My Merchant Account Blog

Card Verification Value Number

Friday, February 25, 2011

The three-digit number on the back of Visa Inc. and MasterCard Worldwide credit and debit cards. It is used as a security feature in card-not-present transactions. The CVV number helps guard against the use of data stolen from payment networks by hackers. Intercepted data will usually comprise the cardholder name, card number and card expiration date, but not the CVV, which is generally obtained only by viewing the physical card.

Qualified Discount Rate

Monday, February 21, 2011

This fee is probably one of the most confusing terms in the merchant account industry.  When you hear the word discount, you think you might be getting something for less.  In a sense, you are.  Your income will be discounted - not by your choice.  This fee has a number of fees included, mainly the interchange rate, assessments, network charges, and merchant account provider fees.  Usually, the interchange rate is the largest fee, being paid to Visa / MasterCard / Discover Card / American Express.

There are basically two types of merchant accounts - retail and keyed (also known as card not present, e-commerce, Internet, Mail Order / Telephone Order (MOTO)).  Retail discount rates are cheaper because the risk of a chargeback is not as high as a keyed account.

Qualified Rate

This "qual" rate is the price that is usually listed on the agent's website.  A lot of times, you won't even see the other rates until you sign the contract.  Usually, this rate is what you will be charged on most transactions. 

Mid-Qualified Rate

Some providers have this "mid-qual" rate in their structure to help increase their income.  Usually, merchants won't even know they are being charged this rate until they review their statement.

Non-Qualified Rate

These transactions are downgraded to "non-qual" for different reasons.

• Extra charges from the card associations (rewards or business cards)
• The transaction was not completed in a timely manner - usually when you do a transaction, that money is guaranteed yours for a certain amount of days.  This is why most processors will automatically batch the transactions for you daily.
• If you have a retail account and you key in the transaction (the risk of a chargeback is higher)
• If you have an Internet account and you do not do Address Verification Service (AVS) (the risk of a chargeback is higher)

This structure makes is more profitable for the merchant account provider.  For example, if you have an e-commerce business and your customer does not live in the United States, you probably will be unable to do Address Verification Service (AVS) since this service relies on the house number and ZIP code.  Let's say your standard rate is 2.15%.  Your mid-qual rate is .5% and your non-qual rate is 1%.  Since AVS cannot be done, that transaction is 3.65%. 

Their is also a 6 tier structure as well that is offered by some providers due to a lawsuit brought by Wal-Mart.

Also known just as Discount Rate.

See also mid-qualified rate and non-qualified rate.

Card Laundering

Sunday, February 20, 2011

When a merchant processes sales through his or her merchant account on behalf of another merchant. Laundering violates the terms of merchant agreements. Also called draft laundering and factoring.

Card-Not-Present

Saturday, February 19, 2011

Card transactions (Internet or MO/TO purchases, for example) for which the customer's card is not physically handled by the merchant. Interchange is set higher on these transactions because there is a greater likelihood of fraud.

Buy Rate

Friday, February 18, 2011

The acquiring bank's fee; it is equal to interchange (which is paid to the issuing bank) plus the acquiring bank's markup. Think of it as the wholesale price of a transaction to which processing and other fees are added to come up with the cost to a merchant. Buy rates have not been widely used since the multitude of interchange rates came into being; many ISOs and acquirers now use pricing models that involve splits of net revenue.

Breakage

The unredeemed or unspent funds on a gift or prepaid card. It used in sales, distribution, and multi-level marketing organizations to indicate commissions that are lost for the failure to meet certain conditions or requirements. Revenue from breakage is almost entirely profit as commissions lost for failure to meet those conditions or requirements can never be recovered.

Batch

A collection of card receipts saved for submission, usually at the end of the business day. When the receipts are sent, the batch is "closed."

Bank Identification Number

A numerical code assigned to each federally insured financial institution for the routing of transactions and other purposes. Independent Sales Organizations (ISO) and Merchant Level SalespersonsMLSs board merchants using the BINs of their respective acquiring banks.

As we discussed earlier in How Credit Card Numbers Are Determined, the card assocations (Visa, MasterCard, Discover, American Express, etc) all have a unique way of starting their account numbers for consumers.  However, they all have something in common: the way the number is determined, called the mod-10 or Luhn's method.

AVS

Thursday, February 17, 2011

A fraud deterrent technique used in card-notpresent situations. AVS offers various levels of address verification detail, including cardholder ZIP codes and street numbers.The Address Verification Service (AVS) is an extra security measure that could substantially reduce the number of disputed transactions you have to deal with. As the name suggests, AVS verifies a cardholder’s billing address. The system works by checking the street address and postcode supplied by the buyer, which are included in the message you send during the normal course of a transaction authorisation.

Authorization

An electronic exchange between a card issuing bank and an acquiring bank, initiated through a POS terminal, confirming a cardholder has sufficient credit (or funds in a demand deposit account if it is a debit card) to cover a pending transaction. It is the function of specifying access rights to resources, which is related to information security and computer security in general and to access control in particular. More formally, "to authorize" is to define access policy. For example, human resources staff are normally authorized to access employee records, and this policy is usually formalized as access control rules in a computer system.

