3

An extra authentication step for online card payments, in which the issuing bank confirms the cardholder before the purchase is approved.

3-D Secure adds a check between the checkout page and the authorization, where the issuing bank verifies that the real cardholder is making the purchase. Newer versions often do this silently in the background using device and transaction data, and only ask the shopper for a code or app approval when something looks unusual.

For an online business, the main benefit is fraud protection: when a transaction is successfully authenticated, liability for certain fraud chargebacks can move from the merchant to the issuer. The exact rules depend on the card brand and the type of dispute, so it is worth asking your processor how it applies to your account.

A

ACH (Automated Clearing House)

The U.S. electronic network that moves money directly between bank accounts, used for direct deposit, bill pay and bank-to-bank payments.

ACH payments pull funds from, or push funds to, a checking or savings account instead of a card. Businesses use ACH to collect invoices, membership dues and recurring payments, and processors use it to deposit card sales into your bank account.

ACH payments usually cost less to accept than cards, but they take longer to clear and can be returned for reasons such as insufficient funds or a closed account. They work well for larger invoices and scheduled billing where speed at the counter matters less.

Acquiring bank (acquirer)

The bank that holds a business's merchant account, accepts card transactions on its behalf and deposits the funds.

The acquirer is the merchant's side of every card transaction. It sponsors the business into the card networks, receives the transaction, collects the money from the issuing bank through the network, and sends the proceeds to the merchant.

Most small businesses never deal with the acquirer directly. They work with a processor, ISO or payment facilitator that has a relationship with an acquiring bank, and the acquirer's name usually appears somewhere in the merchant agreement.

Address Verification Service (AVS)

A fraud check that compares the billing address a customer enters with the address the card issuer has on file.

When a customer types in a billing address and ZIP code online or over the phone, AVS sends that information to the issuing bank and returns a result showing whether it matched fully, partly or not at all. Your gateway or virtual terminal can be set to flag or decline mismatches.

AVS is a useful signal, not a guarantee. A match does not prove the person is the cardholder, and a mismatch can happen with honest customers who recently moved. Some keyed transactions that skip AVS may also cost more to process.

Assessment fees

Fees the card brands charge on card volume and transactions, passed through to the merchant by the processor.

Assessments are the card networks' own fees, separate from interchange, which goes to the issuing bank. They are typically a small percentage of volume plus various per-transaction network fees, and they change from time to time when the brands update their fee schedules.

Assessments are the same no matter which processor you use. On interchange-plus statements they appear as their own line items, which makes it easier to see what is a pass-through cost and what is the processor's markup.

Authorization

The real-time request to the issuing bank asking whether a card can be charged for a given amount.

When a card is tapped, dipped, swiped or entered, the terminal or gateway sends an authorization request through the card network to the issuer. The issuer checks the account, available funds and fraud signals, then approves or declines. An approval places a hold on the customer's funds but does not yet move money.

The money moves later, when the authorized transaction is captured and settled, usually as part of the day's batch. Some businesses, such as restaurants and hotels, authorize one amount and settle a different final amount after adding a tip or incidentals, within card brand rules.

B

Batch

A group of authorized transactions sent together for settlement, usually once a day at closing.

Throughout the day, approved sales collect in an open batch on your terminal or gateway. Closing the batch, either manually or automatically at a set time, submits those transactions for settlement so the funds can be deposited.

Batch timing affects when you get paid. A batch closed after your processor's daily cutoff may be funded a day later. Some processors also charge a small fee every time a batch is closed, which shows up on the monthly statement.

C

Card brands (card networks)

The networks such as Visa, Mastercard, Discover and American Express that connect issuers and acquirers and set the rules for card acceptance.

Card brands run the networks that carry transactions between the bank that issued the card and the bank that holds the merchant account. They set interchange schedules, assessment fees, security requirements and dispute rules that every processor must follow.

Some brands also issue cards and acquire merchants themselves, which is why American Express and Discover can look different on a statement than Visa and Mastercard. Rules differ between brands and are updated regularly, so the details behind a fee or a chargeback reason can depend on which card the customer used.

Card-not-present (CNP)

A transaction where the card is not physically at the point of sale, such as online, phone, mail order or card-on-file payments.

