Payment Processing Glossary | Payment Gods

Comprehensive glossary of 90 payment processing terms and definitions.

3

3D Secure: 3D Secure is a security protocol designed to provide an additional layer of authentication for online credit and debit card transactions, helping to prevent fraud and protect both cardholders and merchants.

A

Account-to-Account Payment (A2A): An Account-to-Account (A2A) payment is a direct transfer of funds from a payer's bank account to a payee's bank account, bypassing traditional intermediaries like credit card networks.
ACH Payment: An ACH payment is an electronic money transfer made between bank accounts through the Automated Clearing House (ACH) network, a U.S. financial network that facilitates electronic payments.
Acquirer Reference Number (ARN): An Acquirer Reference Number (ARN) is a unique number that tags a credit or debit card transaction as it moves through the payment processing ecosystem.
Acquiring Bank: An acquiring bank, also known as a merchant acquirer, is a financial institution that processes credit and debit card transactions on behalf of a merchant. It acts as a link between the merchant, the cardholder's issuing bank, and the card networks.
Address Verification System (AVS): The Address Verification System (AVS) is a fraud prevention tool that verifies the billing address provided by a cardholder against the address on file with the credit card issuer.
Assessment Fee: Assessment fees are charges levied by credit card brands like Visa, Mastercard, and Discover on financial institutions for processing transactions through their networks.
Authorization: Authorization is the initial step in a credit card transaction where the merchant’s payment gateway requests approval from the card-issuing bank to confirm the availability of funds.

B

Basis Points: Basis points (BPS) are a common unit of measure in finance, representing one one-hundredth of a percentage point (0.01%). In payment processing, they are frequently used to express processing fees charged to merchants.
Batch Fee: A batch fee is a small charge applied to a merchant's account each time they "batch out" or settle their daily credit card transactions.
BIN (Bank Identification Number): A Bank Identification Number (BIN) is the first four to six digits of a credit card number, identifying the issuing institution of the card.
Buy Now Pay Later (BNPL): Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them in installments, often interest-free, over a set period.

C

Card Network: Card networks, also known as card brands or associations, are global financial networks that facilitate electronic payment transactions between merchants, issuing banks, and acquiring banks.
Card Scheme: A card scheme, also known as a card network, is a payment network that dictates the rules, infrastructure, and technical specifications for processing credit and debit card transactions.
Card Verification Value (CVV): The Card Verification Value (CVV), also known as Card Security Code (CSC), is a three or four-digit security code found on credit and debit cards, designed to protect against fraud during card-not-present transactions.
Card-Not-Present Transaction: A Card-Not-Present (CNP) transaction is a payment card transaction made when the cardholder does not physically present the card to the merchant at the time of purchase. This typically occurs in e-commerce, mail-order, or telephone-order environments.
Card-Present Transaction: A card-present transaction occurs when a customer physically presents their payment card to a merchant at the point of sale, typically by swiping, dipping, or tapping the card on a payment terminal.
Central Bank Digital Currency (CBDC): A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued and backed by its central bank, designed to serve as legal tender.
Chargeback: A chargeback is a forced transaction reversal initiated by a cardholder's bank, typically due to a dispute over a purchase or unauthorized activity. It serves as a consumer protection mechanism but can lead to significant costs and operational challenges for merchants.
Chargeback Ratio: The chargeback ratio is a key metric in payment processing that measures the percentage of your transactions that result in chargebacks within a specific timeframe, typically calculated monthly.
Clearing: Clearing is the process by which all financial transactions are reconciled between financial institutions, ensuring funds are accurately transferred from the payer's account to the payee's account.
Contactless Payment: Contactless payment is a secure method for making purchases with a tap of a card or mobile device, eliminating the need for physical contact with a payment terminal.
Convenience Fee: A convenience fee is an additional charge added to a transaction by a merchant for the privilege of paying with an alternative payment method, often for the convenience of the customer.
Cross-Border Fee: A cross-border fee is an additional charge applied to transactions where the cardholder's bank and the merchant's bank are in different countries.

D

Decline Code: A decline code is a two-digit or three-digit alphanumeric code issued by a credit card issuing bank to a merchant when a customer's credit card payment is declined.
Digital Wallet: A digital wallet is a secure electronic service that stores payment information and passwords for numerous payment methods and websites, allowing users to complete transactions quickly and conveniently.
Discount Rate: The discount rate is a percentage of each credit card transaction that a merchant pays to their payment processor for payment processing services.

E

Early Termination Fee: An Early Termination Fee (ETF) is a penalty charged to a merchant for canceling a payment processing contract before its agreed-upon term has expired.
Embedded Payments: Embedded payments seamlessly integrate payment functionality directly within a business's existing software, platform, or application, often without the customer needing to leave the environment.
EMV Chip: EMV (Europay, MasterCard, and Visa) chip cards are payment cards embedded with a microchip that encrypts transaction data, enhancing security compared to traditional magnetic stripe cards.
Encryption: Encryption is the process of converting information into a secure code to prevent unauthorized access, ensuring sensitive data like credit card details remain confidential during payment processing.

