Glossary

Glossary
ABA ROUTING NUMBER: Unique bank identifying number that directs electronic ACH deposits
to the proper bank. This number is usually printed on the bottom of a check with magnetic ink.

ACCOUNT NUMBER: A unique sequence of numbers assigned to a cardholder account, which

identifies the issuer and type of financial transaction card.

ACCOUNT NUMBER TRUNCATION: A security feature, which refers to replacing digits in the
cardholder’s account number with the letter “x” so the entire card number is not displayed. It is
required in some states.

ACH: See AUTOMATED CLEARINGHOUSE.

ACH OPERATOR: A Federal Reserve Bank that provides clearing, delivery and settlement services
for ACH entries. The ACH Operator processes and edits files based on the requirements of the
ACH Rules. The Operator also evaluates the credit worthiness of and applies risk control
measures to their Participating DFIs.

ACQUIRER: An acquirer is a bank that sponsors merchants for the acceptance of credit card
transactions.

ADDRESS VERIFICATION SYSTEM: Address verification service is a system available to

merchants who key transactions, which matches the street number and zip code of the cardholder
with the information given to the merchant. This allows the merchant to verify the person
requesting the goods or services is the person who owns the card.

APPROVAL: A code assigned by a card-issuing bank allowing a sale to be charged against a

cardholder’s account. Approval means the amount is within the cardholders remaining credit
limit and the card has not been reported lost or stolen. Approvals are requested via an
AUTHORIZATION.

AMERICAN EXPRESS: An organization that issues cards and acquirers transactions, unlike VISA
and MASTER CARD, which are bank associations.

AMEX: See AMERICAN EXPRESS.

ARBITRATION: The procedure used to determine the responsibility for a chargeback-related

dispute between two members.

ATM: ATM is an acronym for Automated Teller Machine.

AUTHORIZATION: An authorization is the request to charge a cardholder. Reduces the

cardholders “Open to Buy” but does not actually charge the account. Authorization must be
FORCED in order to charge the account. If not used within a certain time period, the
authorization will expire. Time period determined by issuing bank.

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AUTHORIZATION CODE: The numerical or alphanumerical code sent by the card issuer, given to
sales transaction as verification the sale has been authorized. The authorization code is always
included on the merchant sales draft.

AUTH ONLY: A transaction in which the merchant does not intend to charge the cardholder until
a later time, if at all. See PRIOR AUTHORIZATION.

AUTOMATED CLEARING HOUSE: A method of transferring funds between banks via the Federal
Reserve System used by most, but not all financial institutions.

AVERAGE TICKET: An average ticket is the average dollar amount of merchant credit
transactions.

A.V.S.: See ADDRESS VERIFICATION SERVICE.

BANK IDENTIFICATION NUMBER: The BIN number is the first six digits. FAPS BIN = 415434.

BASIS POINT: A basis point is one-one hundredth of a percent. DISCOUNT rates are expressed
as basis points.

BATCH: A batch is a collection of transactions. Usually a merchant has one batch per day or per
shift.

BATCH PROCESSING: A type of data processing where related transactions are transmitted as a
group for processing.

B.I.N.: See BANK IDENTIFICATION NUMBER.

BUNDLED RATE: A discount rate that includes communication costs as well as transaction fees.
Also referred to as a flat rate.

CAPTURE: In a terminal based system, refers to SETTLEMENT. In a host-based system,

transactions are usually captured when authorized, but may still require settlement.

CARD ISSUER: See ISSUER, ISSUING BANK.

CARD VALIDATION CODE: A unique encrypted three-digit value that is encoded in the magnetic
stripe and printed on the back of a MasterCard. It is used as an additional means of Cardholder
validation during the authorization or referral process.

CARD VERIFICATION VALUE 2: A unique encrypted three-digit value that is encoded in the
magnetic stripe and printed on the back of a Visa Card. It is used as an additional means of
Cardholder verification during the authorization or referral process.

CERTIFICATION: The process of a terminal or software provider meets certain standards required
by the certifier.

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CHARGEBACK: The acts of taking back the funds that have been paid to a merchant for a
disputed or improper credit card transaction. The issuer initiates this procedure after the acquirer
has begun the clearing process.

CHARGEBACK PERIOD: The number of calendar days in which a MEMBER may charge sales back
to the merchant, beginning with the day after the record is first received by the member or agent
and continuing until the end of the day on which it is dispatched as a chargeback item.

CHARGEBACK REASON CODE: A two-digit code identifying the specific reason for a chargeback
found in FDR on the MS screen.