When a customer pays online, reads a card number over the phone, or is billed from a card saved on file, the merchant cannot inspect the card or read its chip. Card networks treat these sales as higher risk, so interchange is usually higher than for an in-person sale of the same amount.

Card-not-present merchants also carry more fraud and chargeback exposure. Tools such as AVS, CVV checks, 3-D Secure and tokenization help reduce that risk.

Card-present

A transaction where the card or mobile wallet is physically at the terminal, read by chip, tap or swipe.

Card-present sales give the terminal direct access to the card's chip or contactless data, which makes them much harder to counterfeit. Because of that lower risk, they generally qualify for lower interchange rates than keyed or online payments.

If a card is present but the number is typed in by hand because the reader failed, the transaction may be treated as keyed and cost more. Keeping terminals current and readers clean helps keep in-person sales in the card-present category.

Cash discount program

A pricing approach where posted prices include the cost of card acceptance and customers who pay with cash receive a discount.

Under a cash discount program, the regular price reflects what card customers pay, and a discount is applied when the customer pays with cash. Done correctly, it lets a business offset processing costs while staying within rules that treat discounts for cash differently from surcharges on cards.

The details matter: signage, receipt wording and how the discount is calculated all need to follow card brand rules and applicable state law, and those requirements can change. A program set up incorrectly may be treated as a surcharge, so it is worth reviewing the setup with your processor.

Chargeback

A disputed card transaction reversed by the issuing bank, which pulls the funds back from the merchant until the dispute is resolved.

A chargeback starts when a cardholder disputes a charge with their bank, for reasons such as fraud, an item not received or a product not as described. The issuer takes the funds back from the merchant's account, and the merchant can respond with evidence such as receipts, signed agreements, delivery confirmation or communication with the customer.

Processors usually charge a fee for each chargeback, whether or not you win it. A high chargeback ratio can lead to monitoring programs, reserves or account closure, so clear descriptors, clear refund policies and prompt customer service are some of the best defenses.

Contactless payment (NFC)

Paying by tapping a card, phone or watch on a terminal, using near-field communication to send encrypted payment data.

Contactless cards and mobile wallets use a short-range radio signal called near-field communication (NFC) to send payment data when held close to the reader. The data is protected with one-time codes, much like a chip transaction, so tapping is generally as secure as dipping.

For a busy counter, contactless means faster lines and less handling of cards. Most current Clover, Square and Valor PayTech terminals accept tap payments, though it is worth confirming on older equipment.

CVV / CVV2

The three- or four-digit security code printed on a card, used to help confirm the card is in the customer's hands for online and phone orders.

The card verification value, often called CVV2, CVC or CID depending on the brand, is printed on the card but not stored in the magnetic stripe or chip. Asking for it on online and phone orders helps show that the person paying has the physical card, not just a stolen number.

Card brand rules prohibit storing the security code after authorization, even if it is encrypted. Your gateway or virtual terminal should send it for verification and then discard it.

D

Debit network routing

The choice of which debit network carries a debit card transaction, which can affect what the transaction costs the merchant.

Many U.S. debit cards can be processed over more than one network: the card brand's own network and one or more other debit networks. Federal rules require covered debit cards to support at least two unaffiliated networks, and in many cases the merchant, or its processor, may choose the route.

Because network fees differ, routing can change the cost of debit acceptance. Whether a processor optimizes routing, and whether those savings reach the merchant, varies by provider. It is a fair question to ask during a statement review.

Discount rate

The percentage of each card sale a processor charges, sometimes quoted alone and sometimes bundled with interchange.

Discount rate is a traditional term for the percentage fee taken from card sales. Depending on the pricing model, it might be the processor's markup over interchange, a single flat rate, or one of several tiered rates.

Because the term is used in different ways, a low discount rate does not always mean a low total cost. Compare offers by looking at the full pricing model, per-transaction and monthly fees, and above all the effective rate.

Dual pricing

Showing both a cash price and a card price for goods or services so customers can see the difference before they pay.

With dual pricing, a business displays two prices, one for cash and one for cards, on shelves, menus or the receipt. It is closely related to a cash discount program, and some point-of-sale systems can show both prices automatically.

