The Go-To Glossary for All Things Payments
As a software company looking to provide payments on your platform, it is essential to familiarize yourself with some of the commonly used terms in the payments industry. Below is a glossary of the more common payment terms:
A security protocol designed to verify the cardholder’s identity and reduce fraud in online transactions by adding an extra layer of authentication. It can be used with Visa, Mastercard and American Express.
Automated Clearing House is an electronic payment network in the United States that facilitates the transfer of funds between bank accounts. It is commonly used for direct deposits, bill payments and other electronic transfers.
The bank or financial institution that processes payment transactions on behalf of the merchant. Acquirers work with merchants to ensure compliance with card network rules and regulations.
Address Verification Service
A fraud prevention tool that verifies the billing address entered by the customer matches the address on file with the credit card issuer. It helps merchants prevent fraudulent transactions by ensuring that the person making the payment is the actual cardholder.
A code provided by a card issuer to a merchant to approve a payment transaction. It confirms that the cardholder has sufficient funds to cover the transaction and that the transaction is authorized.
The process of verifying that a customer has sufficient funds to cover a transaction before allowing the transaction to proceed. It ensures that the customer can pay for the goods or services they are purchasing.
The process of moving debt from one credit card to another. It is usually done to take advantage of lower interest rates.
Bank Identification Number (BIN)
The first six digits of a credit or debit card that identify the issuing bank. BINs are used to route transactions to the correct processing network.
The processing of multiple payment transactions as a group, typically performed overnight. Batch processing helps streamline payment processing and reduce costs.
The process of settling a group of payment transactions at the end of the day. It involves transferring funds from the issuing bank to the acquiring bank.
A service that allows a non-financial institution to issue payment cards under a BIN owned by a financial institution. This allows businesses to offer branded payment cards without having to go through the regulatory process of becoming a financial institution.
The process of capturing funds from a payment card for a completed transaction. It involves transferring funds from the cardholder’s account to the merchant’s account.
A network that facilitates the processing and settlement of payment transactions between merchants and card issuers. Examples include Visa, Mastercard and American Express.
The financial institution that issues payment cards to consumers. Examples include banks and credit unions.
A company that operates a payment card network, such as Visa or Mastercard. These networks facilitate the transfer of funds between card issuers and acquirers.
Card Not Present (CNP)
A payment transaction in which the cardholder is not physically present, such as an online or phone transaction. CNP transactions are considered higher risk and are subject to additional fraud prevention measures.
Card Present (CP)
A payment transaction in which the cardholder is physically present, such as a retail store purchase. CP transactions are generally considered lower risk than CNP transactions.
Card Verification Code (CVC)
A three or four-digit code on a payment card used for additional security during transactions. It helps verify that the person making the payment is the actual cardholder.
The person who owns a payment card and is authorized to use it for transactions. The cardholder is responsible for making payments and keeping their account in good standing.
Strategies and tools used to reduce the likelihood of chargebacks, such as improving customer service, enhancing communication and implementing fraud detection measures. Effective chargeback prevention can help minimize financial losses and maintain customer trust.
Chargeback Reason Code
A standardized code used to classify the reason for a chargeback. By understanding the specific reason for a chargeback, merchants can take appropriate measures to prevent future chargebacks and minimize the impact on their business.
A chargeback occurs when a customer disputes a charge on their credit card statement, and the funds are returned to the customer. Chargebacks can be costly and damaging to a merchant’s reputation, so it’s important to have effective chargeback prevention measures in place.
A service that guarantees payment for a check transaction, providing merchants with a secure and reliable payment option. Check guarantee services can help minimize the risk of bounced checks and ensure timely payment processing.
The process of completing a transaction and submitting payment for goods or services. A seamless and secure checkout experience is essential for customer satisfaction and can help increase conversion rates.
The process of reconciling and settling payment transactions between merchants and card issuers. Clearing is a critical component of the payment process, ensuring that funds are transferred securely and efficiently.
A payment transaction that uses near-field communication (NFC) technology to allow a payment card to be waved or tapped near a payment terminal. Contactless payments provide a fast and convenient payment option, promoting customer satisfaction and reducing transaction times.
A payment card that allows the cardholder to borrow funds from the card issuer to make purchases. Accepting credit cards as a payment option can expand a merchant’s customer base and increase sales.
