Credit Card Processing Study Guide: Key Terms and Definitions, Exams of Computer Programming

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NABU, APF and FANF - ✔✔MasterCard implemented a new fee, the Network Access and Brand Usage fee (NABU). And following right on the heels of the MasterCard announcement, on July 1, 2009 Visa implemented their U.S. Acquirer Processing Fee (APF). Card brand dues and assessments - ✔✔In addition to Interchange, each card brand includes additional fees based on the transaction amount and per transaction. These fees are called dues and assessments and typically range from 0.105% - 0.45% on the transaction amount [ $0.0025 - $0.04.] Like interchange, assessments are exactly the same for all credit card processors and no processor can give you a lower rate or a better deal on assessments. AVS and switch fees - ✔✔The fee is charged when your business utilizes the Address Verification Service to check that the address provided by a cardholder matches the address on file with the credit card company. Authorization fee - ✔✔The voice authorization fee applies when you use a telephone dial-up service for transaction authorization. A fee is charged for each call that is made. Voice authorization is useful in the event your terminal or software malfunctions or your internet connection isn't working. Batch fee - ✔✔A fee that is charged when you settle your daily transactions (also known as the batch) with your credit card processor. If you have no credit card transactions to settle on a particular day, you are not charged this fee. Clearing and settlement fees - ✔✔clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Chargeback and representment fees - ✔✔In short, a chargeback is a reversal of funds transferred. Statement or reporting fees - ✔✔Fees that are charged for receiving statements or reports.

Surcharge - ✔✔A charge added to the usual cost Billback - ✔✔Billback or bill back is an accounting service and/or suite of software that is used for cost recovery. ERR Rates - ✔✔Enhanced Rate Recovery Pricing. As a merchant business with an ERR rate of 1.69% for your merchant account, you will be charged 1.69% for any transaction that qualifies on The Interchange Table at 1.69% or below. Interchange Plus - ✔✔Interchange Plus pricing gets its name based on the fact that the rate charged for the transaction comes straight from the Interchange table "plus" a surcharge amount. Tiered - ✔✔Tiered pricing gets its name from the fact that there are multiple tiers set up to determine the price associated with the transaction. Sales Volume - ✔✔The quantity or number of goods sold or services sold in the normal operations of a company in a specified period. Transaction Counts - ✔✔the total number of transactions that are processed within a merchant account. Average Ticket - ✔✔Average ticket is a metric that provides details on the average amount of sales by a given customer. It is used by a range of businesses when analyzing business performance and sales activity. Authorization Fees - ✔✔The amount of money that is charged directly to an individual merchant account each time communication is made between credit card processing software (when the sale transaction is processed online, etc.) or point of sale (POS) terminal (when the sale transaction is processed physically in person) and the authorizing network. Effective rate - ✔✔The effective rate of a credit card processing statement is the total processing fees divided by total sales volume.

Batches - ✔✔Batch credit card processing is the practice of a merchant processing all of its authorized credit card transactions for the day after the close of business or at a time determined by the credit card processor. Chargeback Activity - ✔✔A chargeback is a transaction reversal meant to serve as a form of consumer protection from fraudulent activity committed by both merchants and individuals. PCI Compliance - ✔✔The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that ALL companies that accept, process, store or transmit credit card information maintain a secure environment. Internet Gateways - ✔✔a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. The payment gateway may be provided by a bank to its customers, but can be provided by a specialized financial service provider as a separate service, such as a payment service provider. Virtual Terminals - ✔✔the web version of a physical credit card terminal or Point-of-Sale (POS) machine Dial-up POS System - ✔✔Uses a dial-up connection to process payments Gift and/or Loyalty cards - ✔✔Loyalty programs are structured marketing strategies designed by merchants to encourage customers to continue to shop at or use the services of businesses associated with each program. Check conversion - ✔✔Check conversion is a reformatting service offered by banking merchants. Check conversion allows banks to convert paper checks into electronic ones and then send them to the appropriate receiving bank. The electronic check is forwarded on via the automated clearing house (ACH). Cash advances - ✔✔A cash advance allows you to use your credit card to get a short-term cash loan at a bank or ATM. Unlike a cash withdrawal from a bank account, a cash advance has to be paid back — just