How dual pricing must be displayed, and whether it is treated differently from a surcharge, depends on card brand rules and state law, which continue to evolve. Clear signage and receipts are essential, and a setup review before launch is a good idea.

Durbin Amendment (regulated debit)

A U.S. federal law, implemented by the Federal Reserve, that limits debit interchange for large issuing banks and sets debit routing requirements.

The Durbin Amendment, part of the Dodd-Frank Act, directed the Federal Reserve to cap debit card interchange for banks above a certain asset size. Debit cards from those larger banks are called regulated debit, while cards from smaller banks and credit unions are generally exempt and often carry higher interchange.

For merchants, this means two debit cards of the same brand can cost different amounts to accept depending on which bank issued them. The Federal Reserve reviews and can revise the cap and the related rules, so current figures should be checked against its published regulation rather than older sources.

E

Early termination fee

A charge some processors apply when a merchant closes an account before the end of its contract term.

Some merchant agreements run for a set term and charge a fee, sometimes with automatic renewal, if the business cancels early. The amount and conditions vary widely, and the clause is often in the fine print rather than the pricing summary.

Before switching processors, check your current agreement for the term, renewal date and any cancellation fee, along with equipment leases, which are often separate contracts. Knowing these up front makes the switch predictable.

Effective rate

Total processing fees divided by total card volume for a period, the clearest single number for comparing what you pay.

To find your effective rate, add up every fee on a monthly statement and divide by the total dollar volume of card sales. The result captures interchange, assessments, markup and monthly fees together, regardless of how the pricing is labeled.

Effective rates naturally vary by industry, average ticket size and card mix, so the useful comparison is your own rate over time, or two offers priced on the same statement. BrightStar's free statement review uses your actual statement to show what you would pay, and BrightStar guarantees in writing to match or beat your current rate.

EMV chip

The microchip on payment cards that creates a unique code for each in-person transaction, making cards much harder to counterfeit.

EMV, named for the companies that created the standard, replaces the static data on a magnetic stripe with a chip that generates a one-time cryptogram for each purchase. Stolen chip data is far less useful to a counterfeiter than a copied stripe.

Under card brand liability rules, if a counterfeit chip card is swiped at a terminal that could not read the chip, the merchant may be responsible for the resulting fraud loss. Using chip-capable terminals for in-person sales keeps that liability where it belongs.

F

Flat-rate pricing

A pricing model that charges one percentage, often plus a per-transaction fee, for every card regardless of its underlying cost.

Flat-rate pricing is simple to understand: every transaction costs the same percentage, whether the card is a basic debit card or a premium rewards card. It is common with payment facilitators and newer businesses.

The trade-off is that the processor sets the flat rate high enough to cover its most expensive cards, so a business that sees a lot of lower-cost debit transactions may pay more than it would under interchange-plus. As volume grows, it is worth comparing.

G

Gateway (payment gateway)

The software that securely passes card data from a website, app or virtual terminal to the processor for authorization.

A payment gateway is the online equivalent of a card terminal. It takes payment details from a checkout page, invoice link or virtual terminal, encrypts them, sends them for authorization and returns the result.

Gateways often add tools such as recurring billing, customer vaults with tokenized cards, fraud filters and reporting. Some charge a separate monthly or per-transaction fee, which should be included when comparing processing costs.

H

High-risk merchant

A business that acquirers consider more likely to see chargebacks, fraud or regulatory issues, which can affect approval and pricing.

Acquirers assess risk based on factors such as industry, chargeback history, how far in advance customers pay for goods or services, sales channel and processing history. Businesses placed in a high-risk category may still be approved, but often with additional underwriting, higher fees or a reserve.

What counts as high risk differs between acquirers and changes over time. Being upfront about your business model during the application leads to fewer surprises later.

I

Interchange

The fee paid to the card-issuing bank on each card transaction, set by the card networks and usually the largest part of processing cost.

Interchange is the wholesale cost of card acceptance. The card networks publish schedules with many categories, and the rate on a given sale depends on the card type, how it was accepted, the merchant's category and data provided with the transaction.

