Payments Dictionary

Across the financial tech industry, there are a million payment industry
terms and a multitude of layers to sift through. This is why we decided to
create this dictionary— to simplify the world of payments so you can focus
on more important things. You know, like growing your business.

A

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An agreement between an Integrated Software Vendor (“ISV”) or Independent Sales Organization (“ISO”) and the processor/acquirer selling processing services. This agreement determines processing rates—transaction costs, value-added services, liability, and SLAs.

It’s often required by some service providers to accept payments.

Q: Is this the same as a “merchant agreement?”
A: No. See “Merchant Agreement” below for more details.

See: Credit Card Processors

See: Credit Card Processors

The fee charged on transactions commonly seen in eCommerce and any “card-not-present” situation. The fee covers address verification (from zip code to full address), which is done through the Address Verification System (“AVS”).

A service that allows merchants to verify cardholder billing address by comparing it to the billing address on file with the cardholder’s issuing bank. This is most often done when processing “card-not-present” (or keyed) transactions. AVS happens during the authorization process before completing a sale.

Merchant “perks”…access to discounted payments products and other typical office supplies. It often comes with a (bonus!) monthly fee!

A flat-rate structure where the merchant account is managed by Amex (American Express. Generally, merchants processing $1,000,000+ per year in Amex transactions must adopt this structure.

Part of the American Express (“Amex”) direct processing program where businesses have a “direct” account with Amex, which also settles all transactions. This type of account requires a separate monthly statement and fee for Amex sales and typically delays Amex deposits by one business day.

Note: Amex requires this type of account for any merchant who processes over $1,000,000 in Amex sales per year.

An American Express (“Amex”) payment processing option created so smaller businesses can accept Amex credit cards without paying higher merchant fees. This Amex account allows for faster funding, a single monthly statement, and (sometimes) lower fees than an Amex ESA account.

See: Anti-Money Laundering (AML)

An annual fee is one way for some merchant providers to bump their revenue. Therefore, if you see a fee with a vague description (like “Annual Fee”), just STEER CLEAR.

Note: Some providers do have legitimate costs associated with your account. But others may concoct flimsy answers in an attempt to mask this fee. BEWARE!

A set of laws, procedures, and regulations intended to prevent individuals with malicious intent from disguising illegally obtained funds as legitimate income. See Warden Norton in The Shawshank Redemption.

See: Alternative Payment Model (APM)

A mobile app (designed by Apple) that allows users to upload credit card information to a virtual wallet. Users can link their cards to apps (like Uber or Etsy) or tap the phone against NFC-enabled credit card terminals to make in-person payments.

Read The Complete Guide to Mobile Payments for more details.

These are fees determined, adjusted, and ultimately paid to credit card networks (Mastercard, Visa, etc.). The fees–also known as pass-through fees–cover the operating costs and are determined by a range of factors:

  • The type of card used by the cardholder
  • The transaction amount
  • Incidental fees (such as processing foreign transactions).

Read Understanding Credit Card Processing Fees for Merchants: The Math Behind Payment Processing  for more details.​​

See: Authorize and Capture (“Auth and Capture”)

The process of verifying the identity of a credit card user.

Example: When a cardholder is required to provide secret (shhhh) information, such as a Personal Identification Number (PIN), to complete a transaction or request information.

The process of verifying a card has funds available without actually deducting funds from the card. A card may be authorized when entering into an agreed transaction with the intention to finalize the charge later.

This authorization process is used with everything from Visa to Mastercard at many small and midsize businesses.

Read Understanding Payment Authorizations: What Merchants Need to Know for more details.

An “Auth and Capture” is necessary to complete a credit card transaction successfully. The “Auth” part ensures that the credit card is active, in good standing, and has enough money to cover the expense.

When a transaction submitted to the processor for authorization is placed in the transactions as “captured” and waiting to be settled. This process is automatic.

“Capture” happens post-Auth–this process transfers funds from the customer’s bank to the merchant bank.

A network between banks that facilitates the transfer of money between depository accounts at participating banks.

Read What is ACH Payment Processing for Small Businesses? for more details.

The one-time fee associated with updating deposit account information or changing the “doing business as” name of the business related to your merchant account.

Any transaction processed over the ACH network is ultimately refunded.

Note: Similar, but not the same as, Automated Clearing House (“ACH”) Return (“eCheck Return”).

Any transaction processed over the ACH network is ultimately “returned to sender.” These “reversals” are in the form of a message informing the originating institution depositing the funds that the ACH Network couldn’t collect said funds.

Note: Similar, but not the same as, Automated Clearing House (“ACH”) Refund (“eCheck Refund”).

