Interested in learning more about software-led payments or joining the current Embedded Payments conversations in your organization? Do you find yourself listening to industry leaders and colleagues use terms like PayFac, PCI DSS, and tokenization and casually scratching your head in confusion? You’ve come to the right place. This blog post is your ultimate guide to understanding the most used payments terms today.
Terms related to card acceptance
Acceptance marks
Signifies which payment brands are accepted at a merchant location and provides the cardholder with information on where his or her card can be used.
Association
Group of card-issuing banks or organizations that set common transaction terms for merchants, issuers, and acquirers.
Card acceptor business code
A four-digit numerical representation of the type of business in which the card acceptor (merchant) engages.
Card brands
Member-based corporations that connect consumers, businesses, and banks through electronic payments; establish and enforce rules amongst members; and promote the brands (e.g., Visa, Mastercard, American Express, etc.).
“Honor All Cards” Rule
Requires merchants that accept one of a major card network’s cards to accept all of the network’s cards regardless of card issuer or specific card program.
Master merchant
Payment facilitator that becomes the “merchant of record” on behalf of a network of smaller merchants (sub-merchants) or billing companies that regularly collect payments; key markets for master merchant networks include government, education, utilities, and nonprofit organizations.
Merchant
A commercial entity or person authorized to accept cards and access devices when properly presented; an organization that uses credit cards to receive payments from its customers pursuant to agreement with card brands.
Merchant category code (MCC)
Classification designating the principal trade, profession, or line of business in which a merchant is engaged. Based on the International Organization for Standardization (ISO) and Standard Industrial Classification (SIC) codes and used by card brand networks to identify a merchant’s business type and nature of operations at a high level.
Merchant identification number (MID)
A unique number assigned to a merchant account to identify it through the course
of payment processing activities.
Merchant agreement
A written agreement between a merchant and a bank that contains their respective rights, duties, and warranties with respect to acceptance of payment cards and matters related to card activity.
Payment facilitator (PayFac)
A merchant registered by an acquirer to facilitate transactions on behalf of sub-merchants. They provide the infrastructure necessary for their merchants to accept credit card payments. They underwrite and onboard the sub-merchants and provide them with the products and services required to process electronic payments.
Payment gateway
Facilitates the transfer of information between a payment portal and the front-end processor or acquiring bank.
Payment processor
Along with the acquiring bank, a relationship with a processor is necessary to operate as a payment facilitator. The processor is responsible for processing and settling the transactions that are initiated by the payment facilitator’s merchants.
Payment system
An operational network governed by laws, rules, and standards that links bank accounts and provides the functionality for monetary exchange using bank deposits.
Standard industrial classification (SIC)
A system for classifying industries by a four-digit code; historically used by the IRS and the banking industry.
Sub-merchant
A merchant that, pursuant to an agreement with a payment facilitator, is authorized to accept cards when properly presented.
Terms related to chargeback and disputes
Arbitration
A process where the card brand determines financial liability between members for
interchange transactions that are presented and charged back.
Chargeback
A dispute initiated by a cardholder regarding a transaction leading to a reversal of funds from the merchant’s account by the card brand issuer until the merchant can provide supporting evidence in their favor to receive the credit back from the reversal for the transaction in question.
Chargeback advice
A form that notifies the issuer that a chargeback has passed certain validations and has been forwarded to the acquirer.
Chargeback period
The number of calendar days from the endorsement date of a transaction receipt (or processing date, as applicable) during which time the issuer may exercise a chargeback right.
Chargeback reduction service
Screens presentments and chargebacks and returns certain invalid items to the acquirer or issuer, as appropriate.
Direct arbitration
A process whereby the card brand assigns financial liability for a transaction when either the chargeback reduction service rejects a presentment because it cannot verify authorization or the acquirer claims that the rejected transaction was authorized.
Presentment
A clearing record that an acquirer presents to an issuer through interchange, either initially (a first presentment) or after a chargeback (a re-presentment).