Dial UP Terminal - ✔✔A terminal that can read the track data on a magnetic stripe and communicate transaction information to the frontend platform and receives authorization instructions via the merchant's phone line usually by dialing a toll free number. IP Terminal - ✔✔does the same thing as a dial terminal except that the terminal communicates transaction information to the frontend platform and receives authorization instructions by utilizing the merchant's connection to the internet. EMV Terminal - ✔✔has the ability to take cardholder data from a chip embedded within the card and communicate transaction information to the frontend platform and receives authorization instructions by utilizing the merchant's phone line or Inter- net connection. Wireless terminal - ✔✔provides the ideal solution for businesses seeking the most effective way to complete credit card transactions off-site. Most wireless credit card terminals support credit and debit transactions and are equipped with an internal PIN pad. Wireless terminals can be used on the countertop or in a mobile environment. Sale - ✔✔for a sale, swipe the customer card or manually enter the credit card number, input sale amount, then press enter. The terminal will then transmit information through the network for approval, and a merchant receipt will be printed. Mobile solution - ✔✔allows a merchant to accept credit cards using a cell phone with or without a card swipe mechanism. Internet solution - ✔✔a processing method using a secure web server that provides an interface for merchant websites and shopping carts that require real-time transaction processing. Depending on the merchant's software they can connect to a frontend via either an SSL server or payment gateway to get a real-time credit card authorization. PIN pad - ✔✔an electronic device used in a debit or smart card-based transaction to input and encrypt the cardholder's PIN (personal identification number). The PIN pad is required so that the customer's card can be accessed and the PIN can be securely entered and encrypted before it is sent to the transaction manager of the switch or the bank.

Check reader - ✔✔a payment automation device that reads the MICR (Magnetic Ink Character Recognition) information on checks. Contactless reader - ✔✔any pocket-sized card with embedded integrated circuits that can process and store data and communicate with a terminal via radio waves. Void Last Sale - ✔✔to void the last sale, press the screen button next to void, choose last, verify transaction information on the display screen, then press enter. The transaction will be voided and a receipt showing the void will be printed. Credit / refund - ✔✔to credit a refund, press the screen button next to refund, swipe the customer card, input return amount, press enter, and print merchant receipt. Header Information - ✔✔merchant's business information Deposit Information - ✔✔daily account of the month's transaction information Deposit Item Summary - ✔✔a summary of the month's transactions Settlement/Discount - ✔✔the month's transactions sorted by card type and fees associated Surcharges - ✔✔downgraded transactions EBT - ✔✔electronic acceptance of government benefits (e.g., food stamps and/or cash). These cards are generally accepted at grocery stores. Debit - ✔✔an ATM bankcard, also known as a check card, that allows a merchant to deduct money directly from a consumer's bank account. The use of a true debit card requires the cardholder to enter a PIN to complete the transaction.

acquiring bank (or acquirer) - ✔✔the bank or financial institution that processes credit and/or debit card payments for a mer- chant. Examples of acquirers include HSBC and Wells Fargo. payments processor - ✔✔a company (often a third party) appointed by a merchant to handle payment card transactions for acquiring banks. There are two types of processors: front-end and back-end. Front- end processors have connections to various card issuers and supply authorization and capture services to the acquiring banks' merchants. Back-end processors accept settle- ments from front-end processors and, via The Federal Reserve Bank, move the money from the issuing bank to the merchant bank. Examples of payments processors include Global Payments, First Data, Chase Paymentech, TSYS, and Elavon. merchant - ✔✔any business that accepts credit or debit cards for payment in exchange for goods or services. Examples include Amazon, Target and Best Buy. card brand - ✔✔a network of issuing banks and acquiring banks that processes brand-specific payments. The best known card brands are Visa, MasterCard, American Express, Discover, JCB and China UnionPay. Independent Sales Organization (ISO) - ✔✔an organization or individual registered with a card brand (Visa or MasterCard), and has a payment card relationship with an acquirer or issuer to perform functions on behalf of the acquirer or issuer (i.e., the ISO soliciting merchant accounts, arranging for terminal purchases or leases, providing customer service, and soliciting cardholders). Examples of ISOs include Total Merchant Services and North American Bankcard. service provider, more commonly known as a merchant service provider (MSP) - ✔✔a company or organization that provides transaction processing solutions to merchants; any sales office that offers payment services to merchants. debit car - ✔✔provides the cardholder electronic access to his or her bank account(s) at a financial institution. credit card - ✔✔allows the cardholder to buy goods and services based on the cardholder's promise to pay for these goods and ser- vices at a later date Point of Sale (POS) terminal - ✔✔a device that processes transactions with a debit or a credit card, via a telephone line or Internet connection, typically powered by a power cord.