CHECK 21: Check 21 is a law enacted to allow banks to send images of checks rather than the
actual paper items. The actual check is destroyed and replaced with an IRD (Image Replacement
Document). The IRD must meet specific requirements and will be considered a legal document.

CHECK GUARANTEE: A service which guarantees check payment (up to the limit defined for the
account), provided that the merchant follows correct procedures in accepting the check. The
service determines whether the check writer has previously written delinquent checks.

CHECK TRUCATION: Deposited checks are held at the financial institution or Federal Reserve
Bank of first deposit instead of being sent to the drawee financial institution. Information from
the checks is transmitted electronically from the truncating financial institution to the drawee
financial institution.

CHECK VERIFICATION: A service provided in which a merchant accesses a national negative file
database through their terminal/register to verify or authorize the person has no outstanding bad
check complaints at any of the member merchants. This is not a guarantee of payment to the
merchant.

CLASS A CERTIFIED: Certification of a product with Help Desk support.

CLASS B CERTIFIED: Certification of a product without Help Desk support.

CLEARING: The process of exchanging financial details between an ACQUIRER and an ISSUER to
facilitate posting of a cardholder’s account and reconciliation of a customer’s settlement position.

CLEARING HOUSE: A voluntary association of depository institutions that facilitates the clearing
of checks and electronic items through the direct exchange of funds among members.

CLOSE BATCH: The processes of transactions with authorization codes are sent to the processor
for payment to the merchant.

CODE 10: The Code 10 authorization request alerts the card issuer to the suspicious activity—
without alerting the customer. During a Code 10 call, you will speak to the card issuer’s special
operator, who will provide instructions on any necessary action.

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COMMERCIAL CREDIT CARD: is defined as a payment card issued by a business to its

employees for buying services, goods, or supplies for that business. There are three types of
commercial credit cards: Corporate Card, Business Card and Purchasing Card
CONSUMER: Usually refers to a natural person not engaged in commercial transactions.

CONSUMER ACCOUNT: A deposit account held by a participating DFI and established by a

natural person primarily for personal, family, or household use, and not for commercial use.

COPY REQUEST: See Retrieval Request.

CREDIT: The return of funds to a cardholder’s account for a sale that has already been authorized
and settled.

CVC: See CARD VALIDATION CODE.

CVV2: See CARD VERIFICATION VALUE 2.

DAILY DISCOUNT: When a set percentage is taken from the merchants daily deposit. The
merchant is billed the difference at months end.

DDA: See DEMAND DEPOSIT ACCOUNT.

DEBIT: An entry to the record of an account to represent the transfer or removal of funds from
the account.

DEBIT CARD: An ATM bank card used to purchase goods and services and to obtain cash, which
debits the cardholder’s personal deposit account. Requires a PIN (Personal Identification
Number) for use.

DECLINE: Response to transaction request meaning the card-issuing bank will not authorize the
transaction.

DEPOSIT: When a merchant closes a batch and sends the transactions to the host computer for
settlement (see RELEASE). Batches should be closed on a daily basis to ensure the lowest
discount rate.

DEMAND DEPOSIT ACCOUNT: A standard checking account into which electronic funds can be
transferred.

D.F.A. (Dues, Fees, and Assessment): Additional membership fees charged by VS/MC/Disc
passed directly to the merchant.

DISCOUNT RATE: Amount charged to a merchant by the ACQUIRING BANK for processing a
transaction. It is usually a percentage of the transaction amount. The rate is typically based on
transaction volume (total dollars) and average ticket.

DOWNGRADE: Mid-Qualified and Non-Qualified transactions did not meet the criteria for
Qualified transactions.

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DOWNLOAD: To copy a file from a remote computer ‘down’ to your computer. This is also
utilized with the transaction processing equipment.

DRAFT CAPTURE: Refers to SETTLEMENT.

ELECTRONIC CHECK CONVERSION: A payment transaction which originally started out as a

paper check, but which has been completely converted to an ACH.

ELECTRONIC CHECK PRESENTMENT: The electronic transmission of the contents of a cash letter
(as captured from the MICR line on each check) to the drawee bank ahead of the physical arrival
of the checks actually in the cash letter, with the physical items to either follow at some later time
or be truncated at the Federal Reserve Bank of first deposit.

ELECTRONIC DRAFT CAPTURE: A system in which each transaction is routed to the host
computer for processing and storage. The stored transactions are used to create settlement files
and transaction reports.

ELECTRONIC FUNDS TRANSFER: The paperless act of transmitting money through a computer
network. Usually does not refer to CHECK GUARANTEE.