Re-presentment
Process by which a merchant can dispute a chargeback with an issuing bank; allows a merchant to present evidence to prove the chargeback is not warranted.
Reversed chargeback
Chargeback that a processor resolves in the merchant’s favor by transferring the chargeback liability back to the account issuer.
Terms related to payments fraud and security
Address verification service (AVS)
The process of validating a cardholder’s given address against the issuer’s records to determine authenticity and deter unauthorized use; a code is returned with the authorization result that indicates the accuracy of the address match.
Authentication
The process of assuring that data has come from its claimed source, or a process of corroborating the claimed identity of a communicating party.
Card Control
Mobile application that allows cardholders to decide when and where their cards can or cannot be used based on a series of preference settings.
Check verification
Process that screens checks and check-writers against a “negative database” at the point-of-sale (POS) when the customer presents a check as payment.
Data breach
Unintentional release of secure information (i.e., payment card details or sensitive account information) to an untrusted environment.
Duplicate checking
The policy and procedures that prevent identical sales records from being processed.
EMV
Stands for Europay, Mastercard, and Visa; global standard for inter-operation of integrated circuit cards (chip cards) and integrated circuit card capable point-of-sale terminals and ATMs, for authenticating credit and debit card transactions worldwide.
End-to-end encryption (E2EE)
Uninterrupted protection of the confidentiality and integrity of transmitted data by encoding it at its starting point and decoding it at its destination. E2EE is a generic term to describe solutions that encrypt data from one endpoint to another endpoint.
Point-to-point encryption (P2PE)
Technology standard created to secure electronic financial transactions. P2PE solutions are designed to maximize the security of payment card transactions by encrypting transaction data from the point of interaction through the transaction lifecycle. The keys for encryption and decryption are never available to the merchant. To qualify as P2PE, the solution must be validated by the PCI Security Standards Council.
Friendly fraud
When a consumer makes a purchase with their own credit card and then issues a fraud coded chargeback through the card provider (after receiving the goods or services) to cancel the transaction and refund the money.
Multi-factor authentication (MFA)
Uses multiple forms of user identification collected at account registration to verify the user during future logins.
Payment Card Industry Data Security Standard (PCI DSS)
A set of security standards established by the PCI Security Standards Council and designed to ensure the secure handling of cardholder information during payment transactions.
Quality Security Assessor (QSA)
Designation for entities that meet specific security education requirements, have taken the appropriate training from the PCI Security Standards Council, are employees of a PCI-approved security and auditing firm, and will be performing PCI compliance assessments as they relate to the protection of payment card data.
Risk management
The process of assessing and mitigating potential risk associated with transactions and merchant boarding/activity, including fraud prevention, anti-money laundering compliance, and monitoring chargeback rates.
Three-domain secure (3DS) authentication
3DS is an additional security layer for card-not-present transactions used by card brand networks to verify incoming transaction data against data provided by the merchant from the cardholder with methods such as biometrics and token-based authentication (3DS 2.0) across three domains — the issuer domain, acquirer domain, and interoperability domain. Operated by card brands as: Verified Visa, Mastercard SecureCode, Discover ProtectBuy, and American Express SafeKey (among others)
Tokenization
Replacement of sensitive data with a unique identifier (token) that cannot be
reversed mathematically; commonly used in payments to replace card data.
Truncation
When only some digits of a customer’s card number appear on a sales draft or receipt to provide better security while still enabling identification (for the cardholder) of the card used; it’s required by federal law (since 2006) that no more than the last five digits of a card may be shown on a receipt.
Two-factor authentication (2FA)
Process involving two subsequent but dependent stages to check the identity of an entity; both of the factors are required and must be correct.
Terms related to integrated payment technology
Application programming interface (API)
A set of routines, protocols, and tools that are used for building software applications. A company releases its API to the public so that software developers can design products that are powered by its service.
Integrated payments
When payment processing solutions are integrated with other business functions such as accounting, customer relationship management, and inventory management systems.
