Glossary
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Payments

Payments Glossary

Ross McGee
Ross McGee

Account termination fees

Under contractual terms, individuals and businesses could be subject to account termination fees if they choose to close a financial account prematurely or when certain conditions are not met.

ACH

Within the United States of America, the Automated Clearing House (ACH) is responsible for securely processing various types of financial transactions electronically.

Acquirer

Acquirers forge relationships with merchants to allow the latter to accept electronic payments. Acquirers achieve this by authorising transactions, forwarding transaction details to card networks for clearing, and settling payments in merchants’ bank accounts by transferring transaction totals minus acquirer fees.

Acquirer processor

Connecting directly between merchants, card networks and acquirers, acquirer processors exchange data relating to transactions between all stakeholders. For instance, their technology enables authorisation and settlement messages between acquirer and card networks.

Address Verification Service (AVS)

Whether or not a provided billing address matches that which is associated with a card being used for a payment, is confirmed by an Address Verification Service (AVS).

Alternative payment methods

Making payments without the use of conventional methods like cash or cards constitutes an Alternative Payment Method (APM). They therefore include mobile wallets like Apple Pay, cryptocurrencies like Bitcoin, contactless payments and more.

API

Application Programming Interfaces (APIs) consist of protocols and definitions to allow two or more computer programs to communicate with each other.

Bank transfer

Electronic payments directly transferring from a payer’s bank account to a beneficiary’s account is a bank transfer.

Biometrics

The use of physical features such as fingerprints or facial assets to verify identities is known as biometrics.

Blockchain

Cryptographic records containing multiple transactions, known as blocks, are chronologically chained together with distributed ledger technology to securely and transparently record, verify and facilitate financial transactions. This is known as blockchain.

Buy Now Pay Later (BNPL)

Buy Now Pay Later (BNPL) is a form of borrowing money which allows consumers to purchase goods or services over a set number of instalments.

Boleto

Regulated by the Brazilian Federation of Banks (FEBRABAN), Boleto, is a popular payment method in Brazil.

Card association fee/ assessment fee

To fund the maintenance of card schemes, the likes of Mastercard and Visa charge a fee to entities which operate within their network.

Card manufacturer

Whilst issuers provide cards to end-users, first cards must be manufactured. This is usually done by a specialist company such as IDEMIA and CPI Card Group.

Card payments

Any payment made via a debit or credit card; delayed debit function; and even POS and remote card transactions.

Card regulations

Just as other industries and services, so too are those related to payments and cards. An example includes the Payment Card Industry Data Security Standards (PCI-DSS) requirements and Security Assessment Procedures.

Card schemes

Responsible for providing the operational and legal framework for facilitating card payment transactions, card schemes such as Visa and Mastercard are fundamental to the payments industry.

Cardholder

A consumer who makes purchases from merchants with a creditor debit card.

Card network

A company which provides infrastructure for the processing of card payments. Examples include Visa and Mastercard.

Card-not-present transaction

Transactions which take place without the use of a physical card are known as card-not-present (CNP) transactions. These can include mail orders, telephone orders or online purchases where no physical card is presented to merchants.

Chargeback

Chargebacks occur when a cardholder reverses a transaction via their bank due to suspecting fraudulent activity, a processing error or having a dispute regarding what they paid for. 

Cheque

A physical written note that acts as a mini-contract, giving permission for payees to receive funds from a payer’s bank account once processed via a financial institution. Cheques are less common these days due to their long clearing times and reliance on physical cheque books.

COD

Collection on Delivery (COD) refers to when a payment is made once a good or service is delivered, rather than in advance.

Commerce platform provider

Within the world of e-commerce, Commerce Platform Providers are comprehensive solutions enabling website creation, product catalogue management, payment processing and more. A well-known example is Shopify.

Contactless payments

Through the use of NFC technology, plastic cards, mobile phones and even smartwatches are able to enact contactless payment whereby they initiate transactions by being in close proximity to POS terminals.

CVC

A three to four-digit number usually located on the signature strip of a debit or credit card, CVCs are designed for security purposes when card-not-present (CNP) transactions are made.

Digital wallets (e-wallet)

Sometimes referred to as an e-wallet, digital wallets electronically and securely store payment details and passwords so that consumers can make purchases quickly online or via their smartphones with NFC technology. Examples such as Google Wallet work by linking to a consumer’s bank account or having funds deposited into them.

Four-party schemes

When an acquirer and issues are represented by different organisations, an open-loop four-party scheme is created. In such circumstances, acquirers and issuers apply fees, and the need for card processors plus token service providers are necessary.

E-commerce

Buying and selling goods and services online constitutes as e-commerce.

EMI

An Electronic Money Institution (EMI) is an authorised financial institution which can issue electronic money and provide various electronic payment services. An example is Cash App.

Fee table

To assist merchants in understanding what fees they will incur for accepting electronic payments, the likes of payment service providers and acquirers should publish fee tables. These set out what fees merchants should expect to incur for their services.

