Glossary of Merchant Account Terms

Here are some terms and explanations to help you in the process of choosing a merchant account provider

Merchant Account
A Merchant Account is simply a relationship between a retailer and a merchant bank that enables retailers to accept web-based credit card payments from their customers. This is the account into which a Merchant Account Provider deposits payments into your business checking account from the transactions made online. To qualify for a merchant account, retailers must meet the bank's requirements.

Application fee
A fee charged by some Merchant Account providers to process and consider your application. Paying an application fee makes the applicant in no way more eligible to be accepted for a Merchant Account. Avoid Merchant Account providers that charge you for your application.

Internet discount rate
An Internet discount rate is a fixed percentage taken from every online transaction, usually two to three percent. The Internet rate will generally be higher than card-swipe rates, the rate charged when the merchant can swipe the customer's card through a traditional point-of-sale (POS) terminal. The internet discount rate runs at a higher rate because it's not face-to-face and is a riskier proposition for the bank who provides the merchant account.

Transaction fee
Merchant Account Providers typically have fixed charges, usually between $0.25 and $0.70 per transaction. It works like this. On a $100 sale, if the discount rate was 2.39%, $2.39 would be deducted from a $100 sale. There is a transaction fee charged to each order and we'll use 30 cents is this example. Therefore, on the $100 sale, the processor would keep $2.69 , giving you, the merchant a net of $97.31. Note, some banks deduct this fee at time of sale, while most deduct it as a total of charges at the end of each month. Visa & MasterCard and the processor take a fee for every transaction.

Monthly fees and minimums
There is a variety of charges levied on a monthly basis by the bank, including a monthly statement fee and/or a monthly minimum, excess usage fees, and others.

Chargebacks
Your Merchant Account Provider may holdback, or reserve, a percentage of your transaction receipts to cover any contested charges. A Chargeback is charged to a merchant when a consumer claims their card has been charged and the merchant has not delivered the product or performed the service. A chargeback fee is NOT charged when a merchant processes a return of a charge to a consumer.

Reserve
If your business is considered high-risk, you may have to pay what's called a reserve. The reserve is usually calculated as a percentage of the monthly credit card volume. It is built up over time and held by the bank in escrow to offset unexpected chargebacks.

In addition, let's also take a look at the different types of transactions you'll encounter when accepting credit cards on the internet. An internet transaction is broken into three types and certain conditions must be met for an Internet transaction to qualify for the regular discount rate. If a transaction doesn't qualify, you will be charged extra for the transaction and the discount rate will increase.

Here are Visa/MasterCard's rules for Internet transactions:

1. QUALIFIED TRANSACTION
   Conditions for Internet accounts:
   One electronic authorization request is made per transaction and the transaction/purchase date is the same as the shipping date.
   The authorization code must be included in settled transaction (this is done automatically by the Nova Information Systems terminal application).
   The authorization request message must include Address Verification Service (AVS).
   The transaction/shipping date must be within 7 calendar days of the authorization date.
   The authorized transaction amount must match the settled transaction amount.
   The settled transaction data must include the merchant's customer service telephone number, the order or invoice number, and the total authorized amount.
   Additional data is required in the settled transaction on all Purchasing and Commercial cards at non-T&E locations (Purchasing card - customer code and sales tax; Commercial card - sales tax)
   The transaction must be electronically deposited no later than 1 day from transaction date.
   Note: the Qualified rate is the rate you will be quoted by the merchant account provider. This is the normal discount rate.
   
   
2. PARTIALLY QUALIFIED TRANSACTION
   Conditions for Internet accounts:
   One or more of the Qualified conditions were not met. (OR)
   The transaction was electronically deposited more than 1 day but within 2 days of the transaction/shipping date. (Will result in a higher discount rate and transaction fee)
   
   
3. NON-QUALIFIED TRANSACTION
   Conditions for Internet accounts:
   One or more of the Qualified or Partially Qualified conditions were not met. (OR)
   The transaction was electronically settled more than 2 days from the authorization date. (OR)
   Commercial card, World MasterCard, or Visa Signature card accepted at a T&E location. (OR)
   No additional data in the settled transaction on Purchasing and Commercial card at non-T&E locations. (Purchasing Card - customer code and sales tax; Commercial Card - sales tax). (OR)
   Visa Infinite card accepted. (OR)
   Transaction was not electronically authorized (voice authorization) or the authorization code was not included in the settled transaction.
   The customer is using a Corporate or Government-issued credit card.
   The customer is using a credit card issued by a Foreign Bank. (Will result in a higher discount rate and transaction fee)