Payment Glossary
The payment industry loves jargon. Here's what it all means.
A
Assessment Fee
Pricing
A fee charged by card networks (Visa, Mastercard, Amex) on every transaction for using their network infrastructure and brand. Also called scheme fees or network fees. Assessment fees are typically a small percentage of transaction volume (0.13-0.15% for Visa/Mastercard) plus per-transaction fees. Unlike interchange which goes to issuers, assessments go directly to the card networks.
Acquirer Markup
Pricing
The fee charged by the acquiring bank or payment processor for their services, representing their profit margin on transactions. In IC++ pricing, this is the only negotiable component. Typically expressed as a percentage plus fixed fee (e.g., 0.2% + $0.10). Markup varies by merchant risk, volume, vertical, and competitive factors.
Acquirer
Infrastructure
A bank or financial institution licensed by card networks to process card transactions on behalf of merchants. Also called acquiring bank or merchant acquirer. The acquirer provides the merchant account, assumes liability for merchant behavior, manages settlements, and handles chargebacks. Major acquirers include Worldpay, First Data (Fiserv), Chase Paymentech, and Elavon. Different acquirers have different risk appetites for merchant verticals.
AML (Anti-Money Laundering)
Risk & Compliance
Regulations and procedures designed to prevent money laundering through the payment system. Acquirers and PSPs must implement AML programs including transaction monitoring, suspicious activity reporting, and sanctions compliance. High-risk verticals (crypto, forex, gambling) face enhanced AML scrutiny. Compliance is non-negotiable; violations result in severe penalties.
AVS (Address Verification Service)
Risk & Compliance
A fraud prevention tool that compares the billing address provided by the cardholder with the address on file at the issuing bank. Returns a match code indicating full match, partial match, or no match. Commonly used for CNP transactions. Not available in all countries. Should be one factor in fraud decisions, not the only one.
Authorization
Technical
The process of requesting approval for a card transaction from the issuing bank. The authorization request includes card details, amount, and merchant information. The issuer checks available credit/funds, fraud rules, and account status before responding with an approval or decline. Authorization is the first step - funds are reserved but not transferred until capture.
ARN (Acquirer Reference Number)
Technical
A unique identifier assigned to each card transaction by the acquirer, used for tracking transactions through the card network system. Essential for tracing refunds, investigating disputes, and reconciliation. Also called transaction reference number. The ARN follows the transaction through its entire lifecycle from authorization to settlement.
Approval Rate
Technical
The percentage of authorization requests that are approved. Key metric for payment optimization. Varies by merchant, geography, and card mix - 85%+ is good for low-risk; 75%+ for high-risk. Factors affecting approval: card quality, fraud rules, 3DS implementation, data quality, and issuer relationships. Improving approval rates directly increases revenue.
A2A Payments (Account to Account)
Regulatory
Payments transferred directly between bank accounts without using card rails. Enabled by open banking APIs. Lower fees than card payments (typically 0.1-0.5%). Irrevocable once completed - no chargebacks. Growing adoption in Europe and markets with real-time payment infrastructure. Not yet mainstream for e-commerce but expanding.
B
Blended Rate
Pricing
A pricing model where the acquirer charges a single flat percentage for all transactions regardless of card type or interchange category. Simple to understand but often more expensive than IC++ for merchants with diverse card mixes. The acquirer calculates an average rate and takes margin on the spread between actual interchange and the blended rate charged. Common with PayFacs and mainstream PSPs targeting smaller merchants.
Basis Points
Pricing
A unit of measurement for percentages, where 1 basis point equals 0.01%. Used extensively in payments pricing discussions. 100 basis points = 1%. When negotiating rates, a reduction from 2.9% to 2.7% represents 20 basis points. Useful for discussing small but meaningful rate differences on high-volume accounts.
Batch
Technical
A collection of transactions submitted together for settlement. Merchants 'close' their batch daily to initiate settlement of that day's captured transactions. Batch timing affects settlement speed. Some gateway/processor combinations auto-batch at set times; others require manual batch closure. Batch reports are essential for reconciliation.
BIN (Bank Identification Number)
Technical
The first 6-8 digits of a card number that identify the issuing bank, card type, and card product. BIN data enables routing decisions, fraud screening, and interchange optimization. Useful for determining if a card is debit or credit, domestic or international, and which network to route to. BIN databases are available from various providers.
Billing Descriptor
Regulatory
The merchant name and information appearing on cardholder statements. Clear, recognizable descriptors reduce 'I don't recognize this charge' chargebacks. Typically limited to 22-25 characters. Can include dynamic elements for clarity. Some PSPs allow 'soft descriptors' that differ from the merchant's legal name. Poor descriptors are a leading cause of friendly fraud.
C
Card Network
Infrastructure
Organizations that operate payment card networks and set rules for card acceptance. The major networks are Visa, Mastercard, American Express, and Discover. Networks set interchange rates, define operating regulations, manage dispute processes, and run the infrastructure connecting issuers and acquirers. Amex and Discover operate as both network and issuer for their cards.
