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Industry Terms and Definitions

If you are in the market for a merchant account or have been processing credit card transactions for some time, you know that the credit card processing and merchant account industry is very confusing.  Below is a list of industry terms to help make some sense of all the confusion.
Interchange Fee the amount that credit card associations (Visa, MC, Discover, etc.) charge for each credit card transaction.  There are different interchange fees that correspond to the different types of credit cards (debit, credit, rewards, commercial).
Interchange Pass-through also called interchange-plus, is the pricing model that allows merchants to pay a transaction fee and the exact interchange fee for each transaction, from the credit card associations, instead of paying a marked-up discount rate. For example, interchange plus 5¢ means that the merchant will pay 5¢ in addition to the applicable interchange fee for the specific card.
3 Tier Pricing Model the most popular pricing model that features the merchant account provider dividing the interchange fees into 3 different tiers or levels, qualified, mid-qualified,  and non-qualified.  Instead of paying the exact interchange fee, 3 tier merchants pay a marked-up fee (discount rate) for each different tier.
Transaction Fee A fee charged by a merchant account provider for every completed transaction.
Chargeback a transaction that is billed back to the merchant after the sale has been settled.
Authorization the process that verifies that the card holder has sufficient funds to cover the pending transaction.
Address Verification System (AVS) verifies that the billing address given by the customer matches the credit card.
Discount Rate a percentage of each transaction that is charged by the merchant account provider.  Usually is made up of the interchange fees and the processors mark-up.
Merchant Account an account that allows a business to accept credit cards as a form of payment.
Online Payment Gateway or virtual terminal is an internet-based portal used for processing credit card transactions. 
Batch a group of transactions that have been authorized and captured, but not yet settled.  Most merchants "batch out" at the end of the day.

 

 
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