Read What is an ACH Return and What Should You Do About It? for more details.

The electronic transfer of funds between banks created when a customer gives an originating institution, corporation, or another customer (originator) authorization to debit directly from the customer’s checking or saving account for bill payment.

Read ACH Payments (aka ACH Transfers): What are They and How Do They Work? for more details.

See: Recurring Payments (“AutoPay” or “Recurring Billing”)

See: Address Verification System (“AVS”)

B

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See: Business to Business (B2B) Transaction

See: Business to Customer (B2C) Transaction

A unique code (8 or 11 alphanumeric characters) assigned to all banks and financial institutions that helps to quickly and easily identify it.

Not to be confused with Bank Identification Number (BIN).

A 6 or 8-digit code issued by Mastercard or Visa to identify the issuing and acquiring banks whose cardholders or merchants are participating in a transaction. The first 6 or 8 digits on a payment card identify the card issuer.

Not to be confused with Bank Identification Code (BIC).

The (unofficial) name for collective primary U.S. anti-money laundering regulatory statute first enacted in 1970 and most recently amended by the USA PATRIOT Act in 2001.

For more industry/tech-speak, read this definition on The Office of the Comptroller of the Currency (an independent bureau of the U.S. Department of the Treasury) website.

Whenever a merchant “settles” (or “batches”) their terminal—sends their completed transactions for the day to their acquiring bank for payment—there can be an associated fee.

Note: This is something you are required to do and therefore should not be an additional fee you are charged.

Also known as “settling” or “closing,” a terminal in which transaction data is grouped together, usually a day’s worth, and transmitted to the acquiring bank to begin processing for funds deposit. It can be done manually or automatically.

A report providing information on all credit card transactions in a particular batch–types of transactions received, a brief description, and the transaction amount.

See: Bank Identification Code (“BIC” or “SWIFT address”)

A Bank Identification Code (BIC) consisting of 11 alphanumeric characters used to identify the institution’s branch.

A Bank Identification Code (BIC) consisting of 8 alphanumeric characters used to identify a particular financial (or non-financial) institution in a country.

See: Tiered “Bundled” Pricing Model

Any transaction where a business is sending money to another business. Example: a software company paying for an email service provider.

Any transaction where a business is sending money to a customer. Example: An insurance claim or gig economy instant driver payout.

C

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See: Consumer to Business (C2B) Transaction

A standard reference to the four major US-based card payment systems: American Express, Discover, Mastercard, and Visa.

The 3-digit code imprinted on the back of a payment card used to validate the individual presenting the payment card is the actual cardholder.

Note: CVV1 is the 3-digit code embedded in the magnetic stripe, while CVV2 is the visible 3-digit code on the back of a payment card.

Credit or debit card transactions where no physical card is present at the actual transaction time. In this case, the card information is manually keyed in. This happens typically for phone, (snail)mail, or online (eCommerce) transactions.

Read Card-Not-Present (CNP) Transactions and Why They Matter for more details.

Credit or debit card transactions where a physical card is present at the transaction time.

Simple: A person who owns a debit/credit card.

Fancy: A person or entity that is issued a credit or debit account accessible through the use of a card.

#CaptainObvious, right?

Simply put, this is the “return of money to the payer.” The chargeback reverses a money transfer from the consumer’s bank account, line of credit, or credit card. The bank orders the chargeback that issues the consumer’s payment card.

It is essential to know that this will happen, so be prepared. Know what fees to expect and how a provider will handle them. A typical cost is ~$15.

Read Payment Chargebacks and How Service-based Software Companies Can Avoid Them for more details.

See: Surcharging (“Checkout Fee”)

See: ​​Europay-Mastercard-Visa (“EMV” or “Chip Cards”)

See: Card-Not-Present (“CNP”)

Any model where a merchant uses a 3rd party to gain access to the card networks and Alternative Payment Model (APM) instead of a direct acquirer relationship.

The level of risk in a bank’s portfolio arising from concentration to a single counterparty, sector, or country. In financial investment/stock terminology, think of this as an undiversified stock portfolio. All eggs in one basket.

Any transaction where a consumer is paying a business.

Using radio-frequency identification (See “RFID”) or near field communication to make secure payments. Think: Tap to pay.

Read Your 101 Guide to Contactless Payments for more details.

See: Complex Payment Models (“CPM”)

The three major associations that create (physical) credit cards, set rules, and control standards: American Express, MasterCard, and Visa.

See: Authorize (Auth) Only

Financial institutions (banks) that issue debit or credit cards to customers: Bank of America, Chase, Citi, Wells Fargo, etc.