F

FedNow: FedNow is an instant payment infrastructure developed by the Federal Reserve that allows financial institutions to offer real-time gross settlement (RTGS) services for their customers.
Flat-Rate Pricing: Flat-rate pricing is a simplified pricing model for payment processing where merchants pay a fixed percentage and a fixed per-transaction fee, regardless of the card type or transaction amount.
Fraud Detection: Fraud detection refers to the processes and technologies used to identify and prevent fraudulent transactions in payment processing. It helps businesses protect themselves and their customers from financial losses due to scams or unauthorized activities.
Friendly Fraud: Friendly fraud, also known as chargeback fraud, occurs when a customer makes an online purchase with their own credit card and then disputes the charge with their bank, even though they received the goods or services.
Funding: Funding in payment processing refers to the transfer of transaction proceeds from the acquiring bank to the merchant's designated bank account after a sale has occurred and been authorized.

G

Gateway Fee: A gateway fee is a charge levied by a payment gateway provider for the use of their services, which facilitate the secure transmission of transaction data from a customer to the payment processor.

H

Hard Descriptor: A hard descriptor is the permanent billing descriptor that appears on a customer's credit card statement, providing a clear identification of the merchant who charged their card.

I

Idempotency Key: An idempotency key is a unique token sent with a transaction request to ensure that the request is processed only once, even if it is sent multiple times.
Independent Sales Organization (ISO): An Independent Sales Organization (ISO) is a third-party company that partners with acquiring banks to sell payment processing services to businesses.
Instant Payouts: Instant payouts allow merchants to access their funds almost immediately after a transaction, rather than waiting for standard settlement times.
Interchange Fee: An interchange fee is a charge that a merchant's bank (acquiring bank) pays to a cardholder's bank (issuing bank) when a customer makes a purchase using a credit or debit card.
Interchange-Plus Pricing: Interchange-plus pricing is a transparent pricing model for credit card processing that separates the interchange fees charged by card-issuing banks from the processor's markup.
Invoice Payment: Invoice payment refers to the process where a customer settles a financial obligation by paying a bill issued by a merchant for goods or services rendered. It typically involves receiving an invoice and then making a payment through various channels.
Issuing Bank: The issuing bank is the financial institution, like a bank or credit union, that provides a credit or debit card directly to a cardholder.

L

Level 2 Processing: Level 2 processing refers to the submission of additional transaction data, such as customer code and sales tax, during credit card processing to qualify for lower interchange rates.
Level 3 Processing: Level 3 processing refers to an optimized interchange rate for business-to-business (B2B) and business-to-government (B2G) credit card transactions, requiring enhanced data submission to qualify for lower processing fees.

M

Markup Fee: A markup fee is an additional charge added by a payment processor or merchant service provider on top of the interchange and assessment fees, representing their profit margin for facilitating payment processing.
Merchant Account: A merchant account is a specialized bank account that allows businesses to accept and process electronic payments, such as credit and debit card transactions.
Merchant Category Code (MCC): A Merchant Category Code (MCC) is a four-digit number used by credit card networks to classify businesses by the type of goods or services they provide.
Monthly Minimum Fee: The Monthly Minimum Fee is a charge levied by payment processors to ensure a baseline revenue, applied when a merchant's total processing fees in a given month fall below a predetermined amount.

N

NFC Payment: NFC (Near Field Communication) payment is a contactless payment method where customers can make purchases by tapping their smartphone, wearable, or contactless card on a compatible payment terminal.

O

Omnichannel Payments: Omnichannel payments unify all sales channels, allowing customers to start a purchase in one channel and complete it in another, while providing a consistent and seamless experience across online, mobile, and in-store interactions.
Open Banking: Open Banking allows third-party financial service providers secure access to financial data, with customer consent, to develop new and innovative payment and banking products.

