What To Know About Credit Card Processing

Get To Know Credit Card Processing Terminology

What You Need To Know

As a business owner processing transactions onsite, on-the-go or online know that you are processing these transactions through a payment processor. A payment or merchant processor is a company that facilitates the processing of credit and debit card transactions between donors and nonprofit organizations. 

Payment Types

Credit Card Payments

Online donations or payments processed with a credit or debit card. A payment card will typically be issued through VISA, MasterCard, Discover or American Express. 

ACH Payments

ACH stands for Automated Clearing House and these are payments that are processed electronially using checking account information such as a routing number and checking account number. 

Types of Payment Processing Accounts

Merchant Account

Any business that wants to accept credit card payments you will need to establish with a credit card processor that allows you to accept payment cards from customers.

Payment Gateway

Software on a third-party provider’s server that handles the transmissions between you and your processor that are required to complete an electronic transaction.

Payment Facilitator

With a payment facilitator you sign up under a provider's master account and you become what is know as a sub-merchant. The onboarding and application process is simplified and you can begin accepting credit card payments more quickly. 

Payment Processing Pricing

Tiered Pricing

With tiered pricing transactions are segmented into buckets and each bucket has its own pricing structure. Common tiers used are Qualified transactions, Mid-Qualified and Non-Qualified. Qualified transactions are low risk transactions while Mid-Qualified and Non-Qualified are consider higher risk and more costly.

Flat Rate Pricing

Flat rate pricing is common place in the nonprofit industry as this pricing model is easy to understand as all transactions processed are priced at the same rate. While easy to understand, the downside is that an organization may pay more for less costly transactions that are processed using non-rewards or corporate cards. 

Interchange Plus Pricing

Interchange Plus offers the most transparent pricing and cost effective pricing. The merchant processor simply passes along the Interchange and Card Association Fee directly to the merchant with an agreed-upon markup fee that is listed as basis points plus a transaction fee. “Interchange Plus” refers to the combination of Interchange, Card Association Fees, and Markup.

PCI Compliance

What is PCI?

Payment Card Industry Data Security Standard or PCI DSS is a set of security standards that all businesses that process, handle or store credit card data must comply with to ensure that payment card information is safe and secure.

Why PCI Compliance is important?

If you accept credit cards you have a responsibility to your customers to ensure that their information is handled in a secure manner. It is important not to be negligent by mishandling another person’s credit card information. Not only can it cost you thousands of dollars, but you will also lose the public’s trust. 

Payment Processing Glossary

Associations/Payment Brands

These terms all refer to Visa, MasterCard, American Express® and Discover®, whose familiar logos appear on the overwhelming majority of credit and debit cards in the U.S. The Card brands regulate card acceptance rules for member financial institutions.


When you process a credit card transaction, a response comes back from the issuing bank, all in a second or two. An authorization is either approved or declined by the issuing bank.

Average Ticket Size

Average ticket size refers to the average dollar amount of your credit card transactions. Average ticket size is always asked when you set up a new merchant account. If you don’t yet process credit cards, simply estimate your average credit card sale. 

Basis Points

Basis points are the percentage that you are charged on a credit card transaction. One basis point is equal to 1/100th of 1 percent. Thus a rate of 2.33% is equivalent to 233 basis points. Oftentimes you will hear the term basis points in regards to rates. For example, 75 basis points is the same as saying 0.75%.

Card Not Present (CNP)

A payment card transaction where the cardholder/card are not physically present. For example, an online or mail/telephone order. An online donation or payment would be considered a Card Not Present transaction. 

Card Present

A transaction where the cardholder and payment card are both present. Sometimes referred to as a face-to-face transaction.


Occurs when a cardholder disputes a transaction with the card issuer. The issuer initiates a retrieval request against you and the disputed amount is withdrawn from your account until the matter is settled. You are given 10 days to dispute the chargeback with proof of purchase or delivery. The merchant account provider imposes a chargeback fee as part of the process.

Credit Card

A payment card that is issued by a bank and used by an individual to purchase merchandise or services on credit.

Debit Card

Debit cards are similar to credit cards, except that the funds are immediately withdrawn from the cardholder’s bank account. Credit card charges, on the other hand, are billed to the cardholder each month, and interest charges may be added.


The process of translating data into secret code (encoding) to ensure secure transmission. 


A fee that is set by the credit card brands and paid to their member banks. Interchange is charged to credit card processors, who pass the cost along to you as part of the discount fee. It makes up the largest portion of credit card processing fees.

Issuing Bank

A bank or financial institution that is a licensed member of a credit card network.

Merchant Account

The business arrangement between you and a credit card processor that allows you to accept payment cards from customers.

Merchant Account Provider

The entity that provides you with the products and services needed to process payment cards. The provider also acts as an intermediary between you and the issuing banks and credit card networks and is responsible for depositing proceeds into your bank account.

Merchant Processing Agreement (MPA)

The contract between you and your merchant account provider that outlines the responsibilities and warranties of all parties involved in credit card processing.

Monthly Minimum

The amount that a processor charges you if its discount rate, transaction fees and other account fees do not collectively equal a pre-determined amount that’s defined in your merchant processing agreement(MPA).

Monthly Processing Volume

The gross monthly payment card sales that you process. This figure is specified in your merchant application for card processing along with the average ticket size.

Recurring Billing

A transaction charged to a cardholder on a designated periodic basis (weekly, monthly, annually) as payment for products or services.


Retrieval is the first step in the chargeback process. In a disputed transaction, the issuing bank requests a copy of the physical sales ticket for the transaction in question.

Secure Socket Layer

SSL stands for Secure Socket Layer, a system for encrypting payment card data sent over the internet.