Not to be confused with an Acquiring Bank.

Read: Understanding the Role of Credit Card Issuers in Payment Processing for more details.

OR “Payment Merchant Account Providers” OR “Payment Processors”

These companies act as the messengers between merchants and credit card associations.

The acquirer maintains the merchant account and assists with the settlement. They hold a merchant account and accept deposits from the merchant’s sales. As a result, they can authenticate/authorize transactions and connect with the issuing bank (the customer’s bank) on the merchant’s behalf.

Read The Ultimate Guide To Accept Credit Card Payments for more details.

A report documenting a physical currency transaction exceeding a certain monetary threshold. A CTR can also be filed on multiple currency transactions occurring in a single day that exceed the required reporting amount. Some countries, including the U.S., have requirements addressing when CTRs should be filed with government authorities.

A bank, financial institution, or other entity responsible for managing, administering, or safekeeping assets for other individuals or institutions. A custodian holds assets to minimize the risk of theft or loss and does not actively trade or handle the assets.

Not to be confused with a person who cleans and maintains a building or space.

The act of or authority to safeguard and administer clients’ investments or assets.

Policies, practices, and procedures that enable a financial institution to predict—with relative certainty—the types of transactions in which customers are most likely to engage.

A fee charged for access to customer service. This fee is somewhat outdated as most institutions now bundle customer care into “normal” service. If you see this fee, it’s time to ask questions!

See: Card Verification Value (“CVV”)

See: Card Verification Value (“CVV”)

D

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A transaction involving the transfer of funds to an individual or bank that is held for security and/or safekeeping (aka “putting money in the bank!).

A feature used to track and manage bank deposits by recording and listing the payments received in each deposit.

Inserting the chip for an EMV credit or debit card while processing a transaction. #DipTheChip

When electronic payments are made directly into your bank account. No check. No drive (or walk or bike or Uber or Lyft) to the bank. Also, the most common form of EFT.

A process initiated by the card-issuing bank to contact the merchant in order to obtain information about a transaction charged to one of its cardholders. Note: Normally a precursor to a chargeback.

See: Data Security Standard (“DSS”)

Fees charged by the networks for processing, most often Mastercard and Visa. These typically happen after core interchange charges and have very obscure calculations.

E

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If (when?) you decide to terminate your contract before its end date (early), several merchant services providers charge a fee. Some are fixed termination fees while others are variable termination fees—the latter often being quite costly.

Note: If you choose to go with a provider that requires a contract, know their termination or cancellation fees before you sign anything. Ideally, seek out quality providers who focus on service and offer “No Contract” and “No Termination Fees.”

See: Electronic Benefits Transfer (“EBT”) Fee

A processor program that allows a merchant to accept payments from a client via the ACH network.

A reversed eCheck. This happens when an eCheck has been processed but the customer wants their money back or the service for which they paid is not provided. An eCheck refund can be initiated by either the buyer or the seller.

A failed eCheck. This happens when an eCheck is not fully processed due to insufficient funds or an error in the account or routing numbers used to process the original transaction. This “fail” can occur several weeks after the initial transaction happens and can cause a liability for the entity responsible for collecting the funds.

See: Online Shopping Cart (“eCommerce Shopping Cart”)

See: Electronic Funds Transfer (“EFT”)

Merchants who accept EBT are sometimes charged fees for access to the service. You do not need to pay for these!

The system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is direct deposit—payroll deposited straight (directly!) into an employee’s bank account.

However, EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, Fedwire, and Point-of-Sale (POS) transactions.

While integrated payments could be an add-on to an existing system, embedded payments are payments as a feature of your existing product or platform. Built-in. Day One. Not just sharing data, but sharing all available data (and the revenue associated with payment processing).

See: Europay-Mastercard-Visa (“EMV” or “Chip Cards”)

See: Europay, MasterCard, and Visa (“EMV”) Terminals

A system of communication where only the communicating users can read messages.

Fees for payment processing equipment. These fees are generally charged for terminal leasing or maintenance.

A type of credit/debit card with a computer chip embedded into it. This chip provides additional security for card-present transactions.

These terminals tend to be the smaller, card processing hardware products (the devices customers actually swipe or tap to make their payment).

New terminals are now EMV compatible—they accept chip card technology and support contactless Near Field Communications (NFC) payments, such as Apple Pay. They run a phone line or Ethernet.

Read Choosing the Best Credit Card Terminals for Your Business for more details.

A pre-defined circumstance or condition that, if met, means a creditor (or lender) can demand immediate and full repayment of a debt or obligation. This creditor/lender can terminate the agreement without payment or penalty.