Aggregator

Wednesday, February 16, 2011

A company that manages the commercial relationships, physical transactions and physical distribution of prepaid cards sold in a destination retailer through a gift card mall on behalf of issuers. Also called a distributor. An entity that buys noncompeting products or product lines, warehouses them, and resells them to retailers or direct to the end users or customers. Most distributors provide strong manpower and cash support to the supplier or manufacturer's promotional efforts. They usually also provide a range of services (such as product information, estimates, technical support, after-sales services, credit) to their customers.

Agents

People who sell bankcard services to merchants on behalf of ISOs, acquirers and processors. Also known as merchant level salespeople (MLSs) and independent sales agents (ISAs), most agents are independent contractors. Others are paid employees of ISOs , acquirers and processors. Also known as: independent sales agent (ISA).

Acquiring Bank

A federally insured financial institution responsible for connecting merchants to Visa Inc. and MasterCard Worldwide authorization and settlement systems. Also called an acquiring bank, merchant bank or sponsor bank.

Acquirers and merchants are the two signatories to merchant agreements. Acquirers can be thrifts, banks or credit unions. For example, First National Bank of Omaha is an acquirer and a bank. To sell bankcard services, it is necessary to have a signed agreement with an acquirer or be part of an ISO that is sponsored by an acquirer. Among other things, an acquirer deposits daily card totals to merchant accounts and debits monthly processing fees from those accounts. The acquiring bank must handle all funds, deposits and settlements with merchants.

ISOs and other entities on the acquiring side of the bankcard business also refer to themselves informally as acquirers, as evidenced by several regional acquirers associations thriving throughout the United States, but strictly speaking, they are not acquirers. Also known as: acquirer

Address Verification Service Fee

Tuesday, February 15, 2011

The fee is usually 5¢ to 10¢ per tranaction.  Some merchant account providers will not charge this fee.  The fee is usually done on Internet Merchant Accounts and Telephone / Mail Order  Merchant Accounts (MOTO).  It is the merchant's first line of defense to help Prevent Online Fraud.

If this feature is not done, the transaction can be downgraded to a non-qualified rate.  Usually, if the consumer's billing address is not in the United States, the feature cannot be done.  During the transaction process, the gateway will look at some numbers.  For example, the billing address is 1234 Main St, Anywhere, CO 80124.  The gateway will verify the 1234 and 80124.

Most gateways will also support recurring billing - storing the credit card information on their server.  If this is done, Address Verification Service (AVS) will not be done, since it was done on the original transaction.  If the credit card is updated for recurring billing, (AVS is done again.

Transaction Fee

Monday, February 14, 2011

This fee can actually be two-fold: a merchant can be charged a transaction fee from the merchant account provider and the electronic payment gateway.  Since this fee is a flat rate and not a percentage of the sale, this is where it can hurt some merchants - especially when the transaction is only a few dollars.

Internet Merchant Accounts

If your business is online (Internet Merchant Account) or Telephone / Mail Order Merchant Account (MOTO), you will need an electronic payment gateway.  Some electronic payment gateways might give you a certain number of free transactions and then charge the merchant anywhere from 5¢ - 50¢ per transaction.  Other electronic payment gateways (like the Quantum Payment Gateway), does not charge a transaction fee. 

When applying for a merchant account, the merchant needs to know what payment gateways are compatible with the provider.  Sometimes, when applying for an Internet Merchant Account, the merchant might need to sign another contract with the payment gateway provider.  Before signing the contracts, make sure to see what the transaction cost(s) will be.  The merchant account provider might charge you 25¢, the electronic payment gateway might charge you an additional 5¢ - 50¢ per transaction, and the merchant probably also be charged an Address Verification Service Fee (AVS) which usually is 5¢ - 10¢ per transaction.

This means that the merchant could potentially be charged anwhere from 35¢ to 85¢ on the transaction.  So on a $5.00 transaction, the merchant could be paying around 10% just on this fee alone.

Explaining Merchant Accounts on Sirius Radio and Website

Sunday, February 06, 2011

Representatives from My Merchant Account Blog, Mile High Merchant Accounts, Merchant Account Lab, and Merchant Accounts for Canada will be on Sirius XM Radio from 5:14 p.m. to 5:19 p.m. Eastern Daylight Time on 8 February 2011.

From 6:19 p.m. to 6:44 p.m. (8 February 2011), we will be on the Keating Show.  We hope you will be able to listen to us and you learn something about processing credit cards.

Batch Fee

Wednesday, February 02, 2011

A batch fee is charged by the merchant account provider when a group of transactions is sent to the merchant account provider to be processed.  For a retail merchant account, this is usually done at the end of business.  For an Internet merchant account, this is usually done by the electronic payment gateway, once a day and can usually be set by the virtual terminal.

A merchant can close a set of transactions at any time, but if a merchant waits more than three business days after the sales transaction - the merchant account provider might downgrade some of those transactions to the non-qualified rate and the merchant risks losing the authorization.

Unlike the ACH fee, this fee is usually charged once a day - when the transactions are closed, even on the weekends.  So in a 30 day month with a 25¢ fee, the merchant will see a charge of $7.50.  In the United States, most merchants will not see this fee.  High risk merchants and merchants in other countries will usually see this fee.

By locating a merchant account provider that does not charge this fee, a merchant could save almost $100.00 a year!