Every processor pays the same interchange for the same transaction, so differences between providers come from markup and fees on top of it. The networks update interchange schedules periodically, typically a couple of times a year.

Interchange-plus pricing

A pricing model that passes interchange and assessments through at cost and adds a fixed, visible processor markup.

Under interchange-plus, sometimes called cost-plus, each transaction is billed at its actual interchange and card brand fees, plus a set markup, usually a percentage and a per-transaction amount. The markup stays the same no matter what card the customer uses.

This model makes statements longer but easier to audit, because you can see exactly what the processor earns. It is often the most transparent way to compare providers.

ISO (independent sales organization)

A company registered with the card networks through a sponsoring bank to sell and support merchant accounts.

Banks that acquire card transactions often rely on independent sales organizations to find, set up and service merchants. An ISO may provide pricing, equipment, customer support and account management while the acquiring bank sponsors the account.

For a business, the quality of the ISO or processing partner often matters more day to day than the bank behind it, because that is who answers the phone, explains the statement and fixes the terminal. When comparing providers, ask who will actually support your account after it is set up.

Issuing bank (issuer)

The bank or credit union that issued the customer's card, approves or declines transactions and bills the cardholder.

The issuer is the cardholder's side of a transaction. It decides whether to approve an authorization, collects payment from the cardholder, and receives interchange from each sale as compensation for extending credit, carrying risk and funding card rewards.

Issuers also handle cardholder disputes. When a customer calls their bank about a charge, the issuer decides whether to open a retrieval request or a chargeback.

L

Level 2 and Level 3 data

Extra transaction details, such as tax amount, customer code and line items, that can lower interchange on eligible business and government cards.

Standard card transactions carry basic data. Level 2 adds fields such as sales tax and a customer or purchase order number, and Level 3 adds line-item detail such as product codes, quantities and unit prices. Commercial, corporate, purchasing and government cards may qualify for lower interchange categories when this data is supplied.

Businesses that sell to other businesses or government agencies can see meaningful savings, but only if their gateway or terminal is set up to send the data and the card and transaction qualify. Eligibility rules are set by the card brands and change over time.

M

Merchant account

The account that lets a business accept card payments, holding card sales until they are deposited to the business's bank account.

A merchant account is set up with an acquiring bank, usually through a processor, after an application and underwriting review. It defines how you accept cards, what you pay and how quickly funds reach your business checking account.

With BrightStar, each merchant account can also be linked to a nonprofit through the BrightStar Impact Network, so a share of BrightStar's profit on that account is donated monthly to the cause the business chooses, at no extra cost to the business. The donation comes from BrightStar's share, not from the merchant's pricing.

Merchant category code (MCC)

A four-digit code assigned to a merchant account that identifies the type of business and affects interchange and risk review.

Card networks use the MCC to classify what a business sells, such as restaurants, grocery stores, professional services or charitable organizations. The code is assigned when the merchant account is set up.

The MCC influences which interchange categories apply, how issuers view transactions and sometimes how cardholder rewards are calculated. If your business changes what it sells, it is worth confirming the code still fits.

Merchant ID (MID)

The unique number that identifies a specific merchant account to the processor and the card networks.

Every merchant account has a MID. It appears on statements and is used whenever you contact support, order equipment or set up a gateway. Businesses with multiple locations or separate online and in-store sales may have more than one MID.

Separate MIDs make reporting by location or channel easier, and they can let each account carry the right merchant category code and setup for how it takes payments. Keep your MIDs handy when reviewing statements so each one can be checked on its own.

Mobile wallet

An app such as Apple Pay, Google Pay or Samsung Pay that stores tokenized cards on a phone or watch for tap and online payments.

Mobile wallets replace the card number on the device with a token, and each purchase is authenticated on the device, often with a fingerprint, face scan or passcode. At the counter, the customer taps the phone or watch on a contactless reader.

For merchants, wallet payments are processed like card payments and typically treated as card-present when tapped in person. Accepting them requires an NFC-enabled terminal.

Monthly minimum

A floor on monthly processing fees; if your fees fall below it, the processor charges the difference.

Some agreements require a minimum amount in processing fees each month. In a slow month, if your actual fees come in under that minimum, you are billed the shortfall.