Chargeback
Risk & Compliance
A transaction reversal initiated by the cardholder's bank after a dispute. Chargebacks return funds to the cardholder and impose fees on the merchant (typically $25-100). Common reasons include fraud, non-delivery, product issues, and billing disputes. Excessive chargebacks trigger monitoring programs and can result in account termination. Prevention is always cheaper than fighting chargebacks.
Chargeback Ratio
Risk & Compliance
The percentage of transactions that result in chargebacks, calculated as chargebacks divided by transactions over a period. Card networks monitor this ratio closely. Visa's threshold for monitoring is 0.9%; Mastercard's is 1.0%. Exceeding thresholds triggers monitoring programs with fines and potential termination. High-risk MCCs often face stricter benchmarks. Ratio calculated monthly, with some lag for dispute timing.
CNP Fraud (Card Not Present)
Risk & Compliance
Fraudulent transactions where the physical card is not present, typically in e-commerce. Includes stolen card credentials, account takeover, and synthetic identities. CNP fraud rates are significantly higher than card-present fraud because the merchant cannot verify physical card possession. Prevention relies on AVS, CVV, 3DS, device fingerprinting, and fraud scoring.
CVV (Card Verification Value)
Risk & Compliance
The 3-4 digit security code printed on payment cards (back for Visa/MC, front for Amex). Used to verify the cardholder has physical possession of the card during CNP transactions. CVV cannot be stored post-authorization per PCI rules, requiring re-entry for subsequent transactions. Validation reduces fraud from stolen card numbers obtained through data breaches.
Capture
Technical
The process of finalizing a previously authorized transaction for settlement. Capture confirms the transaction amount and initiates fund transfer. Must occur within the authorization validity period (typically 7-30 days depending on MCC). Some merchants auto-capture immediately; others delay until fulfillment. Pre-auth + delayed capture is common for hotels, car rentals, and advance bookings.
Continuity Merchant
Business Models
A merchant using a business model where customers sign up (often with a trial) and are automatically billed on an ongoing basis until cancellation. Includes subscription boxes, membership services, and auto-replenishment. Higher risk classification due to chargeback patterns from customers forgetting they subscribed. MCC 5968 (Direct Marketing - Continuity/Subscription) commonly applies.
Card-on-File
Business Models
Storing customer payment credentials for future transactions without requiring re-entry. Essential for recurring billing, one-click checkout, and repeat purchases. Must use tokenization for PCI compliance. Card networks have specific rules including obtaining consent and identifying stored credential transactions. Network tokens improve approval rates for card-on-file.
Card Updater
Business Models
Services that automatically update stored card credentials when cards are reissued or replaced. Visa Account Updater (VAU) and Mastercard Automatic Billing Updater (ABU) provide new card details to merchants. Essential for subscription businesses to reduce involuntary churn from expired cards. Updates happen during batch processes - not real-time.
CIT (Customer Initiated Transaction)
Business Models
A transaction initiated by the cardholder at the time of purchase, with the cardholder actively present (physically or online). The initial enrollment for recurring payments is a CIT even though subsequent charges are MITs. SCA typically applies to CITs in Europe. Proper classification affects authorization rates and compliance.
Cross-Border Fees
Regulatory
Additional fees applied when the card-issuing country differs from the merchant's country. Includes both interchange surcharges and scheme fees. Cross-border transactions typically cost 0.5-2% more than domestic. Can be mitigated through local acquiring in key markets. Significant cost factor for international merchants.
D
Decline
Technical
An authorization request rejected by the issuer or processor. Decline codes indicate the reason: insufficient funds, suspected fraud, expired card, do not honor, etc. Not all declines are permanent - 'soft declines' may succeed on retry. Understanding decline reasons helps optimize approval rates. High decline rates hurt conversion and may trigger acquirer concerns.
Decline Code
Technical
A standardized code returned when an authorization is declined, indicating the reason. Common codes: 05 (Do Not Honor), 51 (Insufficient Funds), 14 (Invalid Card), 41 (Lost Card). Understanding decline codes enables intelligent retry logic - insufficient funds may succeed later; lost card never will. Codes vary slightly between networks and processors.
Dunning
Business Models
The process of recovering failed subscription payments through retries and customer communication. Includes automated retry attempts, customer notifications, and grace periods before cancellation. Effective dunning recovers 10-30% of failed payments. Optimize retry timing based on decline reason. Balance persistence with customer experience - over-aggressive dunning annoys customers.
DCC (Dynamic Currency Conversion)
Regulatory
A service allowing cardholders to pay in their home currency rather than the merchant's currency at the point of sale. The exchange rate includes a markup (typically 2-4%) split between merchant and processor. Controversial due to unfavorable rates for consumers. Requires cardholder consent. Can increase revenue for merchants but may create customer complaints.