Integrated software vendor (ISV)
A company specializing in developing or selling software that runs on one or more operating systems; ISVs often embed payment technology into point-of-sale systems for merchants.
Omnicommerce
Retailing strategy concentrated on a seamless consumer experience through all available shopping channels.
Point-of-sale developer
A person concerned with researching, designing, implementing, and testing software; point-of-sale developers embed payment technology into point-of-sale systems.
Software development kit (SDK)
A set of software development tools that allow the creation of applications for a certain software package.
Value-added reseller (VAR)
A company that adds features or services to an existing product and then resells it as an integrated product.
Terms related to payment types and tools
Alternative payments
Payment methods that are used as a substitute to traditional card payment; these third-party payment brands use traditional payment systems for settlement of transactions and are typically used in an eCommerce environment (e.g., eCheck, PayPal, etc.)
Biometric payment
The identification of humans by their characteristics or traits; in payments, a point-of-sale technology that uses biometric authentication to identify the user and authorize the payment.
Bitcoin
A decentralized digital currency.
Charge card
A type of payment card; charges to these cards must be paid in full each month that a statement is issued.
Chip card
A card with an embedded EMV-compliant chip containing memory and interactive capabilities used to identify and store additional data about a cardholder, the cardholder’s account, or both.
Closed loop gift card
Prepaid gift card only accepted by the merchant who issued the card.
Check guarantee
Program in which the merchant is guaranteed payment on a check; a fee is charged to the merchant in exchange for the service of paying the merchant on any checks that are returned.
eCheck
Electronic version of a paper check, used to conduct transactions over the Internet.
Open loop gift card
Prepaid gift card issued by banks or credit card companies; can be redeemed at different establishments.
Peer-to-peer payment
Online technology that allows customers to transfer funds from their bank account or credit card to another individual’s account via the Internet or a mobile phone.
Prepaid credit card
A type of secured credit card that is tied to a previously deposited cash balance, where purchases are checked for approval against existing funds; essentially a stored-value card that usually carries major card-brand logos.
Terms related to payment data and processing
Acquirer
Bank or financial institution that processes credit and/ or debit card payments for a merchant.
Authorization
Verification of the validity of a credit card and the balance allowable on the purchaser’s credit line.
Authorization codes
Codes that an issuer or its authorizing processor provides to indicate approval or denial for an authorization request.
Automated clearing house (ACH)
A system of the U.S. Federal Reserve Bank that provides electronic funds transfer (EFT) between banks; used for transfer of funds transactions, including direct deposit of paychecks and monthly debits for routine payments to vendors.
Acquiring bank
A financial institution licensed by major card brand networks (i.e., Visa, Mastercard, American Express, and Discover), that is responsible for underwriting a payment facilitator (PayFac). The acquiring bank also acts as an intermediary between card brand networks and the PayFac, assisting in the transfer of transaction funds to the PayFac FBO account or to an entity within their portfolio. Additionally, playing a role in risk management and compliance, helping to ensure the security and integrity of the payment transactions within each PayFac platform.
Batch
A group of captured transactions that are processed collectively by the acquiring bank for streamlined clearing and settlement of funds.
Batch processing
The process of batch transactions being consolidated, transmitted for authorization from the acquiring bank, clearing, and settlement efficiently and systematically.
Enhanced data
Transaction-level data required for select interchange programs, card products, or merchant categories (e.g., airline itinerary data, fuel transaction data, itemized purchase data, etc.).
Hard Decline
A decline response on a credit card due to reasons including account closed or card stolen.
Independent Sales Organization (ISO)
Third-party company that is contracted by a card member bank to procure new merchant relationships; they also process online card transactions for small businesses, usually in exchange for a fee or percentage of sales.
Interchange
Fee paid between banks for the acceptance of card-based transactions; typically a fee that the merchant’s bank (acquiring bank) pays to a customer’s bank (issuing bank); fees are set by the card networks and are usually the largest component of the various fees most merchants pay for card acceptance.