Monthly minimums mostly affect seasonal and low-volume businesses. Look for the term in your agreement and on your statement, and factor it into any comparison between offers.

N

Next-day funding

Depositing card sales into the business's bank account the business day after the batch closes.

Funding speed depends on when you close your batch, the processor's cutoff time and your bank. With next-day funding, a batch closed before the cutoff is typically deposited the following business day.

Weekends and bank holidays can delay deposits. Faster funding helps cash flow, so ask any processor exactly what its cutoff time is and whether faster funding carries an extra fee.

P

P2PE (point-to-point encryption)

Encryption that protects card data from the moment it is read by the terminal until it reaches a secure decryption environment.

With point-to-point encryption, card data is encrypted inside the payment device, so it never passes through the merchant's register software or network in readable form. Even if a system is compromised, the stolen data is unusable.

Solutions validated under the PCI Security Standards Council's P2PE program can significantly reduce the scope of a merchant's PCI compliance work. Not every encrypted terminal is a validated P2PE solution, so ask your provider which applies.

Related PCI DSS Tokenization EMV chip

Payment facilitator (PayFac)

A company that boards many small businesses as sub-merchants under its own master merchant account, often with quick, simple sign-up.

Payment facilitators take on the underwriting and risk for their sub-merchants, which lets them approve new businesses quickly, often online in minutes. Many offer flat-rate pricing and bundled hardware or software.

The convenience can come with trade-offs: less pricing flexibility, account holds if activity looks unusual, and less individual support. A dedicated merchant account can make more sense as a business grows.

PCI DSS

The Payment Card Industry Data Security Standard, the security requirements every business that accepts cards must follow.

PCI DSS is maintained by the PCI Security Standards Council, which was founded by the major card brands. It covers how card data is stored, transmitted and protected, from network security to access controls. Most small businesses validate compliance each year with a self-assessment questionnaire and, in some cases, network scans.

Which questionnaire applies depends on how you accept cards. Using tokenization, P2PE and hosted payment pages can shrink the work considerably. The standard is revised periodically, so requirements change over time.

PCI non-compliance fee

A monthly fee some processors charge when a merchant has not completed its annual PCI compliance validation.

If a business does not submit its PCI self-assessment or required scans, many processors add a non-compliance fee each month until it does. The amount is set by the processor and varies.

This is one of the most avoidable charges on a statement. If you see it, ask your processor what is needed to complete validation. It is separate from any regular PCI program fee your agreement may include.

Point of sale (POS)

The hardware and software where a sale is completed, from a countertop register to a handheld device or tablet app.

A POS system rings up sales, accepts payment and records the transaction. Modern systems also handle inventory, employees, tips, customer records and reporting, and connect to online ordering or an ecommerce store.

BrightStar supports Clover, Square and Valor PayTech hardware, along with BizSimple CRM, which offers point of sale with online store and booking add-ons. The right fit depends on how and where your business takes payments.

R

Recurring billing

Automatically charging a customer's saved card or bank account on a set schedule, such as monthly dues or subscriptions.

Recurring billing stores a customer's payment method as a token and charges it on a schedule you define. It is common for memberships, tuition, service plans and monthly donations.

Card brand rules require clear customer consent and disclosure of the terms, and many disputes on recurring charges come from customers who forgot they signed up. Reminder emails and an easy way to cancel help keep chargebacks down.

Refund

Returning money to a customer's card for a transaction that has already settled.

Once a sale has settled, it can no longer be voided, so returning money means issuing a refund, also called a credit. The funds go back to the customer's card and are deducted from your deposits, and it can take several business days to appear on the customer's statement.

On many pricing plans, the processing fees on the original sale are not returned when you refund it. Check your agreement, and use a void instead when you catch a mistake before the batch closes.

Reserve (rolling reserve)

Funds a processor holds back from a merchant's deposits to cover potential chargebacks or refunds.

A reserve sets aside part of a merchant's card sales for a period of time. With a rolling reserve, a percentage of each day's deposits is held and released after a set period. Other forms include an upfront fixed amount or holding funds for future-delivery sales.