ENCRYPTION: The process of encoding a PIN pad with the processor’s configuration and key
injection for the purpose of accepting debit cards. Most common formats are DUKPT (Derived
Unique Key Per Transaction) and Masterkey (MasterCard’s debit key encryption format.)

EXCEPTION ITEM: Any entry that requires special attention or processing, such as return entries,
stop payments, notifications of change, dishonored returns, etc.

EXTERNAL SALES AGENT: Sales Office not directly affiliated with First American. (i.e. EMG)

FEDERAL RESERVE SYSTEM: The system of 12 regional Reserve Banks, the seven member Board
of Governors, and member depository institutions created by Congress to enforce monetary
policy and ensure the stability of the financial system. The Federal Reserve Banks serve as the
central bank of the United States.

FLOAT: The additional value of funds generated in the process of collection. Float arises because
the current holder of an entry has given credit (funds) to a previous holder before the current
holder has received usable funds from the institution on which the entry is drawn.

FLOOR LIMIT: This was a preset limit established by issuer that allowed merchants to accept
credit card sales with authorization, provided the merchant check to see the card number was not
listed on a Warning Bulletin for lost or stolen cards. Floor limits are now rarely used.

FORCE: A sale transaction for which a merchant previously received a voice authorization. A
Force is done so the previously authorized transaction can be settled and the merchant can
receive funds. Also known as POST AUTHORIZATION.

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FRANKING: An electronic stamp typed across the front of an electronically converted check. The
words “ACH PROCESSED” will appear in red ink. This is replacement of the stamp received in
welcome kits. The stamp shows “VOID ACH PROCESSED”.

GUARANTEED RATE: The percentage rate applied to the total dollar amount for approved
guarantee transactions.

HARD COPY: A paper copy of a transaction.

HIGH TICKET: Approved transaction high. Processing a transaction above this amount can result
in account suspension.

HOST CAPTURE: Type of transaction capture in which transaction information is stored in the
processor’s host computer and not at the merchant’s POS system. Compare to TERMINAL
CAPTURE. Settlement occurs at the host computer and is automatic. No merchant initiation is
required.

HOST COMPUTER: Refers to the computer at the processor that is dialed for authorization and
settlement.

HOST SETTLE: The Base I authorization system that automatically closes a batch.

IMAGE REPLACEMENT DOCUMENT (IRD): The legal document used to replace a check. The
document must meet specific requirements for it to be considered and IRD. This became
effective with the Check 21 law which allows banks to exchange these images rather than the
actual check itself.

IMPRINT: Can be electronic (by swiping a card through a card reader) or manual (by obtaining a
physical imprint using an imprinter). One of the two is always required on a credit card
transaction to prove the card was present.

INTERCHANGE: Interchange is the money that an issuing Visa, MasterCard , Discover bank
receives as income for financing a transaction through the grace period and/ or for posting it to
the cardholder checking statement.

ISO: Refers to Independent Sales Office.

ISSUER: A bank that provides credit cards to consumers.

ISSUING BANK: Same as the issuer. The actual bank that issues the customer credit card.

KEYED ENTRY: See MANUAL ENTRY.

LOCAL REVIEW: The ability for a merchant to review, from their terminal, the contents of a batch
before settlement.

MAG STRIPE: See MAGNETIC STRIPE.

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MAGNETIC INK CHARACTER RECOGNITION (MICR) LINE: The preprinted bottom line of a
paper check which contains the routing number of the drawee and the check number printed in
machine readable magnetic ink.

MAGNETIC STRIPE: A stripe on the back of a bankcard that contains magnetically encoded
cardholder account information. The name of the cardholder is stored on Track I and the account
number and expiration date are stored on Track II. The magnetic stripe is made up of tiny iron-
based magnetic particles in a plastic-like film. Each particle is really a tiny bar magnet about 20-
millionths of an inch long.

MANUAL ENTRY: Credit card information that is entered via terminal keypad or keyboard instead
of swiping the card through a card reader.

MASTERCARD: An association of banks that governs the issuing and acquiring of MasterCard
credit card transactions and Maestro debit transactions.

MEMBER: A financial institution that is a member of VISA USA and/or MASTER CARD
International.

MEMBER SERVICE PROVIDER: MasterCard term for a company that is sponsored by an acquiring
bank to solicit and sometimes support merchants.

MERCHANT: A retailer, or any other entity (pursuant to a merchant agreement), that agrees to
accept credit cards, debit cards, or both, when properly presented.