A numerical representation of a person’s creditworthiness, often used by financial institutions to evaluate credit risk. Understanding a customer’s credit score can help merchants make informed decisions about extending credit or offering financing options.
A form of digital currency that uses encryption techniques for security and operates independently of a central bank. Accepting cryptocurrency as a payment option can offer customers more flexibility and provide merchants with new revenue streams.
The process of converting one currency to another, typically for international transactions. Offering currency conversion services can provide customers with a seamless payment experience and help merchants expand their global reach.
Customer Information Management System (CIMS)
A system that manages customer data for payment transactions, ensuring that customer information is kept secure and confidential. CIMS can help merchants comply with data privacy regulations and build trust with customers.
A payment card that allows the cardholder to spend funds they already have in their bank account. Accepting debit cards as a payment option can offer customers more flexibility and convenience and help reduce transaction fees for merchants.
A virtual storage space for payment card information, used for making online and mobile payments. Accepting digital wallets as a payment option can provide customers with a secure and convenient payment method and help merchants stay competitive in the digital age.
The fee charged by a merchant services provider to a merchant for processing payment transactions. Understanding discount rates and negotiating favorable terms can help merchants reduce payment processing costs and improve profitability.
A disagreement between a merchant and a customer over a payment transaction. Effective dispute resolution can help maintain customer trust and prevent financial losses for merchants.
Dynamic Currency Conversion (DCC)
A service that allows merchants to offer customers the option to pay in their own currency, rather than the local currency. DCC can provide customers with a transparent and convenient payment experience and help merchants increase sales.
An electronic version of a paper check that is processed through the Automated Clearing House (ACH). Accepting echecks as a payment option can provide customers with a secure way to manage larger payments.
The process of buying and selling goods and services online, typically through a website or mobile application, including the management of online orders, inventory and payments.
Electronic Funds Transfer (EFT)
A secure and reliable system for electronically transferring funds between bank accounts, allowing businesses to receive payments from customers and make payments to suppliers and vendors without the need for physical checks or cash.
A digital invoice that is sent to the customer via email or other electronic means, providing an efficient and eco-friendly alternative to paper-based invoicing. Electronic invoices can also be integrated with payment processing systems to enable fast and convenient payment.
Embedded payments represent the process of adding a payment service via a payment provider into an online service or mobile application to allow payments to be accepted within the service or application.
A global standard for payment cards with embedded microprocessor chips, providing enhanced security features such as encryption and authentication to reduce the risk of fraud and protect sensitive payment information.
A unique code used to encrypt and decrypt sensitive data, such as payment card information, to ensure that it can only be accessed by authorized parties.
A financial arrangement where a third party holds funds or assets on behalf of two other parties until a specific event occurs or conditions are met, providing added security and trust in transactions.
The process of identifying and preventing fraudulent transactions using advanced algorithms and machine learning techniques to detect suspicious patterns and behaviors.
A gift card is a prepaid card that customers can use to purchase goods or services from a merchant. It provides a convenient and flexible way for customers to pay for products or services, and can help increase customer loyalty and repeat business.
Hosted Payment Page
A hosted payment page is a secure payment page hosted by the payment processor that redirects the customer to complete the payment transaction. It provides a convenient and secure way for customers to make payments, without the need for the merchant to handle sensitive payment information.
Identity verification is the process of confirming a person’s identity for security and fraud prevention purposes. This process can include verifying personal information, such as name, address, and social security number, as well as verifying identity documents, such as driver’s licenses or passports.
An interchange fee is a fee paid by the merchant’s bank to the customer’s bank for processing credit or debit card transactions. This fee is typically a percentage of the transaction amount and is set by the card networks, such as Visa or Mastercard.
Issuer Identification Number (IIN)
The issuer identification number (IIN) is the first six digits of a payment card used to identify the card issuer. This number is important for merchants to identify which payment network is being used for the transaction.
An issuer is a bank or financial institution that issues payment cards to customers. The issuer is responsible for managing the customer’s account, setting credit limits and processing transactions.
An issuing bank is the financial institution that issues payment cards to consumers. The issuing bank is responsible for managing the customer’s account, setting credit limits and processing transactions.
Know Your Customer (KYC)
Know Your Customer (KYC) is the process of verifying the identity of customers for security and compliance purposes. This process can include verifying personal information, such as name, address and social security number, as well as verifying identity documents, such as driver’s licenses or passports.