Reserves are most common for high-risk businesses, merchants who take payment well before delivering goods or services, and accounts with elevated chargebacks. The terms should be written into the merchant agreement.

Retrieval request

A request from the issuing bank for a copy of the transaction record, often a step before a possible chargeback.

When a cardholder questions a charge, the issuer may first ask the merchant for documentation, such as a receipt or invoice, before deciding whether to file a chargeback. How often retrieval requests are used varies by card brand and has changed over time.

Respond promptly and completely. A clear receipt showing the business name, date, amount and what was purchased can resolve the question, while ignoring the request can make a chargeback more likely.

Reversal (authorization reversal)

Cancelling an approved authorization before it settles, so the hold on the customer's funds is released.

An authorization reversal tells the issuer that an approved amount will not be collected, either in full or in part. Hotels, fuel stations and businesses that pre-authorize an estimated amount use reversals to release the unused portion of a hold.

Releasing holds promptly avoids frustrated customers and is expected under card brand rules. On many terminals, voiding an open transaction sends a reversal automatically.

Related Authorization Void Refund

S

Settlement

The process that moves money for captured card transactions from issuing banks, through the networks, to the merchant's account.

After a batch is submitted, the acquirer and card networks clear the transactions, collect funds from the issuers and pass them to the merchant, less fees when they are deducted daily. That final deposit is what most people mean by settlement or funding.

Your statement and deposit reports should reconcile to your batches. If deposits do not match your sales, the difference is usually fees, refunds, chargebacks or a reserve.

Statement fee

A flat monthly fee some processors charge for producing the merchant statement, whether paper or online.

A statement fee is one of several fixed monthly charges that can appear on a processing statement, alongside account, gateway, PCI and minimum fees. Individually they are small, but together they can noticeably raise the effective rate for a lower-volume business.

When comparing processors, list every recurring monthly fee, not just the percentage rate. A provider with a slightly higher rate and fewer fixed fees can cost less overall.

Surcharge

An added fee on credit card transactions to offset the cost of acceptance, allowed only within card brand rules and applicable law.

Surcharging adds a fee to the customer's total when they pay with a credit card. Card brand rules limit how much can be added, require clear disclosure at the entrance, point of sale and on the receipt, and in some cases require advance notice to the brands and your processor.

Surcharges cannot be applied to debit cards, including prepaid cards, even when the customer runs them as credit. Some states restrict or regulate surcharging, and both state law and brand rules change, so confirm current requirements before you start.

T

Tiered pricing

A pricing model that groups transactions into tiers, usually qualified, mid-qualified and non-qualified, each with its own rate.

Under tiered pricing, the processor decides which transactions land in which tier. A basic debit card swiped in person may qualify for the lowest rate, while rewards, business or keyed cards fall into higher tiers.

Because the processor controls the tier definitions, it can be hard to see the actual cost behind each sale, and many transactions may end up in the more expensive tiers. Calculating your effective rate is the best way to see what tiered pricing really costs you.

Tokenization

Replacing a card number with a unique substitute value, so the real number is not stored in the merchant's systems.

A token stands in for the card number in your systems and is meaningless to anyone who steals it. Tokens make it possible to keep cards on file for repeat customers, recurring billing and quick checkout without storing sensitive data yourself.

Tokenization reduces both breach risk and PCI compliance scope. Mobile wallets use a related form of tokenization on the customer's device.

V

Virtual terminal

A secure web page for keying in card or ACH payments by hand, used for phone orders, mail orders and invoices.

A virtual terminal turns any computer or tablet into a way to take payments without card hardware. Staff enter the card number, expiration date, security code and billing address, and the payment runs through the gateway.

Because the card is not present, keyed payments generally cost more and carry more fraud risk than tapped or dipped ones. Using AVS and CVV checks, and sending payment links where possible, helps.

Void

Cancelling a transaction before its batch settles, so no money changes hands.

A void removes a transaction from the open batch. Because the sale never settles, the customer is not charged and, in most cases, no processing fees apply to it. On many systems a void also releases the authorization hold.

Voids are the cleanest way to fix a mistake, such as a wrong amount or a duplicate charge, but only until the batch closes. After that, the correction has to be a refund.

Payment processing glossary.

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