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Payment 101: Jargon buster

The payment ecosystem is a complex web of acronyms and terms that, in an ever-evolving industry, even insiders have a hard time keeping up with. If you’re new to the world of payments, this handy A-Z guide will help you sort your APIs from your APMs and make you a payments MVP!

A.

Acquirer/Acquiring Bank (also known as Merchant Acquirer)

A financial institution that processes a payment transaction, like credit or debit card payments, on behalf of a merchant. An acquirer enables businesses to accept credit card and debit card payments for the purchase of goods and services and underwrites the merchant account. They may also provide the hardware and software to enable the merchant to process transactions.

Address Verification System (AVS)

A security system requiring merchants to supply address information for a cardholder to the institution that issues the credit card in card-not-present transactions, including online purchases.

Alternative Payment Methods (APMs)

Alternative payment methods are a way of paying for goods or services which are not made via cash or major card schemes, such as Apple Pay. They’re becoming increasingly popular, so it’s important for merchants to be aware of which methods their customers use and be able to accept them.

Application Programming Interface (API)

An application programming interface is a type of software interface, offering a service to other pieces of software. In other words, it’s a way for two or more computer programs to communicate with each other. A document or standard that describes how to build or use such a connection or interface is called an API specification.

Authorization/Approval

This is the process of the card issuing bank verifying that a pament is valid and can proceed and where it captures the funds for later use.

B.

Batch Processing

A type of data processing and data communications transmission where related transactions are grouped and transmitted together for processing. For instance, a group of transactions can be batched based on when the transaction took place (e.g. - daily)

Big Data

Essentially, extremely large volumes of data. This term is often applied in the context of the challenges of extracting value from pools of data by collecting and analyzing it to identify patterns of behavior, then developing business strategies based on the findings.

Blockchain

Blockchain technology is an advanced database mechanism that allows transparent information sharing within a business network, which cryptocurrency relies on. It’s a digital ledger where all transactions, in the form of blocks, made in a specific cryptocurrency are recorded in chronological order. That digital ledger is then made publicly available to anyone using that cryptocurrency. Blockchains are decentralized, in fact copies are stored across multiple computers, and then synchronized as needed, allowing markets to track and verify transactions without the need for central bookkeeping.

Breach

An incident of exploitation of security safeguards to access and compromise sensitive cardholder data. As merchants expand their payment capabilities, each new addition increases payment system complexity and the risk of data breach occurrences. 

Buy Now, Pay Later (BNPL)

A popular deferred payment option that allows the consumer to split a purchase into smaller installments – typically four or less – often with a down.

E.

eCommerce

The buying and selling of goods and services over the internet.

Encryption

The technique of scrambling sensitive data automatically in the terminal or computer before data is transmitted for security/anti-fraud purposes.

F.

FinTech

This term refers to the array of emerging technologies applied to enable banking and financial services functions. In the payments industry, this term often refers to technology companies competing with traditional financial institutions in delivery of services.

Foreign Exchange (FX)

The conversion of one currency to another, typically for the purpose of conducting international business or travel.

Fraud

Illegal or unethical activity that involves deception or dishonesty, with the intent to gain financially or otherwise. In the context of payments, fraud can refer to the unauthorized use of a person's credit or debit card information, or the use of a false identity or stolen card.

Fraud Score/Fraud Scoring

A predictive analytics system for payment processors to assign a score, based on various models and transaction data, to assess the risk level of a pending transaction during the authorization process and determine the probability that the transaction is unauthorized or fraudulent.

I.

Independent Sales Organization (ISO)

In merchant services, this refers to an independent credit-card processing company, often an approved entity reselling services from a larger company.

Independent Software Vendor (ISV)

Independent software vendor is a category that covers an enormous number of businesses across almost all industries. Generally speaking, it’s a software producer not owned or controlled by a hardware manufacturer whose primary function is to distribute software. The ISVs pertinent to payments are ones that serve commercial markets, providing software to businesses who use it to enable or sell their own products and services. 

Intelligent Payment Routing

Technology used by merchants and payment processors to optimise the routing of transactions to the most cost-effective and efficient payment methods and networks. The goal of IPR is to reduce the costs of processing payments, increase authorization rates, and enhance the customer experience by providing the most appropriate payment method for each transaction.

Interchange

The domestic and international systems operated by MasterCard® and Visa® for authorization, settlement, and the passing through of interchange and other fees, as well as other monetary and non-monetary information related to bank card activities.

Issuer/Issuing Bank

A financial institution, such as a bank or a credit union, which offers a payment card directly to consumers or organisations and is liable for the use of the card. The issuer is also responsible for the billing and collecting of funds for purchases that were made using that card.

K.

Know-Your-Customer (KYC)

These are guidelines in financial services that require professionals to make an effort to verify the identity, suitability and risks involved with maintaining a business relationship. It sits within the broader scope of anti-money laundering procedures.

L.

Local Payment Methods (see also APM)

Local payment methods are payment methods popular in specific regions. 

M.

Machine Learning

The developing field of high-performance computing in the payments industry that applies a set of data analytics tools to enhance various aspects of transactions processing.

Merchant Identifier (MID)

A merchant identification number (MID) is a unique identifier given to a business by its payment processing provider. It uniquely identifies the business when a customer makes a credit or debit card purchase.

Merchant of Record

A merchant of record (MoR) is the entity that sells goods or services to a customer. Companies can be their own merchant of record, but you can also outsource this work to entities that sell goods or services on behalf of a business.