Interchange data (level 2 & level 3 data)
Interchange (level 2 & level 3) data refers to specific transaction info submitted by merchants during transaction processing, aiding credit card companies in categorizing payment processors for various interchange rates. This data submission provides interchange incentives by offering more detailed transaction information, qualifying merchants for lower interchange rates, and leading to cost savings. The additional details enhance the overall transaction transparency resulting in reduced interchange fees and increased efficiency.
Level 1 data
Information provided by the card brands for all purchases; includes account number, transaction date, purchase amount, supplier, category code, supplier name, city, state, and ZIP code.
NACHA
Organization which manages the development, administration, and governance of the ACH Network, the backbone for the electronic movement of money and data.
Originating depository financial institution (ODFI)
Acts as the interface between the Federal Reserve or ACH network and the originator of the transaction.
Pass-through pricing
Form of card processing pricing that allows the actual cost of processing (interchange, assessment, and processor fees) to be passed directly to the merchant; benefits of this pricing model include transparency and potentially lower costs when compared to discount rates.
Payment indicators
Codes returned in authorization responses that specify certain attributes associated with the card used; may include affluence, prepaid, corporate, and/or international.
Reconciliation
Process by which two entities become in balance: i) merchants reconcile their accounts with their processor via financial reporting; ii) merchants balance the number and dollar value of the transactions they sent to their processor with the amount that their processor settled into their local checking account; iii) payment processor reconciles with the acquiring bank; iv) processor confirms the number and amount of transactions sent to the networks with the amount that was settled into their account and then distributed to the merchant accounts.
Retrieval Request Services
Where a processor: i) receives retrieval requests; ii) displays them to the merchant via its online user interface; iii) counsels the merchant, when needed, about the information requirements and appropriate responses; iv) collects the relevant information from the merchant, the processor, and other sources; v) forwards properly formatted response data to the requestor; and vi) acts as a liaison between the merchant and the requestor during the time that such retrieval request is outstanding.
Reversal
Authorization message that reverses a previous authorization by a merchant. It can be the full or partial amount but cannot exceed the original authorization amount.
Settlement
Buying and selling of transactions among merchants, processors, acquirers, and card-issuing entities; begins when the merchant submits a transaction to their processor and ends with the transfer of related funds to a depository or liability account.
Settlement bank
Bank that holds liability accounts and executes funds transfers among these and the depository accounts.
Soft decline
A decline response on a valid card due to reasons including the credit card already exceeds the credit line, the issuer is unavailable, etc.
Universal Cardholder Authentication Field (UCAF)
A standard, global method of collecting cardholder authentication data at the point of interaction across all channels, including the Internet and mobile devices; used to communicate authentication information among cardholders, issuers, merchants, and acquirers.
Valid authorization
Authorization for the correct amount of a sale and obtained within a specified number of days before the sale transaction is submitted.
Virtual terminal
An application service that allows users to access information from another host processor for transaction processing.
Voice authorization
An approval response obtained through interactive communication between an issuer and an acquirer or the International Automated Referral Service.
Terms related to regulatory and financial
Bank identification number (BIN)
The first four-to-six digits of a card that identifies the institution issuing the card.
Durbin amendment
Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (introduced in 2010) that limits transaction fees imposed upon merchants by debit card issuers.
Federal Trade Commission (FTC) regulations
Rules or guidelines of the FTC (including the Mail or Telephone Order Merchandise Trade Regulation Rule) that govern the shipment of products and charges/refunds related to consumer orders.
Fiscal period
Accounting period designation by a person or corporation that may be a variation from the calendar equivalent.
Know your customer (KYC)
Due diligence activities that financial institutions and other regulated companies must perform to ascertain relevant information from their clients for the purpose of doing business with them.
Regulated with fraud
An additional $0.01 adjustment toward an issuer’s debit card fee if the issuer develops and implements policies and procedures designed to achieve fraud-prevention standards; debit with fraud adjustment is $0.22 per transaction, plus 5 basis points for
regulated transactions under the Durbin Amendment.
Regulation E
Federal regulation governing all electronic funds transfers.
