Introduction to Merchant Account Jargon: Say what?

Sometimes, when you are just beginning to get in to a new area of work or service, you will hear a lot of technical terms being thrown around and everyone around seems to know what is being talked about; whilst you remain clueless. Welcome to the confusing world of jargon.

To make sure you are not left scratching your head when looking around for a merchant account, here are few of the common terms described.

Gateway: This means a virtual passage through which the credit card information provided by the customer passes and gets verified by the issuing bank. After this the transaction happens. VeriSign is a popular gateway and a very reputed one. Some providers will charge a monthly fee for the gateway but it is not common to all providers.

Transaction rate: This is one part of the fees incurred at each transaction. It is a percentage of the total value of the transaction. Both the rates vary a lot.

Discount Rate: To encourage customers to use Credit Cards, there is usually a small discount that the business has to bear, this is the other part of the fees paid when accepting a transaction with your merchant account.

Reserve: This is a percentage of the transaction amount that is withheld usually from high-risk merchants, which is meant to cover any chargeback claim. It is released to the merchant after a while. To know the time and the percentage of the reserve and whether it applies to you, ask your provider.

Chargeback: This is what the customer does when he/she files a dispute with the card issuing company and wants their money back. Many customers file disputes dishonestly while others do it when they do no recognize the name of the company for which they were charged.


Monthly minimum: this is how much you absolutely have to pay your provider no matter how low your sales have been. If the transaction percentage cannot reach this amount, you have to pay the difference. The usual fees are around $25.

Authorization: the process during which the card issuing authority (the bank usually) checks to see if the card has the required amount of credit to meet the cost of the transaction.

AVS: This is a safety measure that stands for Address Verification System. It is used to check whether the given address is the same as the billing address on the records of the card issuer. You may choose not to use this feature but that will cost you an extra percentage on the transaction fees.
Card Verification Value: Another safety Measure that was brought in to reduce credit card frauds. Also referred to as CVV2 or CVC2, you may opt to make it necessary during checkout or you may not. But if you do use it, it will probably save you from potential fraud (especially in combination with AVS) and might also save you on processing costs.

So that was a short list of the major terms used, search for more such terms and learn about them.