Gravity Payments Local Business

A Glossary of Payment Processing Terms

1099-K

A tax form used to report your processing volume. Gravity Payments is required to report to the IRS the volume in payments processed by businesses each year. We provide you with a copy.

Access One

An online portal from Gravity Payments.

Access One lets you to view your batch history, transaction activity, deposit amounts, monthly statements (up to six months), and any active chargeback notices.

ACH

An electronic network for financial transactions.

Administered by an organization called NACHA, the ACH (Automated Clearing House) represents more than 10,000 financial institutions and processes more than $43 trillion each year.

Acquirer

An acquirer (e.g.: First Data or TSYS) acts as an financial-data intermediary between ISOs (payment processors like Gravity Payments) and issuing ? banks.

Authorization

An approval code from the bank which allows a transaction to proceed.

An authorization makes funds unavailable to the cardholder until the transaction settles, which can take a week-plus for debit cards or 30-plus days for credit cards.

When a merchant charges a card and then voids the transaction, we tell the customer’s bank to release the funds, but it’s up to the merchant’s bank’s system to actually do that.

Some banks may wait until the merchant’s batch closes; some wait until 48 hours after the batch closes.

Auto-Settle

A function where a terminal runs through the settlement process automatically.

Auto-settling is normally done after hours.

Batch

A group of transactions.

When a batch is closed (or “settled”), money doesn’t get transferred from a customer’s credit/debit card to a merchant’s bank account in real time.

Basis Point

1/100th of a percent.

BIN

Visa bank identification number.

Card Brand Fee

The fee charged by the card brands (e.g.: Visa, Mastercard).

Depending on your merchant services statement, these fees can appear under different names, but are often labeled NABU (Network Access and Brand Usage) fees.

Card brand fees are not charged by Gravity Payments or any credit card processing company, but by the banks and card brands themselves.

The credit card processor only collects the fees and passes them through to the card brand and bank.

The total is usually a percentage of the sale plus a per-transaction fee.

Cardholder

The person who owns the credit card, debit card, or other means of payment.

CAU (Card Account Updater)

The ability to have expired or lost credit card numbers automatically updated in card storage once they are re-issued.

Chargeback

A disputed credit card transaction that results in the return of funds back to the cardholder.

A chargeback intended as a fraud-protection tool for consumers, but can lead frustrations for merchants.

There are a few things that can be done to protect your business from the threat of a chargeback:

  • Sign up for Dispute Manager and receive email notifications in the event your business is issued a chargeback.
  • Upgrade your equipment to accept EMV chip cards.
  • Always insert or swipe your customer’s card when possible.
  • If a card is key-entered, make sure to enter as much billing information as possible (billing address, ZIP code, CVV).
  • If you have an online business, ensure that you have the proper AVS (address verification system) settings enabled on your website.
  • If a card is not inserted or swiped through your equipment, make sure to obtain an imprint of your customer’s card. Let us know if you are interested in a manual imprinter.
  • Always have your customer sign the receipt.

If you do receive a chargeback, please reach out to us.

Contactless Payments (NFC, Apple Pay, Samsung Pay)

Payment made wirelessly from a customer’s device to a merchant device.

Contactless payments come in a lot of names and versions such as Apple Pay, Samsung Pay, and other types of near field communication (NFC).

Contactless payments are faster than chip cards and offer the highest level of security.

CVV

Card verification value (the three or four digit security code on the back of a card).

Dispute Manager

The online portal that allows you to access any retrieval and chargeback notices issued to your account.

With Dispute Manager, you’ll receive an email notification every time your business is issued a chargeback. You can review chargeback and retrieval documentation, as well as respond directly through the tool.

Effective Rate

The true amount you’re paying for processing.

It’s equal to your total processing fees divided by your total gross sales volume.

Rates vary by industry, location, card types, etc., but rates tend to range from 2.2% to 2.5%.

Some nonprocessing fees have to be passed through, like equipment-based fees.

EBT

Electronic Benefit Transfer is a system that allows state governments to provide and track benefits (such as food stamps) to authorized recipients via a plastic debit card.

EMV

The most secure way to run transactions from a credit or debit card.

EMV, which stands for Europay, MasterCard, Visa, uses the chip on your customer’s card to authenticate the transaction.

We don’t require our merchants to accept EMV, but if you choose not to include an EMV-compatible payment option, you assume all liability in the event of a chargeback.