Flat-rate pricing

For every transaction handled by a payment processor, merchants are charged a single all-in fee which does not differ no matter what size a transaction might amount to.

Foreign currency exchange fees

When transaction currencies are different to settlement currencies, cross-border processors apply foreign currency exchange fees.

High-risk fee

High-risk businesses such as those operating in the travel industry or those that run SaaS businesses are more prone to chargebacks. As a result, it is likely that they will be subject to paying higher fees for their merchant account and related merchant services.

Hosted payment page

To minimise personal compliance responsibility regarding PCI DSS, merchants can outsource online collection of payment details to a hosted payment page (HPP). Often HPPs offer additional payment services beyond data collection, including processing and tokenization, saving merchants time and money.

Gateways

Payment gateways gather payment credentials of consumers to safely communicate them to PSPs or acquirers so that payments can then be processed.

Independent Service Organisations

Independent Service Organisations (ISOs) are third-party companies authorised to sell payment processing services to merchants. Often they partner with multiple payment processors so that they can offer merchants a service that best suits their needs. As a middle-man for providing payment processing services, ISOs do not possess technical capabilities, instead focussing on forging partnerships with clients, providing support, and additional services such as setting up merchant accounts.

Independent Software Vendor (ISVs)

Increasing digitalisation of payments has led to the creation of Independent Software Vendors (ISVs). They maximise the flexibility of technology to create payment solutions that are optimised for specific industries. Examples include Toast which combines payments with order taking, allows split payments, tip adjustments, and more to deliver a payment solution that is tailored to the restaurant industry.

Interchange fees

Merchant Agreements and Card Scheme Rules determine that a percentage of transactions, or a defined amount is payable to Card Issues for every transaction they process on behalf of merchants. This is known as an interchange fee.

Interchange Plus

Interchange Plus is a pricing model which charges merchants not only interchange fees but also card association fees, and markup fees.

Interface

When merchants upload transactions for authorisation, they use their acquirer’s web interface.

Issuer

A bank or financial institution that issues cards to be used by consumers. Beyond providing cards, they are responsible for approving or declining transactions for acquiring banks, depending on whether transaction information is valid and if cardholders have sufficient funds.

Mastercard fraud fine

If merchants do not meet certain fraud thresholds, Mastercard applies fees.

Merchant

A business that accepts payments for goods or services.

Merchant account

For businesses to accept and process electronic payments, they must have a merchant account. Typically, they set them up with acquirers or banks.

Merchant acquirer

Sometimes a merchant will not partner with an acquirer. Instead, they will make themselves responsible for acquiring services relating to their transactions. This is rare but those that do will save on fees and are known as merchant acquirers.

Merchant authorization fee

Every time a transaction is sent to card-issuing banks for authorisation, merchants must pay a fee. This is true for each time a payment attempt is made, as well as when refunds or void requests occur.

Merchant Discount Rate (MDR)

Merchants are subject to a variety of fees in order to accept electronic payments, including the merchant discount rate (MDR). It specifically relates to the processing of debit and credit card transactions.

Merchant of Record (MOR)

Taking on legal and financial responsibility for the processing of payments is the purpose of Merchant of Records (MORs). They therefore calculate, collect and remit taxes on purchases, deal with chargebacks, and more for vendors. Due to e-Commerce businesses selling to consumers across the globe where differing laws apply, MORs are particularly useful in this instance.

Merchant statement

Every month, merchant acquirers produce a statement detailing all the credits and charges linked to a merchant account.

Minimum monthly fee

If the total of all processing fees (discount rate fees, transaction fees etc.) do not reach a certain value, a set minimum monthly fee is charged instead.

Mobile commerce (M-commerce)

A specific form of e-commerce, mobile commerce is when online purchases are made via a mobile rather than a computer.

Mobile wallet

Whilst digital wallets can operate on a range of technologies including desktop computers, mobile wallets exclusively function on mobile devices such as smartphones, tablets and wearable tech.

NFC

Through radio waves, Near Field Communication (NFC) allows information to be sent between devices. An example is when credit cards with NFC chips are placed close to a POS terminal.

OCT (Original Credit Transaction)

To send funds directly to credit card users, merchants can use a payment method called Original Credit Transaction (OCT). The likes of Visa OCT and Mastercard MoneySend facilitate this method in over 200 countries.

Payment Card Industry (PCI) Compliance Fees

As part of PCI regulations, merchants are subject to fees in order to help maintain the regulations’ enforcement.

Payment Facilitator

Payment facilitators (PayFacs) take on the responsibility of processing payments for merchants. By working with a payment facilitator, merchants don’t have to engage in lengthy procedures to set up their own merchant accounts. Instead, PayFacs act as “master merchants” which having processed payments for various businesses, then transfer payments to the merchants who have agreed to use their services as a sub-merchant. An example of a PayFac is Square.

Payment link

Businesses can conveniently digitally request payments from clients by sending links. They are secure, convenient for customers, an alternative to convoluted invoices, quick and trackable.

