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General Terminology Associated With e-Commerce Merchant Accounts
Anti-Fraud Security System – many e-Commerce merchant account providers program payment gateways supporting Visa’s and MasterCard’s popular security systems – 3D-Secure and SecureCode, respectively. Anti-fraud security systems provide additional security levels and helps prevent and minimize credit card fraud.
Authorization Fee – charged whenever the e-Commerce merchant’s credit card processing service digitally addresses the acquiring bank. The authorization fee is charged even if the transaction is for some reason cancelled (declined, called back, etc.).
Chargeback – occurs when a credit card holder applies for a reimbursement to his/her card issuer/bank. Chargebacks are typically the result of credit card fraud, but there are instances when a credit card holder is unsatisfied with the product or service rendered (due to shipping damages, etc.). There are around 30 reasons and circumstances, each resulting in a chargeback case. An e-Commerce merchant, using a merchant account will have to pay a ‘fine’, called a chargeback fee to the merchant account provider or bank. There are also Chargeback Insurance companies, which handle the arbitration process, covering all the expenses and refunding the e-Commerce merchant. [More on how to minimize chargeback cases online can be found in our Articles section]. A high number of chargeback cases may lead to the acquirement of a TMF (Terminated Merchant File) status.
Chargeback Fee – whenever a chargeback occurs, the e-Commerce merchant is charged by the bank for the hassle involved in settling the chargeback. This fee may even apply when a chargeback is unsuccessful.
CNP (Card Not Present) Transaction – refers to a type of credit card transaction where a credit card holder manually enters his/her credit card details (fills a secure form which uses SSL encryption technology). These details are instantly (if automated) and securely processed and the credit card is charged. Such transactions are used at online resources where a credit card holder is remotely located. In the case of ‘unautomated’ credit card processing, the credit card details may be passed on over the phone and by mail (Warning: Unprotected [i.e. unencrypted] data transmission leads to serious credit card fraud risks).
Credit Card Fraud – the situation where an e-Commerce merchant or a merchant’s automated shopping cart system is deceived by means of hacking, spoofing and identity theft into shipping items or rendering services which in the end are not paid for (or are chargebacked). Fighting credit card fraud is not easy and special attention must be paid to online automation. [For more information on how to minimize credit card fraud risk read the full article in the Articles section].
Discount Rate – is a markup on, usually, a single transacted amount of money. The discount rate is a percentage. For example, if the merchant account provider has set the discount rate to 2.3% and the e-Commerce merchant’s gateway processes a $100 transaction, the e-Commerce merchant will automatically be charged $2.30 by the service provider (or bank).
e-Commerce – the act or business of buying and/or selling goods, services or products online [i.e. using the Internet]. The range of products that are provided at different online web-stores includes SEO software download sales, pharmaceuticals, VoIP/ISP internet card PINs, hi-tech hardware, online casinos and gambling, and many others. An e-Commerce merchant is the online business owner, or administrator.
High-Risk Merchant Account – special type of account for e-Commerce merchants owning high-risk classed businesses. High-risk businesses include online gambling, adult content websites, online dating, software/hardware sales, and others. This type of account involves lower chargeback fees, better chargeback policies, but higher rates and fees to compensate the risk. High-risk merchant accounts rarely lead to TMF statuses unless abused.
Holdback/Security Deposit – is used to protect e-Commerce merchants from chargeback fund losses and other factors which may lead to massive expenditure. The size of the insurance/holdback fee is usually a percentage of the total transactions amount, re-calculated periodically.
Mail Order/Telephone Order (MOTO) – CNP (card not present) transaction conducted by e-mail or over the phone, where a customer directly calls or mails the e-Commerce merchant providing his/her credit card details. The e-Commerce merchant enters this information manually and the gateway handles the rest of the processing.
Membership Fee – a monthly fee paid for the rental of the credit card processing gateway and/or the merchant account provider’s services. This fee is not always present and some merchant account providers do not charge it.
Merchant Account – provided by an e-Commerce merchant account provider or a merchant bank enabling e-Commerce merchants to accept and process credit cards and debit cards via CNP-transactions (CNP – Card-Not-Present; see below). There are several types of e-Commerce merchant accounts: third-party merchant accounts, high-risk merchant accounts, international merchant accounts, offshore merchant accounts, local merchant accounts and more; each with different terms, policies and conditions.
Merchant Account Provider – either a bank or an affiliated company providing merchant accounts and credit card processing services, handling the approval process and the support and informational services. Merchant account providers’ credit card processing terms, rates and fees vary from one provider to another. Merchant account providers may operate online (website resources), over the phone and at a company office. Common merchant account providers are Viaklix, owned by U.S. Bank, GSPay.com, 2Checkout, and others.