A merchant account is a bank account used by a merchant to receive funds from payment transactions. It enables merchants to accept payments from customers and is typically provided by a payment processor or acquiring bank.
Merchant Category Code (MCC)
A four-digit code that payment card networks assign to merchants based on the type of goods or services they offer. MCC codes are used to identify and track the types of transactions made by cardholders, and they are important for fraud detection, risk management and marketing analysis.
Merchant Identification Number (MID)
A unique identifier that payment processors assign to merchants for payment processing purposes. MIDs are used to track and reconcile transactions, and they help payment processors ensure that merchants receive the funds they are owed.
Merchant Services Provider (MSP)
A company that provides payment processing services to merchants, including authorization, settlement and other related services. MSPs are typically third-party providers that work with merchants to help them accept and process payments. They may offer a variety of services, including point-of-sale systems, online payment processing and mobile payment solutions.
A payment transaction that is completed using a mobile device, such as a smartphone or tablet. Mobile payments can be made through a variety of channels, including mobile apps, mobile wallets and mobile point-of-sale systems.
Mobile Point of Sale (mPOS)
A system that enables merchants to accept payment transactions using a mobile device. mPOS systems typically consist of a mobile device, a card reader and software that allows merchants to process payments.
A digital wallet that allows consumers to store and use payment information on their mobile devices. Mobile wallets can be used to make payments in-store, online or through mobile apps. They are typically linked to a bank account or credit card.
The ability to process payments in multiple currencies for international transactions. Multi-currency processing is important for merchants who do business across borders, as it allows them to accept payments in the local currencies of their customers.
Network Tokens or Network Tokenization
Network Tokens are created and ‘issued’ by the bank’s system (via the Visa or Mastercard network) rather than an external party as is the case with gateway or processor tokens. This means that the bank establishes the relationship between the token and the underlying cardholder account and can track all activity across the lifecycle of that token.
Near Field Communication, a technology that allows for contactless payment transactions. NFC is used in mobile payment systems and other contactless payment methods, such as contactless credit cards. It allows for fast and convenient payments without the need for physical contact between the payment device and the reader.
Non-sufficient Funds (NSF)
A situation where there are not enough funds in a payment account to complete a transaction. When a transaction is declined due to NSF, the account holder may be charged a fee by their bank or payment processor.
One-Time Password (OTP)
A unique code generated for a single-use authentication during a payment transaction. OTPs are typically sent to the user’s mobile device or email address and are used to verify the user’s identity before allowing the transaction to proceed.
A payment transaction that is completed over the internet, typically through a website or mobile app. Online payments can be made using a variety of methods, including credit cards, bank transfers and digital wallets.
A set of programming instructions that allow third-party developers to integrate payment processing into their applications. Payment APIs are used to connect applications to payment gateways and enable them to accept payments inside the application.
A plastic card that allows the cardholder to make purchases from a credit, a debit or prepaid account. Payment cards are widely accepted globally.
A payment facilitator is a third-party service provider that helps merchants accept payments by aggregating multiple merchants under one master merchant account. By doing so, payment facilitators can streamline the payment process for small businesses and startups that may not have the resources to handle complex payment infrastructure.
Payment Facilitator-as-a-Service (PFaaS)
A PFaaS is a solution that allows non-financial businesses to act as payment facilitators. A payment facilitator provides the infrastructure, expertise, relationships and processes that allow software and platform providers to accept payments.
A payment gateway is a service that allows a merchant’s website to connect with a payment processor for the authorization and settlement of payment transactions. It acts as a bridge between the merchant and the payment processor, ensuring secure and seamless payment transactions for both parties.
Payment Gateway Integration
Payment gateway integration is the process of connecting a payment gateway to a merchant’s website or mobile application. Payment gateway integration typically involves the use of an API or other programming interface to connect the payment gateway to the merchant’s system.
A payment network refers to a group of institutions, such as banks and payment processors, that work together to enable payment transactions. Payment networks play a critical role in facilitating electronic payments by connecting merchants, card issuers and payment processors, and ensuring that payment transactions are secure and reliable.
A payment processor is a company that provides the infrastructure to facilitate electronic payments. Payment processors play a critical role in the payment ecosystem by authorizing and settling payment transactions, and transferring funds between merchants, card issuers and acquirers. Payment processors also provide other services such as fraud detection and prevention, and chargeback management.
