discounts, etc., in addition to the usual details. With all the information submitted, merchants can qualify for level III pricing.

Multi-Merchant Processing

As the name suggests, multi-merchant processing lets more than one merchant use a credit card terminal; this is ideal when there are multiple merchants working from one place. For instance, in a physiotherapist clinic or a beauty salon.

Interchange Plus Pricing

With this pricing structure, a consistent, flat fee is charged in addition to the regular interchange fee. The charge applies to Visa, MasterCard and Discover transactions and provides the merchant with fairer and more transparent pricing. A deeper explain of how interchange plus prices are determined can be found here.

POS System

A point-of-sales system allows payment processing, but they are also multifunctional. A POS system enables merchants to manage inventory, integrate accounting, create discount vouchers and loyalty cards, while supplying detailed business data.

Payment Processor

Sometimes referred to as a merchant services provider. These companies provide merchants with facilities to accept payments via credit/debit cards, and in other formats like ACH payments etc.

Conclusion

Like every other industry, the payments processing sector has a language of its own – and the numerous terms used in payment processing can be a lot to take in, especially if it’s new to you. However, it’s crucial that every business owner of any size has a basic understanding of the terms they’ll hear most often – especially when they relate to security or fees. If you’re considering payment processing services, be sure to fully understand and familiarize yourself with all of the above terms and definitions before committing to anything.