Regulation Z
Credit card issuers are required to disclose the terms and conditions to potential and existing cardholders at the point of account opening and at regular intervals. Upon soliciting and opening new credit card accounts, credit card issuers must generally disclose key information relevant to the costs of using the card, including the applicable interest rate that will be assessed on any outstanding balances and several key fees or other charges that may apply (e.g., the fee for making a late payment). In addition, issuers must provide consumers with an initial disclosure statement, which is usually a component of the issuer’s cardholder agreement, before the first transaction is made with a card.
Reserve
The amount in a liability account owned by the acquirer at the settlement bank; it is funded by the merchant and used by the processor — through directions to the settlement bank — to satisfy liabilities and any potential losses attributed to the merchant.
Rolling reserve
Reserve funding method that transfers a specific percentage of a fiscal day’s gross purchased sales into a reserve liability account. After a specified period of time, the remaining fiscal day’s original transfer amount after appropriate adjustments is automatically reversed by a transfer from a liability account to the then-current fiscal day’s daily proceeds as a reserve surplus.
Truth in Lending Act (TILA)
U.S. federal law designed to ensure more accurate disclosure of credit terms so that consumers can: i) compare the various credit terms available in the credit marketplace; ii) avoid the uninformed use of credit; iii) protect themselves against inaccurate and unfair credit billing and credit card practices; regulation that implements TILA’s requirements is Regulation Z, which is administered by the Federal Reserve.
Terms related to transactions
Card-not-present (CNP)
Transaction in which a merchant honors the account number associated with a card account and does not see or swipe a physical card or obtain the account holder’s signature.
Deferred billing
A transaction completed in a card-not-present environment for which the cardholder is billed once no more than 90 days after the first shipment of merchandise.
Electronic funds transfer
Any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account.
Imprint
Proves that the card was present when the sale was made, formerly a carbon copy made at the time of transaction now created electronically in a terminal that includes the correct point-of-sale entry code.
Point-of-interaction (POI)
A hardware and/or software component in point-of-sale equipment (e.g., a magnetic stripe reader, mobile phone, etc.) that enables a card purchase at a retailer (can be attended or unattended);
Point-of-sale (POS)
Location in a merchant establishment at which the sale is consummated by payment for goods or services received.
Terms related to mobile payments
Android Pay
Android Pay is a digital wallet platform developed by Google to power in-app and tap-to-pay purchases on mobile devices.
Apple Pay
A mobile payment and digital wallet service offered by Apple that allows users to make payments through NFC technology.
Contactless Payments
Devices that use radio-frequency identification for making secure payments; embedded chip and antenna enable consumers to wave a device over a reader at the point-of-sale.
Digital Wallet
A digital wallet refers to an electronic device (e.g., mobile phone) that allows an individual to make eCommerce transactions (e.g., Android Pay, Apple Pay, Samsung Pay, etc.)
Dongle
Provides electronic copy protection and content protection which, when attached to a computer or other electronic appliance (such as a mobile phone), unlocks software functionality or decodes content; commonly used with mobile phones to accept payments.
In-app payments
The ability to sell digital content in mobile applications.
Mobile payment
Payment services operated under financial regulation and performed from or via a mobile device in a face-to-face transaction environment.
Mobile point-of-sale (mPOS)
Smartphone, tablet, or dedicated wireless device that performs the functions of a cash register or electronic point-of-sale terminal.
Near Field Communications (NFC)
Set of standards for smartphones and similar devices to establish radio communication with each other by touching them together or bringing them into close proximity (usually no more than a few inches).
Samsung Pay
Samsung Pay is Samsung’s digital wallet and mobile payment service that lets users make payments using higher-end compatible Samsung phones and other Samsung-produced devices.
Touch ID
Fingerprint recognition feature, designed and released by Apple; Touch ID allows users to unlock their device as well as make purchases through Apple Pay.
Tap to Pay on iPhone
Allows merchants to use an iPhone to accept contactless payments from a customer’s mobile device or contactless card through an enabled app.