wireless terminal - ✔✔a device that processes transactions with a debit or a credit card via a cellular (wireless) data network, typi- cally powered by battery pack. mobile payment solution - ✔✔consists of a device and software application (typically a smart phone application and card reader) that process transactions with a debit or a credit card via a cellular (wireless) data network. Examples include Payment Jack and Square. virtual terminal - ✔✔a payment gateway service provider allowing merchants to accept credit card and electronic check pay- ments through their website over an IP (Internet Protocol) connection. PIN Pads / PIN Entry Devices (PEDs) - ✔✔electronic devices used in debit or smart card- based transactions to input and encrypt the cardholder's Personal Identification Number (PIN) Authorization - ✔✔The cardholder presents the card as payment to the merchant; merchant submits the transaction to the acquirer (acquiring bank) through the payment processor. The acquirer verifies the credit card number, the transaction type and the amount with the issuer (card-issuing bank) and reserves that amount of the cardholder's credit limit for the merchant by use of an authoriza- tion code. An authorization will generate an approval code, which follows the life of the transaction through the processing systems. Batching - ✔✔Authorized transactions are stored in batches, either in the terminal or on the processor's host, which are sent to the acquiring clearing processor on a predetermined schedule, also know as "auto batch". If a transaction is not submitted in the batch, the authorization will stay valid for a period of time, determined by the issuer, after which the held amount will be returned to the cardholder's available credit (see authorization hold). Some transactions may be submitted in the batch without prior authorizations; these are typically seen where the authorization was unsuccessful but the merchant still attempts to force the transaction through. (Such may be the case when the cardholder is not present but owes the merchant additional money, such as a hotel stay extension or car rental.) Clearing and Settlement - ✔✔The acquirer sends the batch transactions through the card brand, which debits/credits (if charge- backs and returns exceed sales for the day) the issuer for payment and credits/debits the acquirer. Essentially, the issuer pays the acquirer for the transaction.

Percentage keyed vs. swiped - ✔✔monitoring the percentage of swiped transactions vs. keyed transactions is a simple way to tell whether your merchant has shifted from retail to MOTO (mail or telephone order) or internet. If you see more keyed transactions than indicated and subsequently approved on the application, you should talk with your merchant to understand why transactions are being keyed. Increased key-entered transactions may also be an indicator of factoring or money laundering where the cards are not present. Repeat or excessive authorizations - ✔✔evaluate authorization logs to help determine whether your merchant has software problems that cause repeated authorizations or whether your merchant is being targeted by a fraudster seeking to find good card numbers. Monitoring excessive authorizations is also a way to help your merchant avoid brand fees associated with non-settled transactions. Merchant information changes - ✔✔another area to monitor is when merchants change checking accounts, contact information, or websites. It is important to understand why the changes are being made, how often, who is authorizing the changes, and what impact the changes might have on the business. Financial strength of the business - ✔✔Periodically checking the financial health of your merchant and watching trends in processing volume can help protect against unexpected financial loss. If the merchant is struggling to cover their costs of goods it is possible owed fees may be returned as NSF (non-sufficient funds). Future delivery - ✔✔The risk with transactions dependent on the future delivery of goods and services is that the chargeback period may be quite lengthy. Examples include household furniture and/or appliances, membership dues, home renovation/ remodeling, or service contracts. If the merchant goes out of business prior to delivery or completion of services and is not capable of covering the returns/chargebacks, the acquirer will absorb loss. PIN debit transactions - ✔✔The regulations for PIN debit and the PIN debit network rules allow for cardholder disputes in certain instances. You should be aware of these regulations and understand the potential impact on your business. Data security - ✔✔With the increase in merchants using point of sale systems (not just a terminal) comes an increase in the likeli- hood that you will experience a data breach at a retail merchant.