MERCHANT AGREEMENT: A written agreement between a merchant and a bank (or possibly a
merchant, a bank, and an ISO) containing their respective rights, duties, and warranties with
respect to the acceptance of the bankcard and matters related to bankcard activity.

MERCHANT BANK: A bank that has entered into an agreement with a merchant to process
bankcard transactions, also called the ACQUIRER OR ACQUIRING BANK.

MERCHANT CATEGORY CODE: A code assigned by an acquirer to a merchant to identify the

Merchant’s principal trade, profession, or line of business. This four-digit code is referred to as
the SIC CODE.

M.I.D.: Refers to the Merchant Identification Number. This unique number identifies a merchant.

MID-QUALIFIED: A broad term that describes a transaction that did not interchange at the best
rate because it was entered manually or was not settled in a timely manner.

M.I.C.R. (Magnetic Ink Character Recognition): Numbers printed on the bottom of a check with
ink containing particles of a magnetic material.

MINIMUM PER CHECK FEE : Fee charged if the transaction fee and the guarantee rate do not
add up to this amount. This fee is only associated with Conversion products.

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MODEM: Stands for MODulatorDEModulator. An electronic telecommunications hardware device

used by the terminal or PC POS to dial up the PROCESSOR.

MONTHLY DISCOUNT: When no percentage rate is taken from the merchant’s deposit. The
merchant is then billed everything at months end.

MONTHLY MINIMUM: For Credit cards, it’s the minimum combined credit card interchange fees
(rates only & item fees) that a merchant must meet per month. For checks, it is the combined
guaranteed rate and transaction fee that a merchant must meet per month.

MULTI-MERCHANT: An account that has multiple merchant accounts linked together in order to
share one credit card terminal.

MULTI-TRANS MODE: HOST COMPUTER that allows multiple transactions with the same
telephone call.

NACHA (The Electronic Payments Network): The national trade association for electronic
payments, which establishes the rules, industry standards, and procedures governing the
exchange of commercial ACH payments by depository financial institutions.

NCN (National Check Network): The national database utilized by First American to verify
positive and negative data on checks.

NODE: One of many points that are connected together to form a network. The terminal dials the
closest node and becomes connected to a nationwide telecommunications network.

NON-QUALIFIED: A broad term that describes a transaction that did not interchange at the best
rate. Usually a government, business, or foreign card, or a transaction that was not settled in a
timely manner.

NOTIFICATION OF CHANGE (NOC): Information sent by an RDFI to notify the ODFI that
previously valid information for a Receiver has become outdated or that information contained in
a prenote is erroneous. These items have the Standard Entry Class Code COR.

OPEN TO BUY: The amount of credit available at a given time on a cardholder’s account.

ORIGINAL DRAFT: The original copy of the forms and signature used in the transaction. Also
referred to as the HARD COPY.

ORIGINATING ACH OPERATOR (OACH): The ACH Operator which receives entries from the
ODFI.

ORIGINATING DEPOSITORY FINANCIAL INSTITUTION (ODFI): The financial institution which

delivers ACH entries directly or indirectly through a third party to its ACH Operator.

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ORIGINATOR: The person or organization who had authorized an ODFI to transmit a credit or
debit entry to the account of a Receiver with an RDFI, or if the Receiver is also the RDFI, to such
Receiver. In some cases, the ODFI may also be the Originator.

PCI: It is the standard that was created by the card brands (Visa, MasterCard, American Express
and Discover) to protect cardholder data.

PIN: Personal Identification Number used by cardholder to authenticate card ownership for ATM
or debit card transactions. The cardholder enters his/her PIN into a PIN pad. Customer entry of
his/her PIN is required to complete an ATM/Debit card transaction.

PIP: Refers to Plural Interface Processing. Split dial capability that allows terminal to process
American Express directly through the AMEX network, thereby eliminating AMEX authorization
fees.

POINT OF SALE (POS): The place and time at which a transaction occurs. This term also refers to
the devices or software used to capture transactions.

POST AUTHORIZATION: A sale transaction when a VOICE AUTHORIZATION is received at an

earlier time.

POSTING: The process of recording debits and credits to an individual cardholder account
balances.

PREARRANGED PAYMENT or DEPOSIT (PPD/CCD): An automated consumer payment

application, usually in the context of a standing obligation, which debits or credits the consumer’s
account as their financial institution to satisfy that obligation. Examples of PPD transactions
include Direct Deposit of payroll and Direct Payment of charitable contributions and so forth.