Payment processor

Similar to acquirers, payment processors authorise, capture and settle transactions between consumers and merchants. Examples include Global Payments and First Data (now part of Fiserv).

Payment Service Provider

Payment Service Providers encompass a range of services –including payment processing – related to facilitating electronic payments. Benefits of PSPs include their ability to accept a range of payment methods including debit cards, digital wallets and more. In addition, many offer currency conversion services so that consumers can make purchases in their own currency despite merchants receiving the same payments in their local currency. Examples include PayPal and Ayden.

Pay-out

Pay-outs are a common occurrence within payment lifecycle for various vendors. This because they are the disbursement of funds from one entity to another. For example, e-commerce platforms use pay-outs to distribute funds to sellers, businesses use pay-outs for employee salaries etc.

PCI Compliance

In order to process, store or transmit credit card data, merchants must be PCI compliant. This means that they must meet PCI DSS regulations created by the likes of Visa, Mastercard and other major payment card brands.

Point of Sale terminal

Point of Sale (POS) terminals enable payment cards to transfer funds electronically. By capturing credit and debit card information, and transmitting it to issuing banks for authorisation before transferring funds to the merchant, they are a popular device in retail stores.

Real-time payments

For 24 hours, 365 days a year, real-time payments operate online, initiating and settling payments nearly instantly and facilitating bilateral end-to-end communication between payer and payee.

Refund

When a cardholder requests their funds back, a refunded transaction takes place.

Reserve account

Before funds settle in a merchant’s account, they are credited to a reserve account which is controlled by a merchant’s acquirer.

Retrieval request

Card issuers or cardholders asking merchants for a copy of transaction details is known as a retrieval request. They are typically submitted if a cardholder requires transaction information for their records or if a query regarding a transaction surfaces.

Rolling reserve fund

The services which payment processors, merchant account providers and acquiring banks offer to merchants all cost. As a result, when they have to initiate such services for instances when money is not being generated – i.e. chargebacks or refunds – they need to have funds to cover these costs. A rolling reserve fund provides this by temporarily withholding a percentage of merchant transactions in case the aforementioned scenarios arise.

Security providers

To ensure that payments are secure, various security providers and measures are necessary including, PCI compliance, SSL protocol, tokenization, 3D secure, and AVS.

SEPA

The Single Europe Payments Area (SEPA) is an initiative by the European Union and European Payments Council that allows residents of 36 European countries to conduct cross-border payments with ease through the use of the Euro.

Settlement

Settlements occur when clients’ funds are received by merchants in return for a good or service.

Set-up fee

When a payment service or account is set up, a one-time activation set-up fee is often charged.

SOFORT

Acquired by Klarna in 2013 and available to consumers in 8 European countries, SOFORT is essentially an alternative way to send bank transfers. It operates by consumers verifying payments, meaning there is no need for them to input details such as payee or payment amount.

SSL protocol

Merchants wishing to offer online payments must implement SSL protocol on their websites so that information inputted on their domain such as credit card details are encrypted.

Statement fees

Printing and mailing costs for credit and debit card statements.

Stored credentials

For future payments to be made smoothly, the likes of payment facilitators, digital wallets and merchants are known to retain stored credentials such as account numbers. Stakeholders wishing to retain stored credentials for use in future payments must first have a cardholder’s consent.

Strong Customer Authentication (SCA)

When “customer-initiated” payments are made within Europesuch as card payments and bank transfers, Strong Customer Authentication (SCA)is required. This means that during a checkout process, at least two out of three of the following methods of authentication are required:

  • Something that a customer knows (i.e. password or PIN)
  • Something that a customer has (i.e. phone)
  • Something that a customer is (i.e. fingerprint or face recognition)

Three-party schemes

Three-party schemes occur when an acquirer and issuer for a transaction are represented by the same organisation. An example would be American Express and Diners Club. In an instance such as this, no fees are charged due to it being a closed loop with just one stakeholder.

Tokenization

To reduce data breaches, sensitive information such as credit card numbers are replaced with random characters. This process is known as tokenization.

Token service providers

To help merchants, PSPs and acquirers comply with PCI-DSS regulations, token service providers (TSPs) tokenize card data, allowing it to safely be sent to networks.

Virtual terminal (VT)

Payment processing technology which operates in the cloud can transform online devices such as mobile phones or laptops into payment terminals. This technology creates virtual terminals.

Visa fraud fine

If merchants don’t meet a certain threshold to protect against fraud, they are liable to receiving a fee from Visa.

Visa 3D Secure scheme fee

Transactions that are verified via the Visa 3D Secure scheme are subject to a fee. They are incurred every time that a 3D Secure authentication attempt is made or a void request occurs.

Volume discount

The likes of payment processors sometimes offer volume discounts to merchants on fees and charges if they meet certain transaction thresholds.

3D Secure

For online, card-not-present transactions, 3D Secure adds an additional step to transactions after card details have been entered. A popular example of this is a one-time password (OTP) which requires consumers to enter a code that is sent to their email address or mobile phone.

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