Credit card processing companies offer a variety of different services. Whether you process credit cards using online processing software or use a credit card swipe terminal, you’ll probably need to open some type of merchant processing account.
Here are some common industry terms that you’ll need to know before you start to shop for services.
Cardholder: An owner or “holder” of a credit, debit or ATM card or the person who is using a credit card to pay for goods or services.
Issuing Bank: The institution or organization that provides credit or a card to a customer. Issuing banks need not be actual banks–card issuing companies such as American Express or payroll debit card companies can issue cards.
Merchant Account: The “go-between” account that acts as an intermediary between your business bank account and your customers’ credit accounts. Merchant service account providers verify and process credit cards transactions and then transfer funds in “batches” to your business’ bank account.
Chargebacks: Returns from a merchant account or funds that are “charged back” to a purchaser. Chargebacks are usually associated with fraudulent or unauthorized transactions.
Chargeback Fees: The penalties or fees associated with processing a chargeback. Chargebacks are taken from your merchant account and carry a high level of risk for the merchant account provider–fees are usually calculated per-occurrence (like a bank overdraft fee) or according to the merchant account provider’s policies.
Magnetic Transactions: Processing a credit card transaction using a magnetic terminal or POS system. Magnetic transactions typically carry less risk than online or phone transactions because the card is physically present–rates are usually lower for this type of transaction.
Processing Software: Software needed to process cards online. Processing software collects card information similarly to the way a swipe machine would and sends the information to the merchant account provider for verification and processing.
Net Settlement: The total dollar amount transferred into your own business bank account after a “batch” of sales has been processed, usually at the end of a business day.
Pass-through Fee: A fee assessed when a transaction fails, typically because account information cannot be verified.