Monthly Minimum Fee – the minimum amount of credit card gateway fees that an e-Commerce merchant has to pay each month. If and e-Commerce merchant fails to meet the criteria of the monthly minimum fee, he/she is charged the additional difference. For example, an online credit card processing service provider’s monthly minimum fee is set to $50.00, and the e-Commerce merchant has managed to pay only $42.00, he/she will be charged an additional $8.00.
Offshore/International Merchant Account – e-Commerce merchant account located outside the merchant’s country, offering lower terms, more flexible policies and conditions, and lower risks. Generally, the offshore merchant account service provider is located in the US, for example, and the credit card processing bank is located in another European, Asian, etc. country. The offshore merchant account provider handles all the negotiations with the merchant bank.
One-click Buy – a shopping cart script function reducing the hassle of having to enter credit card information and shipping information (i.e. filling forms). With the one-click buy function enabled customers register their personal and credit/debit card details only once. The data is encrypted by the shopping cart system and stored in a secure MySQL database.
Payment gateway – is usually separate from the merchant account service provider. The payment gateway is used to securely encrypt (SSL 128-bit secured forms) data transmitted over the Internet. The whole process is not simple but the payment gateway processor goes through all the credit card processing stages (approval, charging, etc.) in a matter of seconds.
Payout – the term used to denote the transfer of the total revenues from the e-Commerce merchant account bank to the e-Commerce merchant. Payouts are made periodically.
Pharmacy Merchant Account – special sub-type of high-risk merchant accounts specifically designed to meet the needs of fast-growing online pharmaceutical resources, based on their market strategies, growth rate and visitors. Pharmacy merchant accounts are better than regular high-risk merchant accounts as expenses are cut down due to the specifics of this e-Commerce business.
Setup Fee – a one-time fee, sometimes referred to as ‘sign-up fee’. The setup fee is charged for the review and the subsequent approval of an e-Commerce merchant for a merchant account.
Shopping Cart Script/System – a pre-programmed PHP (hypertext preprocessor) coded script which is integrated into an e-Commerce merchant’s website. A shopping cart script handles all the pre-transaction and post-transaction processes, including statistical data analysis, MySQL customer registration, SSL 128-bit credit card data protection and encryption, one-click buy function, and much more. Many credit card service providers offer a shopping cart system free of charge, including the installation sometimes. Popular shopping cart scripts are: CubeCart, ZenCart, OSCommerce, Shop-Script and others.
SSL encryption – always used in credit card processing gateways and e-Commerce shopping cart scripts. One of the most powerful encryption algorithms used today, including automatic web-browser encryption key generation without third-party plug-ins. SSL 128-bit encryption is used at every stage of a credit card payment transaction.
Statement Fee – charged on a monthly (by default) basis for the statistical information provided by the processing bank. Statistical information includes totals, a timestamped list of single payments, and more. Statements are useful to keep track of incomes and expenses, and are great for analysis.
Support Fee – usually a yearly fee charged for the support and information services rendered by the merchant account provider. Having paid the support fee, which is not always obligatory, e-Commerce merchants have the privilege of turning to the support and help teams of their service provider. Some merchant account service providers offer free support.
Terminated Merchant File (TMF) – a status of an e-Commerce merchant which makes it extremely difficult for a merchant to apply and get approved for a different merchant account at another bank or merchant service provider (MSP). A TMF status is acquired in many possible situations and, mainly, as the result of abuse or not complying with the rules, guidelines, terms and policies set by the bank and/or the merchant service provider. TMF e-Commerce merchants are blacklisted and submitted into the so-called MATCH file. Most banks and MSP’s check and relate an e-Commerce merchant’s credentials to the entries in the MATCH file in the database. Upon a match the MSP or bank will not approve the terminated merchant. Frankly, a TMF locks all doors to local credit card processing.
Third Party Merchant Account – a special type of service provider coordinated account where a number of e-Commerce merchants share one account on same terms. One credit card processing service provider will generally offer several types of third party schemes offering different types of businesses the best conditions for them and their e-Commerce.
Virtual Terminal (VT) – is an application system (Federal Standard 1037C) used to host terminals on the Net for multiple users. Virtual Terminals let e-Commerce merchants remotely connect to their credit card payment gateways to verify credit card details, conduct a transaction, or to gather statistical information.
Volume Cap/Minimum – the maximum/minimum amount of money that has to be processed by an e-Commerce merchant’s payment gateway per month. An e-Commerce merchant can get terminated for not meeting the requirements of volume caps and volume minimums. Some e-Commerce merchant account providers do not have monthly volume caps/minimums.
Wire Transfer Fee – is charged when an e-Commerce merchant chooses to get his/her revenues transferred to another bank (local or international). The e-Commerce merchant account provider automatically uses wire transfer and charges the merchant on payout days.
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