Want to know what all those acronyms and financial jargons mean? Want to sound like a payments expert? Here is the definitive glossary of payment terms:
Automated Clearing House (ACH) is an electronic network for financial transactions, regulated by the Federal Reserve, and established to process the exchange of electronic transactions between participating depository institutions in the United States. The ACH network plays an important role in the credit card processing industry, as funds from merchant credit card sales are deposited to the merchant’s account, from the acquiring bank, via the ACH network. In Canada, the equivalent to ACH is the EFT, or Electronic Funds Transfer, network. Although ACH has been historically used to process Business to Business, Bank to Bank, or Bank to Business transactions, some payment processors are now building systems leveraging the ACH network to enable B2C (business to consumer ) models (example: Dwolla) or P2P (person to person) payments (example: Venmo).
An acquirer (Chase, First Data, etc.) solicits, underwrites and owns the merchant account. They provide technology and hardware, which enable the merchant to process the transaction.
Application Programming Interface (API) are tools that allow one piece of software to communicate with another. For example, a shopping cart plugin for a website will use the Payment Processor’s API.
An authorization works somewhat like a deposit in that it puts a hold on a dollar amount. Merchants use this to ensure a customer has funds available for rentals and larger transactions. Authorized payments won’t actually pay out to the merchant until the merchant captures the authorized transaction.
The Average Transaction Size (ATS) refers to the average dollar amount of your card transactions. New businesses setting up their merchant account will always be asked about their ATS. Providing a realistic ATS ensure your funds get to your account with no delays.
A Bank Identification Number (BIN) is the first 6 six digits of a 16 digit credit or debit card. The bank identification number identifies the institution issuing the card.
An expression commonly used in the payments industry that identifies companies that have a physical presence, offer face-to-face customer experiences, and accept payments on-site. This term is usually used to contrast with an eCommerce business that has an Internet-only presence. However, what is becoming more common are businesses with multiple customer touchpoints and sales channels; a physical location, extended by both an online and mobile presence, and in some cases, integrated into social channels such as Facebook or Pinterest. This multifaceted strategy is often referred to as “Omni-Commerce.”
A capture happens when a merchant collects a previously authorized amount on a customer’s credit card and receives the funds. This is also called a settlement.
Cardholders (consumers) are customers of a bank that request a credit card. The cardholder will be approved by the issuer based on creditworthiness. In practice, merchants do not need to work directly with all the members of the credit card processing value chain, just ISOs/acquirers and cardholders.
The theft of payment card information used in an otherwise legitimate transaction. The thief can procure a victim’s card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ card numbers.
Credit card fraud is a wide-ranging term for theft and fraud committed using or involving a payment card, such as a credit card or debit card, as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account.
This is a transaction where the physical card is not present at the time of the sale, such as mail order or telephone order. Credit card data is manually entered instead of swiped. Checking rates is important as some companies may charge more for Card Not Present transactions.
When a customer disputes a transaction directly with their bank (credit card provider) and is refunded, after which the bank will take the issue up with the merchant. Typical causes of a chargeback involve product delivery failure or dissatisfaction. Chargebacks that are not successfully refuted with sufficient evidence by a merchant will incur an expensive chargeback fee. A merchant that consistently exceeds acceptable chargeback limits may have their Merchant Account terminated altogether.
Associations (Visa, MasterCard, AMEX, etc.) are commonly referred to as the credit card and debit card companies. The role of the associations is to govern the policies pertaining to their bank cards, monitor processing activity, and oversee the clearing and settlement of transactions. Currently, VISA is the most popular association with approximately 65% transaction volume.
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank, such as Bitcoin.
The Card Verification Value (CCV), is a unique 3 or 4 digit number found on the back, and in some cases the front, of a credit or debit card. A CVV is an extra layer of security to minimize unauthorized transactions. They are more difficult to acquire via the same illicit methods used to acquire 16 digit card numbers.
When a transaction attempt fails due to the card-issuing bank not accepting the charge.
The percentage of each transaction that the acquirer charges the merchant for making that transaction happen.
The sale of goods or services over the Internet. Electronic commerce is a broad term reflecting a wide range of commercial activities, and may include industries such as online retail or SaaS (software as a service).
The domestic and international systems operated the Credit Card Associations for authorization, settlement, and routing of interchange and other fees, as well as other monetary and non-monetary information related to credit card activities.
The issuer is the bank (Capital One, CIBC, RBC, etc.) that provides the cardholder with their credit card. They bear the responsibility of approving the cardholder, billing, and collecting the owed funds from the cardholder.
A term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions.
A Merchant Category Code (MCC) is a 4 digit number classification system that is universally accepted by the Credit Card Associations and used to identify the type of business. For example, 5661 is the MCC assigned to all shoe stores.
The merchant is a business owner who submits a request to an ISO/acquirer for the ability to accept credit. Merchants are approved under the qualifications set by the associations and the policy of the underwriters.
A merchant account is a type of bank account that allows businesses to accept payments by payment debit or credit cards. It is established under an agreement between a business owner and an acquirer for the settlement of payment card transactions.
A unique number issued by the acquiring bank to identify a merchant.
Instead of paying with cash, cheque, or credit cards, a consumer can use a mobile phone electronically equipped with a bank account, debit/credit card, or mobile wallet to pay for a wide range of services and digital or hard goods.
Mail Order / Telephone Order (MOTO) is a transaction in which a cardholder orders goods or services by telephone, mail, fax, internet or other means of telecommunication where neither the card nor the cardholder is present at the merchant’s place of business. In the modern eCommerce context these types of transactions are commonly referred to as Phone Order/ Internet Order.
Near Field Communication (NFC) is technology that uses a chip to enable two devices, when placed in close proximity (centimeters) of each other, to exchange data.
Processors (Payfirma, Square, etc) are organizations that partner with acquirers to open merchant accounts, handle support, manage payment processing, and build technology on behalf of acquirers. Processors do this in exchange for a percentage of the transaction volume.
The Payment Card Industry (PCI) is a 3rd party regulator of the Credit Card Associations. It has defined a set of security and compliance standards to protect merchant account holders and their customers during and after a transaction.
A Point-of-Sale (POS) is the place where a retail transaction is completed. It is the point at which a customer makes a payment to the merchant in exchange for goods or services. Also known as a Checkout.
Payment card transactions processed on a regular basis under a pre-authorized agreement. Recurring payments are commonly used by subscription or SaaS (software as a service) based businesses.
A credit issued by the merchant back to a customer when the customer returns a product.
A wide range of activities and technologies a merchant can use to protect their business and customers from loss due to fraud and reduce chargeback liability. This could range from satisfying PCI standards for Cardholder data protection, using a 3rd party system to check against a database of known fraudsters (identified by various qualities such as card #, email, a computer’s unique machine ID), to having systems in place that flag transactions that trigger known rules that indicate greater propensity to fraud (example: automatically declining transactions where a Cardholder’s BIN identifies the issuing bank in a country that is inconsistent with the indicated shipping address).
A rolling reserve is a type of cash reserve where the Payment Processor withholds a small percentage of all of a merchant’s gross sales for a predetermined amount of time before releasing the funds to the merchant. Rolling reserves are typically used by Payment Processors as a preemptive way for a processor to protect itself from potential loss due to future chargebacks. The funds are released back to the merchant, on a rolling basis, after the predetermined reserve period.
This is the amount charged to a merchant on every transaction. This covers all transactions such as sales, authorizations and refunds. It’s usually bundled with the Discount Rate.