Additional or incremental revenue that a merchant of any kind, but especially an online platform or service provider, can generate by taking payments within their application, solution or website.
Payment Service Provider (PSP)
A payment service provider is a company that provides payment processing services to merchants. These services typically include payment gateway, acquiring and settlement services, as well as value-added services such as point-of-sale software or online checkouts.
Payment tokenization is the process of replacing sensitive payment card information with a unique identifier called a token. This token can be used to authorize payment transactions without exposing sensitive payment information, reducing the risk of fraud and improving security. Payment tokenization is becoming an increasingly popular method of securing payment transactions.
The process of adhering to the Payment Card Industry Data Security Standards to protect against data breaches and fraud. PCI compliance is a critical requirement for any company that processes payment transactions, and failure to comply can result in fines, legal action and damage to a company’s reputation. PCI compliance requires companies to implement security measures such as encryption, access controls and regular security audits.
Payment Card Industry Data Security Standard (PCI DSS)
The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards established by the payment card industry to protect cardholder data. PCI DSS provides a framework for ensuring the security of payment transactions, including requirements for secure storage and transmission of payment information, regular security audits and employee training.
Point of Sale (POS)
The physical location where a payment transaction takes place, typically a retail store or restaurant. POS systems typically include hardware such as a cash register or card reader, as well as software for processing payments, managing inventory and generating reports.
Pre-authorization is the process of obtaining approval for a payment transaction before the goods or services are delivered. Pre-authorization is commonly used in industries such as hospitality and travel, where customers may book a reservation or hold a room before paying for the service. Pre-authorization helps to ensure that merchants receive payment for their goods or services, while also reducing risk.
A payment card that has a pre-loaded balance of funds for use in future transactions. Prepaid cards are a popular alternative to traditional credit or debit cards, particularly for consumers who do not have access to traditional banking services.
A fee charged by a payment processor or merchant services provider for processing a payment transaction. The fee typically covers the cost of providing the infrastructure and services required to facilitate the transaction, such as authorization, fraud protection and settlement.
A company that processes payment transactions on behalf of merchants, card issuers and acquirers. The processor acts as an intermediary between the parties involved in the transaction, handling tasks such as authorization, settlement and risk management.
The process of verifying and reconciling payment transactions between merchants and card issuers. The process typically involves comparing the records of the merchant and the card issuer to ensure that all transactions have been properly processed and accounted for.
A bank account held by a payment processor to hold funds to cover potential chargebacks or other payment disputes. The funds in the account are typically used to cover any losses that may occur as a result of chargebacks, fraud or other issues.
Real-Time Payments (RTP)
A payment system that allows for instant transfer of funds between bank accounts. The system is designed to provide a faster, more efficient way for individuals and businesses to transfer funds, with transactions typically settling within seconds.
The process of automatically charging a customer’s credit card on a regular basis. This type of billing is commonly used for subscription-based services, such as streaming media or online software.
A payment that is processed on a regular schedule, such as a subscription or loan installment payment. The payment is typically made using the same payment method and amount, with the frequency and duration of the payments determined by the agreement between the parties involved.
A refund is a transaction where a customer receives money back for a purchase they have made. Refunds can occur for a variety of reasons, such as a product being defective or not as described, or a customer changing their mind about a purchase.
A type of transaction that cancels a previously authorized payment. This can happen when a payment was made in error, or when a customer disputes a charge. Reversals can be initiated by the merchant, the customer or the issuing bank, and the funds are typically returned to the customer’s account within a few business days.
Assessing and managing the risk of fraudulent or unauthorized payment transactions. This involves implementing various security measures and fraud prevention tools to minimize the risk of fraudulent activities. Risk management is critical for protecting both merchants and consumers, as it helps to prevent financial losses and protect sensitive data.
Secure Electronic Transaction (SET)
SET is a protocol for securing online payment transactions using digital certificates. It provides a secure way for consumers to make payments online. SET encrypts payment information during transmission to prevent unauthorized access and uses digital certificates to verify the identity of both the consumer and the merchant.
Settlement is the process of transferring funds between parties involved in a transaction. In the context of payments processing, settlement refers to the process of transferring funds from the acquiring bank to the merchant’s bank account.
Single Euro Payments Area (SEPA)
SEPA is a payment integration initiative that aims to simplify euro-denominated bank transfers within the EU and EEA. This initiative allows for faster and more efficient cross-border payments between member countries, and helps to create a more unified European payments market.