PRESENTMENT: The process of physically or electronically “presenting” items to the financial

institution upon which they are drawn in exchange for collected funds.

PRIOR AUTHORIZATION: An authorization that has been obtained previously, either through
operator or through credit card equipment.

PRIVATE LABEL CARD: A bank card that can be used only in a specific merchant’s store.
Typically not a bank card.

PROCESSOR: A transaction processor; a large computer center that processes data from credit
card transactions and settles funds to merchants.

QUALIFICATION: Level at which a transaction interchanges. Level of qualification (qualified, mid-

qual, e.t.c) is dependent on how credit card number is entered, how quickly a transaction is
settled, the type of industry, specific information, etc.

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RECEIPT: A hard copy description of the transaction that occurred at the point of sale. Minimum
information contained on a receipt is: date, merchant name and location, portion of the account
number, amount, reference number and/or authorization number.

RECEIVER: An individual, corporation or other entity who has authorized an Originator to initiate
a credit or debit entry to a transaction account held at the RDFI.

RECEIVING DEPOSITORY FINANCIAL INSTITUTION (RDFI): A financial institution which

receives ACH entries directly or indirectly from an ACH Operator.

REFERENCE NUMBER: A code given to a transaction by host-based processors.

RELEASE: A BATCH is sent to the Base II processor for SETTLEMENT.

RETURN ITEM: Any item which cannot be processed and is being returned by the RDFI to the
ODFI for correction or reinitiating.

RETRIEVAL REQUEST: A request to a merchant for documentation concerning a transaction,

usually a cardholder dispute or suspicious sale/return. A Retrieval Request can lead to a
CHARGEBACK.

REVERSAL: A Reversal is a process that “erases” an incorrect transaction that was settled from the
cardholder’s account and protects the merchant against chargeback’s.

ROUTING/ TRANSIT NUMBER (RTN): Also known as the ABA number. A nine digit number
(eight digits plus a check digit) which identifies a specific financial institution. Routing numbers
are administered by the Routing Number Administrative Board under the sponsorship of the
American Bankers Association and officially maintained and published by Thomson Financial
Publishing.

SETTLEMENT: A transfer of funds between two parties in cash, negotiable items or on the books
of a mutual depository (e.g., a Federal Reserve Bank), to complete one or more prior transactions
and made subject to a final accounting. Settlement for the ACH system usually occurs through
settlement day. The settlement process is final on the settlement date for credits; however, the
Federal Reserve Bank does reserve the right to reverse the settlement process on debits up to a
certain interval after settlement day in the event of the failure of any of the participants in the
system.

S.I.C. CODE: Refers to Standard Industry Classification. These codes are four digits used to
identify the business type.

SINGLE ENTRY: A one-time ACH entry.

SOURCE DOCUMENT: The document used to initiate an ACH transaction. This is typically a
check (specifically for POP and ARC transactions). This document can not be negotiated as a
check after it has been converted to an ACH transaction.

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SWIPED CARD: Credit card information that is read directly into the terminal as a result of
swiping or sliding the credit card through a reader. The information magnetically encoded in the
magnetic stripe is transmitted. This information includes secret data that helps validate the card.

T & E CARD (Travel and Entertainment): Credit cards that typically require payment in full
verses making partial payments to balance (e.g. American Express, Diner’s Club, Carte Blanche).

TERMINAL CAPTURE: Type of software in which transaction information is stored in software,

not at the host computer. Merchants using terminal capture must initiate SETTLEMENT at the end
of each day or shift. Compare to HOST SETTLE.

THIRD PARTY PROCESSOR: A non-member agent employed by an acquiring bank, which

provides authorization, settlement, and merchant services to a merchant.

TRANSACTION: Action between cardholder and merchant that results in activity on a cardholder
account.

TRANSACTION FEE: A per transaction charge incurred by merchants. This is in addition to the
percentage DISCOUNT fees.

TRANSACTION FILE: A file created by processors that contain all of the transactions for the
previous day. Some processors create two files, one of authorized transactions and one of settled
transactions.

TRIPLE DES TRIPLE DATA ENCRYPTION STANDARD: Pinpad encryption software.

UNAUTHORIZED: An ACH item is “unauthorized” if it was never originally authorized; if it clears

for more than was originally authorized; or if it settles earlier than was previously authorized.

VISA: An association of banks that governs the issuing and acquiring of Visa credit card
transactions.

VOICE AUTH: A transaction authorization that is provided by an operator, usually when an issuer
sends a “Please Call” message to the merchant instead of an authorization number.

VOID: The cancelation of a transaction that was not settled.

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