Merchant Service Provider (MSP)

Third-party entity that provides intermediary services to help a merchant manage the processing of payments. An MSP may also assist in managing a merchant account with a card association or a card network.

Money Laundering

The process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source.

Money Movement

The movement of money between two different points electronically.

Multi-Currency Pricing (MCP)

A pricing strategy that allows merchants to set prices for their goods or services in multiple currencies, based on the currency of the customer's credit or debit card.

N.

Near-Field Communications (Tap and Go)

Technology that allows two devices, such as a smartphone and a payments terminal, to ‘talk’ to each other when they're close together. It’s the technology that enables contactless payments.

O.

One Click Payments

A payment method that allows customers to make a purchase with a single click, without having to enter their card information each time. This can be accomplished through the use of a token, or by saving the card information with the merchant or payment processor.

Omnichannel

The concept of integrating multiple channels for retail sales (online purchases, in-store purchase, mobile shopping, call centre etc.) focused on presenting a seamless, high-quality shopping experience for the buyer.

Open Banking

Open Banking refers to the process of banks and other financial institutions opening up data for regulated providers to access, use and share.

Open Loop

The use of a credit card, debit card, or gift card to purchase goods or services anywhere that payments cards are accepted, subject to terms and conditions of the card issuer.

P.

PayFac

Short for ‘Payment Facilitator’, payfac is a service provider for merchants. When you want to accept payments online, you will need a merchant account from a payfac. PayFacs provide a similar service to standard merchant accounts, but don’t issue each merchant their own individual account. 

Payment Gateway

An eCommerce payment service to process credit card transactions and direct payments for both online and traditional brick-and-mortar businesses.

Payment Network (also known as a Payment Scheme)

An association of member banks that facilitate the payment transaction between the merchant and issuer- Examples include American Express, Visa, Mastercard, JCB, Diners Club

Payment Orchestration

Payment Orchestration Platforms (POPs), also referred to as a Payments Orchestration Layers, handle different payment service providers, acquirers, payment gateways and banks on a single, unified software layer. CellPoint Digital is a pioneer in the development of Payment Orchestration Platforms that enable our clients to make payments work for them across all their channels and markets.

Payout

Payouts are the expected financial returns or monetary disbursements from investments or annuities. It can be expressed on an overall or periodic basis, and as either a percentage of the investment's cost or in a real dollar amount.

Payments Value Chain

The Payment Value Chain refers to the complex ecosystem supporting a payment transaction that includes the consumer, merchant, acquirer, network, issuer, and processor, as well as an array of third-party servicing entities.

PCI Compliance

Visa®, Mastercard®, Discover® and AMEX® created the PCI Security Standards Council with the aim of regulating the credit card industry and managing PCI standards to improve payment security. PCI Compliance is an ongoing process that helps prevent security breaches and payment card data theft.

Point-of-Sale (POS)

POS can refer to the time and place at which a retail transaction is completed, as well as the hardware or software a merchant uses to process a transaction. Traditionally this would have been a cash register, but modern POS systems are entirely digital.

Point-to-Point Encryption (P2PE)

Security standard that immediately encrypts cardholder info at the initial swipe device, then securely transfers that information to the payment processor who in turn decrypts the data used in physical Point-of-Sale environment

Processor

A third party designated by a merchant to handle credit and debit card transactions between that merchant and its customers. They are often broken down into two types: front-end processors and back-end processors. The front-end processor authorizes the card, connects to credit card companies and authorizes the network, while the back-end processor receives and forwards settlement batches to issuing banks.

Payment Service Provider (PSP)

A company that enables the connection between an online shop and other market participants, such as banks or credit card acquirers. The PSP offers various services concerning the acceptance of electronic payments and integrates different payment methods. Usually a PSP is not bound to an Acquirer or a payment network, which allows the integration of several different payment methods over just one PSP.

Q.

QR (Quick Response) Code Mobile Payments

Technology that allows customers to display a QR code on their mobile devices that can then be scanned by a merchant’s optical scanner to read the code and facilitate a payment.

R.

Real-time Payment

Sometimes known as instant payment, this is a method of exchanging money and processing payments, almost immediately, rather than the more typical one to three business days.

Reconciliation

Payment reconciliation is an important accounting process that compares internal financial records to bank and other payment records to ensure the amounts are the same.

Recurring Billing Transaction/Subscriptions

A transaction charged to the cardholder (with prior permission) on a periodic basis for recurring goods and services such as health-club memberships.

Remittance Processing

Also known as receivable processing, this refers to the processing and clearing of payments associated with consumers paying their bills.

S.

Settlement

Settlement occurs when the acquiring bank and the issuer exchange data and funds during that function to complete the payment transaction

Stored Value Card

A payment card with a monetary value stored on the card itself, rather than in an external account maintained by a financial institution. No network access is required by the payment collection terminals as funds can be withdrawn and deposited straight from the card. 

T.

Token/Security Token/Authorization Token/Tokenization

A unique identifier created by an algorithmic process that replaces a credit card number and other sensitive data during the processing of a payment transaction to prevent credit card fraud. Tokens can be passed electronically without revealing actual customer account data.

U.

uCommerce

Short for Universal Commerce or Ubiquitous Commerce or Ultimate Commerce, this refers to commerce that is enabled between buyers and sellers anytime, anywhere, and on any type of device.

V.

Vaulting

The process of storing customer credit cards outside your payment provider, with a special provider called a credit card vault. Benefits include better management of data security, reduced PCI compliance scope, and full payment provider independence.