A payment card that has a limited validity period and transaction limit, usually intended for a specific purchase. These cards are commonly used for online transactions or for purchases where security is a concern, as they offer added protection against fraud and unauthorized transactions. Once the card has been used for the intended purchase, it is no longer valid and cannot be used again.
A split payment is a transaction where a single payment is split between two or more recipients. This can occur when multiple merchants are involved in a single transaction, or when a customer wants to split the cost of a purchase with another person.
Stored Value Card
A stored value card, also known as a prepaid card, is a type of payment card that is loaded with funds in advance. These cards can be used to make purchases until the funds on the card have been depleted.
Subscription billing is a payment model where customers are charged on a recurring basis for access to a product or service. This can be used for software subscriptions, membership fees, or any other type of recurring payment.
An extra fee imposed on a customer for using a payment card to make a purchase in certain circumstances. Surcharge fees are typically added to the purchase amount and are usually a percentage of the total transaction value.
A company that provides payment processing services to merchants on behalf of another company. These companies act as intermediaries between merchants and payment networks, handling payment transactions and providing fraud detection and prevention services.
Token Service Provider (TSP)
A TSP is a company that offers payment tokenization services to merchants and payment processors. Payment tokenization replaces sensitive payment card data with a unique token, reducing the risk of fraud and making payments more secure. TSPs issue and manage these tokens.
Tokenization is the process of replacing sensitive data, such as credit card numbers, with a unique identifier called a token. This helps to protect the customer’s data by reducing the number of places where it is stored and transmitted.
A charge levied by a payment processor or merchant services provider for processing a payment transaction. The fee may be a fixed amount or a percentage of the transaction value, or both, and is intended to cover the costs of processing the payment, including network fees, fraud prevention and other expenses.
Two-Factor Authentication (2FA)
A security protocol that requires users to provide two forms of identification to access a system or process a payment transaction. Typically, this involves a password or PIN, as well as a second factor such as a fingerprint, facial recognition or a security token.
The process of assessing the risk of a merchant for payment processing purposes. Payment processors and merchant services providers use underwriting to evaluate a merchant’s creditworthiness, financial stability and potential for fraud or chargebacks. Underwriting helps to protect payment processors from losses, and may involve a review of the merchant’s financial statements, credit history and business operations.
Verified by Visa
A security protocol for online payment transactions that requires additional authentication steps to reduce fraud. When a customer makes a purchase online with a Visa card, they may be prompted to enter a password or provide additional identification information to verify their identity.
A digital form of currency that can be used for payment transactions. Examples of virtual currency include Bitcoin and other cryptocurrencies. Unlike traditional currency, virtual currency is not backed by a government or central authority, and its value may fluctuate widely.
A web-based application that allows merchants to process payments by manually entering customers’ payment information. This can be useful for businesses that need to accept payments over the phone or by mail, or for those that do not have a physical point-of-sale system.
A process for obtaining approval for a payment transaction by speaking directly with the card issuer. This process may be used in situations where a physical credit card is not present, such as telephone or online orders. To obtain voice authorization, the merchant may need to provide information such as the transaction amount, card number and expiration date, and may be required to answer security questions to verify their identity.
A void is a transaction that cancels a previously authorized payment before it has been settled. This can occur when a transaction was made in error, or when a customer changes their mind about a purchase.
A company that offers digital wallet services to both consumers and merchants, allowing them to securely store payment information and make transactions. Digital wallets are becoming increasingly popular due to their convenience and security features, such as tokenization and two-factor authentication.
A method of electronically transferring funds between bank accounts. This type of payment can be initiated by an individual or a business and is commonly used for large transactions or cross-border payments. Wire transfers are considered one of the fastest and most secure payment methods.
The process of removing funds from a payment account.
Zero Liability Protection
A feature offered by some payment card issuers that limits the liability of the cardholder in case of fraudulent transactions. This means that the cardholder will not be responsible for unauthorized charges made with their card. Zero liability protection provides an added layer of security for consumers.
In summary, payment processing can be complex and involves many different components, including security protocols, payment networks, payment processors and various types of payment transactions. Understanding the basics of payment processing can help software companies make informed decisions about offering payments on their platforms and choosing the right payment processing partner. You can find out more about these and other payment terms and discuss your payment options by getting in touch with us here at Exact Payments. And stay on top of the changing payments industry at our blog.