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The Payments Glossary: Top Payment Terms You Need to Know

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The jargon the payments industry uses can be extremely confusing. Knowing common payment terms will make your life easier when it comes

to working with payment providers and understanding your costs.

We’ve put together a glossary of the top payment terms to help you understand payments a bit better.

Acquirer 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.

API Application Programming Interface allows applications to communicate

with each other. For example, a shopping cart platform will communicate transactions to a Payment Processor via an API.

Authorization 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.

Average Transaction Size (ATS) The average transaction size 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.

BIN 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.

Capture 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.

Cardholder Cardholders (consumers) are customers of a bank that request a credit card. The cardholder will be approved by the issuer based on credit worthiness. 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.

Card Skimming 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 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.

Card Not Present (Keyed Transaction) This is a transaction where the physical card is not present at the time of the

sale, such as an online purchase 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.

Chargeback 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.

Credit Card Associations 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.

Cryptocurrency 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.

CVV 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.

Decline When a transaction attempt fails due to the card-issuing bank not accepting

the charge.

Discount Rate (or Processing Rate) The percentage of each transaction that the acquirer charges the merchant

for making that transaction happen.

eCommerce 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).

Issuer 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.

Interchange Fee A term used in the payment card industry to describe a fee paid between

banks for the acceptance of card based transactions. the cardholder, billing, and collecting the owed funds from the cardholder.

MCC A Merchant Category Code (MCC) is a four 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.

Merchant 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.

Merchant Account 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.

Merchant Identification Number (MID) A unique number issued by the acquiring bank to identify a merchant.

Mobile Payment 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.

NFC Near Field Communication is technology that uses a chip to enable two devices, when placed in close proximity (centimeters) of each other, to

exchange data.

Payment Processor Processors 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.

PCI Compliance 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.

POS 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.

Recurring Payment 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.

Refund A credit issued by the merchant back to a customer when the customer

returns a product.

Transaction Fee 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.

That’s It! With these terms you will be equipped to seamlessly work with payment

providers and make the right decisions regarding payments for your business.

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