Diligence should be used in ensuring software and hardware in use is PCI compliant and that your merchant follows proper procedures and guidelines for protecting cardholder data. EMV Chip Card - ✔✔If a consumer presents a chip card and the merchant is not able to accept the card AND the consumer claims fraud, the liability is now held by the merchant. This is a new risk not previously faced by card present merchants. The details of this shift are below. Address Verification Service (AVS) - ✔✔The Address Verification System (AVS) is a system used to verify the address of a person claiming to own a credit card. A2A (Account-to-Account) - ✔✔The automatic transfer of funds from one account to another. An example is the Fedwire or wire transfer transaction. AAV - ✔✔See Accountholder Authentication Value. ABA - ✔✔See American Bankers Association. ABA Transit Routing Number - ✔✔The unique number devised by the American Bankers Association (ABA) in 1910 that identifies the bank issuer of depository accounts. It is a 10‐digit number (nine digits and a verification digit) issued by the Federal Reserve Bank to identify each bank by a bank identification number. This number (also called the ABA number and the routing transit number) has changed over the years to accommodate such things as the Federal Reserve System, the advent of MICR, and the implementation of the Expedited Funds Availability Act (EFAA). It is used both in check processing and in the ACH (Automated Clearing House) routing of electronic checking account debits. The number is usually the first sequence of numbers preceding an account number at the bottom of a check. Access Card - ✔✔A plastic card used in an automated teller machine (ATM) to complete deposits, cash withdrawals, account transfers, and other related account functions. Access Control System Format - ✔✔In the smart card industry, a term referring to the bit pattern that the reader transmits to the control panel. The format specifies how many bits make up the data stream and what these bits represent. For example, the first few bits might transmit the facility code, the next few the unique ID number, the next few parity, and so on. (Source: Smart Card Alliance).

Account Maintenance - ✔✔For both the card issuer and the card acquirer, the operation involving nondollar changes to the database, such as name, address, and checking account changes, product profiles, billing information, and rate changes. Account Mask Information - ✔✔Editing criteria used to verify the accuracy of a seller's account number in certain electronic payment transactions. Account Number - ✔✔Issuing: An issuer‐assigned number that identifies a cardholder's account, the issuer, and the type of financial transaction card (e.g., commercial card or debit card). Acquiring: An acquirer‐assigned number that identifies a particular merchant or group of merchants. Note: The first six digits of each number identify the issuing and acquiring institutions. See BIN. Account-Number-Verifying Terminal - ✔✔A point‐of‐transaction terminal that may be required by Visa at specified high‐risk locations. This terminal reads the account number encoded on the magnetic stripe or embedded in the chip (smart card), compares the last four digits of the encoded account number to the keyentered last four digits of the embossed account number, and transmits the full, unaltered contents of the magnetic stripe or chip in the authorization message. Accounts Payable (A/P) - ✔✔Debts a business owes its creditors. Accounts Receivable (A/R) - ✔✔Debts owed to a business. Account Receivable Entry (ARC) - ✔✔A single-entry debit initiated by an automated clearinghouse (ACH) originator to a consumer account of an ACH receiver pursuant to a source document provided by the receiver via postal mail, or at a drop box location or via electronic means. When a paper check payment is converted to an ACH electronic payment and with ARC, the check is destroyed after conversion; in POP, the check is returned to the check writer at the time of payment. These transactions flow through the ACH Network. (Source www.NACHA.org) Account Takeover - ✔✔See Cash Theft. Account-to-Account - ✔✔See A2A

