Industry FAQ, Company FAQ, PCI Compliance, PCI Compliance Services, Fraud & Security, Best Practices
Code of Conduct
In the spring of 2015 amendments were made to the code of conduct for the credit and debit card industry including the provision of access to merchants to a clear dispute resolution process, initiating investigations triggered by valid complaints, and a timely response to these complaints.
Payment Basics
Transaction Process | Authorization
Authorization confirms that the card number is a valid account number and that it has an available credit balance to cover the transaction. However, you could still face a chargeback if the cardholder has not authorized the transaction.
You can obtain authorizations in several ways: through a POS Terminal, e-commerce, website, or by phone.
Generally, the authorization process happens within a few seconds and follows these steps:
Your customer presents his or her credit card information to you. This can happen in person, by phone, or through e-commerce.
Next, you transmit this information to the credit card processor—for example, inserting the chip card into the slot, keying in the pin and entering the dollar amount.
We forward your request to the card company (Visa, Mastercard, or Discover).
Next, the card company sends this request to the card issuing bank.
The issuing bank approves or declines the transaction. This response is sent to the card processor and in turn the card company forwards the response to us.
We forward the response to you (either via your point-of-sale device, e-commerce site or verbally, by phone).
Next, either the card will be approved and you will receive an authorization number, or it will be declined.
Transaction Process | Settlement
Settlement is the process of managing your electronic payment transactions so they clear and be funded.
To begin the settlement process, you, as the merchant, must present approved card transactions to us. We then submit your approved transactions to the card companies (such as Visa, Mastercard or Discover) for clearing.
Here are the steps in the settlement process:
You submit your transaction data to card processor. You might use your point-of-sale device to initiate, or “batch-out” a settlement.
We forward your settlement request to Visa, Mastercard, Discover, for confirmation with the cardholder’s issuing bank.
The card company receives the settlement request either issues a credit to us so we can pay you for the transaction amount. The issuer then pays card processor then issues a debit to the issuer to charge them for the transaction.
Next, the issuer posts the transaction to the cardholder’s account. At the end of the billing period, the issuer bank sends your customer his or her monthly statement.
The cardholder receives his or her credit card statement and pays the bill.
Transaction Process | Funding
When we deposit money into your bank account to compensate you for transactions processed, it is known as funding. This process is in fact an extension of settlement, and sometimes you’ll hear the terms “settlement” and “funding” used interchangeably.
My Payments Guy | Glossary
Rates or Discount Rate
The discount rate is the main cost you will pay to process a transaction and deposit the funds into your bank account. You can often find a bundled fee from a merchant bank that combines their cost with that of the issuing bank, processor, and credit card associations (Visa, Mastercard). This combined rate is based on a percentage of the sale plus a flat fee for each transaction. The interchange fee stays the same, but you can sometimes negotiate a lower processing fee based on the type of business you have, your sales volume and your credit history. New businesses are welcome. Your rate per transaction also depends on how the sale was processed—in-person, online, or by phone. Another consideration is the type of card that was used. You’ll usually get the lowest rate for physical transactions where the credit card is swiped. Each rate is indicated as a percentage of the sale.
Qualified Rate
When a seller accepts and processes a payment using an approved payment processing solution, with the customer presents a standard credit card, debit card of certain types of merit cards. This is the lowest available rate and is usually what is quoted when one asks about rates.
Mid-Qualified Rate
For processed cards that do not fall into the qualified rate category. This could be a card manually keyed into a retail terminal instead of being swiped, or in the case or a rewards or business credit card.
Non-Qualified Rate
For the remainder of cards that do not qualify for either of the lower rates. This may be a card that is manually keyed in versus swiped, when an address is not verified, in the case of missing information or if the card is not authorized within a specified time frame (normally 48 hours). Certain government cards, foreign cards or world cards might be charged at this rate.
Chargebacks
If there is a charge dispute, the cardholder has up to 60 days from the statement date to plead their case. When they file a complaint with the issuing bank, the merchant is charged a chargeback fee of $20 to $35, whether they win or lose the final ruling. Because of this requirement, it is especially important to offer excellent customer service and clearly state your return policy.
Address Verification Fee
If the card isn’t physically present, the seller may have to verify the cardholder’s address to qualify for a better rate. The processor will charge a flat fee for this verification, either separately or bundled with your rate.
Transaction Fee
This fee covers the cost of data transmission between the cardholder’s bank, the merchant, or acquiring bank and your bank.
Merchant Service Provider
The merchant service provider handles all communications between the merchant, card associations, processors, and merchant bank. Viewed as part of the acquiring bank’s sales force, this provider opens your account with a processing bank and sets up a compatible gateway or terminal.
Merchant Accounts
This defines the seller’s relationship with the merchant bank. Some banks provide this account directly, while others use merchant account providers or merchant service providers to sign up new businesses. With a merchant account, you are able to accept credit cards. The owner or business’s credit worthiness determines who gets a merchant account and at what rate.
Payment Gateway
The front-end connection to the credit card companies, a payment gateway transfers payment information from the merchant to the issuing bank for approval, and then to the processor for payment. Most banks, processors, merchant types, and point-of-sale systems are supported. This is required for all online stores.
Processor or Platform
The processor (also known as the platform) transmits payment data that’s needed to authorize and complete credit card transactions. The front-end processor authorizes the card, connects to credit card companies and authorizes the network. The back-end processor receives and then forwards settlement batches to issuing banks in a scheduled time frame. A fee is charged for each transaction, typically bundled into the transaction fee.
Merchant Bank
The merchant bank, also called the acquirer or acquiring bank, provides you with a merchant account. They manage acceptance and payment of credit card transactions, charging the quoted rate per transaction. A portion of this is paid to the issuing bank and to the credit card company.