If an EMV cardholder swipes their card on a non-EMV-compatible device and declares the transaction fraudulent, they’ll win the dispute.

Funding/Deposit Times

These can range from the next business day to 72 hours, depending on the nature of the transaction.

Gateway

A website that can accept online card payments.

A gateway provides the functionality you’d find with a physical terminal, except that the transactions all happen online.

With a gateway, business owners can process credit card payments online from any internet-connected computer or mobile device.

A gateway is also called a “virtual terminal.”

Interchange Fee

The amount of money that banks and card brands (e.g.: Visa, MasterCard, American Express, Discover) charge.

Interchange rates are the same no matter where your merchant-services account lives.

No credit card processor has control over these fees.

The total is usually a percentage of the sale plus a per-transaction fee.

Issuing Bank

The financial institution that issued the credit card to the cardholder.

The issuing bank is a member of the card brand (Mastercard, Visa, Amex, Discover) and assumes liability for authorized transactions, provided the merchant has followed all card brand rules in a face-to-face transaction.

They assume no risk in a “card not present” transaction (e.g.: online or over-the-phone).

Merchant

A business selling goods and services.

MID

Merchant identification number.

PCI Compliance

A set of standards that oversees data and its security for any organization that interacts with credit or debit cards.

A merchant is NOT required by any law or regulation to be PCI (payment card industry) compliant.

POS

A combination of hardware and software that allows business owners to manage the day-to-day operations of their business, complete transactions, and take in data for analytics, and reporting purposes.

POS stands for “point of sale” system.

Pricing Structures

There are three main ones.

1. Interchange plus

Interchange and card brand fees are passed through to the merchant at cost. You pay a processing fee in the form of a percentage on the sale and a transaction fee.

• Pros: Most-transparent pricing, wholesale costs are itemized on your statement.

• Cons: The amount of information can be overwhelming.

2. Flat rate

You pay one flat rate for every transaction. All the fees mentioned above are included in this rate.

• Pros: Easy to understand, you know exactly how much you’ll pay.

• Cons: Lacks transparency, merchant may end up paying much more than they would with an interchange-plus structure.

3. Tiered categories

You are charged predetermined rates base on the card type or risk of each transaction. the rate is commonly referred to as a tier and is usually categorized as qualified, mid-qualified, and non-qualified.

• Pros: Generally a less-cluttered statement.

• Cons: Incredibly non-transparent statements, wholesale costs aren’t disclosed to the merchants, approach often used by processors trying to deceive merchants.

Independent Sales Organization

A selling agent or payment facilitator (e.g.: Gravity Payments) for merchant accounts.

Processor Fee

The fee charged by the processor (e.g.: Gravity Payments).

The total is usually a percentage of the sale plus a per-transaction fee.

Statements

Monthly summary of credit card processing activity.

Your statement includes details about your rates, and any applicable fees applied to your account.

At the beginning of every month, you’ll see a deduction from your bank account on behalf of Gravity Payments. This withdrawal will represent your previous month’s credit card processing fees.

Shortly after, you’ll receive your statement.

Terminal

Equipment that lets you accept credit/debit cards.

TIN

Tax identification number.

Transaction Lifecycle

1. The customer swipes, dips, or taps a card.

2. The merchant receives it, via their terminal, point-of-sale system, or gateway (e.g.: a website).

3. The ISO (e.g.: Gravity Payments) routes the transaction data.

4. The acquirer provides three products:

  • The “front end” handles card authorizations. During the authorization, the merchant’s terminal/POS system sends three pieces of information to the front end: the card number, expiration date, and transaction amount.
  • The “back end” handles settlement and moves cash.
  • Access to a sponsor bank (the card-issuer’s bank).

5. The issuing bank (e.g.: Bank of America, US Bank, etc.) sends an authorization code to the front end.

6. The card brand (Visa, Mastercard, etc.) sends the the authorization back to the merchant.

7. Interchange/brand fees.

Once the transaction reaches this point, the issuer’s bank and the card brands deduct their fees from the transaction total. Those fees are then covered by the sponsoring bank (e.g.: Wells Fargo) so that the merchant receives the full amount for the transaction. The merchant pays the full amount of the fees (interchange + card brand fees + processor fees) at the end of the month.

Virtual Terminal

See “Gateway.”

Not sure where to start?

Let us help! We’ll find the right solution for your business.