Accepting payments through credit cards from your customers is not very simple as seen by a few merchants. The process of approving the transactions and then getting the funds is highly complicated and the terms used to explain the process is more complex. Most of them are highly confusing and needs a substantial effort by the merchant to understand. A few of the terms used are batches, discount fees, ISOs, payment gateways and charge backs. The owners of business should learn the meaning of these words and many others to have a clear understanding of the process. This article explains a few of those terms.

Issuing bank

It is this bank that provides credit cards to the consumers. When any card holder buys something and swipes the credit card to pay for it, then the transaction should go through the issuing bank. The bank either denies or approves the transaction.

Merchant Account

It nothing but a contract between a business owner and a financial institution also called as the acquiring bank. This contract permits the owner of the business to accept payments through credit cards from his customers.

Payment Gateway

The retail stores have terminals to accept credit card payments. The customers’ cards are swiped in the terminal or the number is entered manually. The payment gateway is also used for online shopping.

The primary function of the gateway is to encrypt the user data and send it to the bank.


When the customer is not satisfied and wants his money back then he fills a chargeback complaint with his credit card issuer. If he wins the case then he will get his funds back. This mostly happens when a customer finds an unauthorized or a fraudulent transaction in his account. The funds will be reclaimed by the issuing bank from the merchant’s bank.

Settlement Time

Most of the merchant banks and payment processors will withhold the funds after a credit card transaction for a particular time period. It may be for 24 hrs or even weeks. For the owners of small businesses who are much dependent on the cash flow, the lengthy settlement time will not be practical.

Processing Fees’

There are several kinds of fees charged for every debit or credit card transaction. It is important that you understand all of them or at least the one which are applicable to you.

Discount Rate

This is the fees which are paid each time a credit card payment has to be processed. The Discount rate has several components including the interchange rate. This rate varies a lot between different merchant accounts.

Interchange Fee

It is a portion of the discount rate that is charged for every credit card transaction that is made by your business. It is applicable for those transactions which are done using MasterCard or Visa.

Authorization Fee

This is charged whether or not the transaction is successful. It is charged by the issuing bank for authorizing the transaction.

Batch Fee

Every day, the business owner is obliged to “batch up” his entire day’s transactions and send it. Contact one of our helpful account representatives to assist you in the setup of a high risk merchant account or offshore merchant account for a high risk merchant.