P

Payment Aggregator: A payment aggregator is a third-party service provider that enables businesses to accept online payments without the need for a traditional merchant account. They pool transactions from multiple merchants under a single master merchant account.
Payment API: A Payment API (Application Programming Interface) is a set of protocols and tools that allows different software applications to communicate with each other, specifically for initiating and managing payment transactions.
Payment Channel: A payment channel is the specific method or route through which a customer’s payment information is transmitted and processed from the point of sale to the merchant’s bank account.
Payment Facilitator (PayFac): A Payment Facilitator (PayFac) is a type of merchant services provider that acts as a master merchant, allowing smaller sub-merchants to process payments without establishing their own direct merchant accounts.
Payment Gateway: A payment gateway is an e-commerce service that authorizes secure payments between a customer and a merchant, acting as a virtual point-of-sale (POS) terminal.
Payment Orchestration: Payment orchestration is the intelligent routing and management of payment transactions across multiple payment gateways, processors, and payment methods to optimize efficiency, reduce costs, and enhance the customer experience.
Payment Processor: A payment processor is a financial institution or third-party service provider that handles electronic transactions, acting as an intermediary between merchants, customers, and banks to facilitate secure and efficient movement of funds.
Payment-as-a-Service: Payment-as-a-Service (PaaS) is a comprehensive solution that offers end-to-end payment processing functionalities to businesses, often through a single provider.
PCI Compliance: PCI Compliance refers to the set of security standards established by the Payment Card Industry Data Security Standard (PCI DSS) to protect cardholder data during credit card processing.
PCI DSS: PCI DSS, or the Payment Card Industry Data Security Standard, is a set of security standards designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.
PCI Non-Compliance Fee: A PCI non-compliance fee is a penalty charged to merchants who fail to meet the Payment Card Industry Data Security Standard (PCI DSS) requirements.
Point of Sale (POS): A Point of Sale (POS) system is the hardware and software used by businesses to complete sales transactions, accept payments, and often manage other business operations.
Point-to-Point Encryption (P2PE): Point-to-Point Encryption (P2PE) is a security solution that encrypts sensitive payment card data from the moment it is swiped or entered at a point-of-sale (POS) terminal until it reaches the payment processor, rendering the data unreadable to unauthorized parties.
Pre-Arbitration: Pre-arbitration is a formal stage in the chargeback dispute process where the issuer (cardholder's bank) has rejected the merchant's representment and is escalating the dispute towards a potential arbitration filing.

Q

QR Code Payment: A QR Code Payment is a contactless payment method where customers scan a Quick Response (QR) code displayed by a merchant to initiate and complete a transaction through their mobile device.

R

Real-Time Payment (RTP): Real-Time Payment (RTP) refers to an electronic payment system where funds are transferred from the payer's account to the payee's account almost instantaneously, with immediate confirmation.
Recurring Billing: Recurring billing is an automated payment system that charges customers for goods or services on a pre-determined, regular schedule until the subscription is canceled.
Representment: Representment is the process by which a merchant re-submits a previously disputed transaction to the cardholder's bank for a second review, providing additional evidence to challenge the chargeback.
Request to Pay: Request to Pay is a digital message sent by a biller to a customer, prompting them to make a payment. It allows customers to view, manage, and pay their bills conveniently within their banking app or chosen payment platform.
Retrieval Request: A retrieval request is a formal inquiry from a cardholder's bank to a merchant's bank, asking for details about a transaction. It serves as a preliminary step that often precedes a chargeback.
Return Merchandise Authorization (RMA): A Return Merchandise Authorization (RMA) is a number issued by a merchant to authorize the return of a product. It serves as a reference for tracking the return and ensuring the returned item is legitimate.
Risk Reserve: A risk reserve, in the context of payment processing, is a portion of a merchant's transaction revenue withheld by the payment processor or acquiring bank to cover potential financial losses arising from chargebacks, refunds, or fraudulent activities.
Rolling Reserve: A rolling reserve is a protective measure employed by payment processors, where a percentage of a merchant's daily credit card processing revenue is withheld and held in a non-interest-bearing account for a predetermined period.

S

Settlement: Settlement is the final stage of a payment transaction where funds are transferred from the customer's bank account to the merchant's bank account, making the transaction complete.
Soft Descriptor: A soft descriptor is temporary text that appears on a cardholder's online bank statement immediately after a purchase, before the final, hard descriptor replaces it.
Stablecoin Payment: A stablecoin payment is a transaction made using cryptocurrencies that are pegged to a stable asset, typically a fiat currency like the US dollar, to minimize price volatility.
Statement Fee: A statement fee is a regular charge imposed by a payment processor or merchant service provider for producing and delivering monthly account statements to a merchant.
Subscription Billing: Subscription billing is a recurring payment model where customers are charged automatically at pre-determined intervals for continuous access to a product or service.
Surcharging: Surcharging is the practice of adding a fee to a customer's transaction when they pay with a credit card, typically to offset the costs associated with credit card processing.

T

Tiered Pricing: Tiered pricing is a credit card processing fee structure where transactions are categorized into different tiers (qualified, mid-qualified, non-qualified) based on various factors, each with its own distinct processing rate.
Tokenization: Tokenization is the process of converting sensitive payment data, such as a credit card number, into a unique, non-sensitive identifier called a "token." This token can then be used in place of the original data for payment processing, significantly enhancing security.
Transaction ID: A Transaction ID (Transaction Identifier) is a unique string of characters assigned to each individual payment transaction, serving as a digital fingerprint for that specific event.

V

Velocity Check: A velocity check is a fraud prevention tool that monitors the frequency of transactions within a defined period to detect unusually high activity that might indicate fraudulent behavior.
Virtual Terminal: A virtual terminal is a web-based application that allows merchants to process credit card payments manually using a computer and an internet connection, bypassing the need for a physical credit card reader.

W

Webhook: A webhook is an automated message sent from an application when a specific event occurs, acting as a real-time notification system for payment processing events.
Wire Transfer: A wire transfer is an electronic transfer of funds directly from one bank account to another, offering a fast and secure way to move money domestically or internationally.