ACH - ✔✔See Automated Clearing House ACH Fraud - ✔✔Utilizing the automated clearinghouse network to access funds illegally. Some ACH fraud categories include: unauthorized transactions; returns/60‐day right of recredit; consumer fraud against merchants; fraudulent use of stolen bank accounts; transaction‐level fraud; and merchant‐level fraud. ACH Network - ✔✔The Automated Clearing House (ACH) Network facilitates commerce, electronically, by serving as an efficient, reliable and secure payments system. NACHA, led by member depository financial institutions and payments associations, fulfills this purpose by managing the development, administration, and governance of the ACH Network, and by providing superior services and value to its members as the industry association responsible for ACH payments. The ACH Network connects the originating depository financial institutions with the receiving depository financial institutions. ACH Operator - ✔✔The central clearing facility, operated by a Federal Reserve Bank or a private‐sector organization on behalf of depository financial institutions, in which participating financial institutions transmit or receive ACH entries. ACH Regional Associations - ✔✔The 36 regional governing bodies of the Automated Clearing House Network rules and regulations. Acquirer - ✔✔The financial institutions that directly or indirectly enter into contractual relationships with merchants for the acceptance of plastic cards as a form of payment and for maintaining and servicing such relationships. Acquirer Fraud Activity Level - ✔✔See Acquirer Monitoring Program. Acquirer Monitoring Program - ✔✔A program that monitors an acquirer's fraud activity level and provides reports to the acquirer when its level exceeds established thresholds. Advices and/or Alerts are sent at predefined volumes of fraudulent activity, when the fraud amount exceeds a set dollar amount per month, or when the acquirer's fraud activity to sales ratio exceeds a calculated average. Acquirer Payment Gateway - ✔✔See Payment Gateway.

Activity File Parameters - ✔✔Issuer‐established maximum limits on the number and value of transactions that the Association may authorize on the issuer's behalf. Activity Limits - ✔✔The maximum dollar amount, maximum transaction count, or both that can be authorized against a card. ADA - ✔✔See Americans with Disabilities Act. ADC - ✔✔See Account Data Compromises. ADV - ✔✔See Automated Accounting Device. Addenda Record - ✔✔An electronic record attached to an ACH payment entry, used for the purpose of transmitting payment‐related information. Addendum - ✔✔A supplemental part or section added to a book or contract. Also called an appendix or schedule. Additional Commercial Card Data - ✔✔Data required as part of a bank card transaction in addition to the normal data such as cardholder's name and billing address. Additional data— also called enhanced data or level 2 data—can include information relating to sales tax, accounting code, and fuel consumption for fleet cards as required by the card companies on business, corporate, purchasing, and fleet cards. Address Verification Service (AVS) - ✔✔Visa and MasterCard service through which a merchant can verify a cardholder's billing address before completing a transaction. This service is typically used in "card‐not‐present" transactions such as mail order/telephone order (MOTO) and Internet transactions. AVS helps verify the legitimacy of the cardholder but does not guarantee that the transaction is valid. Responses to the AVS request are: Y (exact street and zip code match); - ✔✔

A (partial match, street only); - ✔✔ Z (partial match, zip code only); - ✔✔ N (no match); or - ✔✔ U (information is unavailable). - ✔✔ Adjudication - ✔✔In the health care field, the administrative procedure used to process a claim for service according to the covered benefits. The POS industry has implemented some programs to work directly with insurance companies and HMOs to process claims electronically and manage the co‐ payment process. Adjustment - ✔✔A transaction used to correct an incorrect or out‐of‐balance situation. An adjustment can be made either at the time a terminal is balancing or during the reconciliation of the settlement data after a transaction has been cleared. ADSL - ✔✔See Asymmetric Digital Subscriber Line. ADV - ✔✔See Automated Accounting Device. Advanced Encryption Standard (AES) - ✔✔A federal information processing standard (FIPS) outlined in FISPA Publication 197 that specifies a cryptographic algorithm for use by U.S. government agencies to protect sensitive, unclassified information. AES uses keys that are 128, 196, and 256 bits to encrypt and decrypt information in blocks of 128 bits. It can encrypt data much faster than 3DES (Triple DES), which it replaces. Advance-Fee Loan - ✔✔A loan or line of credit calculated so that all of the fees and finance charges are deducted before the consumer receives the principal.