F
Friendly Fraud
Risk & Compliance
Chargebacks filed by legitimate customers who received goods or services but dispute the charge anyway. Also called first-party fraud or chargeback fraud. Common scenarios include buyer's remorse, family members making unauthorized purchases, or customers not recognizing billing descriptors. Represents 60-80% of chargebacks in some verticals. Prevention requires clear communication, recognizable descriptors, and good customer service.
Fraud Prevention
Risk & Compliance
Tools and strategies to detect and prevent fraudulent transactions before they complete. Includes AVS, CVV validation, 3DS, device fingerprinting, velocity checks, IP geolocation, and machine learning fraud scoring. Balance is critical - too aggressive blocks legitimate sales; too lenient increases fraud. Most PSPs offer built-in fraud tools; specialized providers (Signifyd, Riskified) offer guarantees.
FX Markup
Regulatory
The margin added to currency conversion, expressed as a percentage above the interbank rate. Applies to cross-border transactions, multi-currency pricing, and payouts. Typical markups range from 1-3%. Some PSPs offer at-cost FX; others build significant margin into conversions. For international merchants, FX costs can exceed processing fees.
H
High-Risk Merchant
Risk & Compliance
A classification by acquirers for merchants perceived as having elevated risk of chargebacks, fraud, or regulatory issues. Common high-risk verticals: gambling, forex, adult, nutraceuticals, crypto, travel, and subscription billing. Consequences include higher rates (1-3% premium), rolling reserves, volume limits, and limited acquirer options. Classification is risk assessment, not legitimacy judgment.
Holdback
Risk & Compliance
Funds retained by the acquirer from merchant settlements as security. Similar to rolling reserve but may have different release terms. Some holdbacks are permanent until account closure; others release after a fixed period. May be expressed as a percentage of volume or a fixed amount. Common for high-risk merchants and new accounts without processing history.
I
Interchange Fee
Pricing
The fee paid by the acquiring bank to the issuing bank each time a card transaction is processed. Set by card networks (Visa, Mastercard), interchange varies based on card type (debit vs credit, rewards vs standard), merchant category code, transaction type (card-present vs card-not-present), and geography. Interchange typically represents the largest component of payment processing costs, ranging from 0.2% for regulated debit to 2%+ for premium rewards cards.
Interchange Plus Plus (IC++)
Pricing
The most transparent pricing model in payments, breaking costs into three components: actual interchange (paid to issuer), scheme fees (paid to card networks), and acquirer markup (the processor's profit). Merchants see exactly what each transaction costs and can optimize accordingly. IC++ typically benefits larger merchants ($100K+/month) with diverse card mixes and becomes available at higher volumes.
Issuer
Infrastructure
The bank or financial institution that issues payment cards to consumers and maintains the cardholder relationship. Also called issuing bank. The issuer receives interchange fees, handles cardholder disputes, makes authorization decisions, and bears fraud risk on the cardholder side. Major issuers include Chase, Bank of America, Capital One, and Barclays.
ISO (Independent Sales Organization)
Infrastructure
A third-party company authorized to resell payment processing services on behalf of acquirers. ISOs find merchants, handle sales, and often provide support, while the acquirer provides the actual merchant account. Unlike PayFacs, ISOs don't aggregate merchants - each merchant gets their own MID. ISOs earn residual income on processing volume and may specialize in specific verticals or risk profiles.
Involuntary Churn
Business Models
Customer loss due to payment failures rather than intentional cancellation. Caused by expired cards, insufficient funds, or technical issues. Represents 20-40% of subscription churn. Prevention requires card updater services, smart retry logic, and effective dunning. Involuntary churn is largely preventable with proper payment optimization.
Interchange Regulation
Regulatory
Government-mandated caps on interchange fees. The EU caps consumer card interchange at 0.2% for debit and 0.3% for credit. UK retained similar caps post-Brexit. US Durbin Amendment caps regulated debit interchange. Commercial and cross-border transactions often exempt from caps. Regulation reduced merchant costs but affected card rewards programs.
M
Merchant Discount Rate
Pricing
The total percentage fee a merchant pays for accepting card payments, encompassing interchange, scheme fees, and acquirer markup. Often shortened to MDR. In blended pricing models, this is presented as a single rate (e.g., 2.9%). In IC++ pricing, the components are itemized separately. MDR varies significantly by merchant risk profile, volume, and negotiating power.
Merchant Account
Infrastructure
A bank account that enables a business to accept card payments. The merchant account holds funds from card transactions before settlement to the merchant's business bank account. Obtaining a merchant account requires underwriting by an acquirer. High-risk merchants face more scrutiny and may require specialized acquirers. Terms include processing limits, reserve requirements, and fee structures.
MID (Merchant Identification Number)
Infrastructure
A unique identifier assigned to a merchant account, used to identify the merchant in card network transactions. The MID appears in transaction records and is used for routing, reporting, and dispute management. PayFac sub-merchants typically share their PayFac's MID rather than having their own. Having your own MID provides more control but requires direct underwriting.
MCC Code (Merchant Category Code)
Risk & Compliance
A four-digit code assigned by acquirers to classify merchants by business type. MCCs determine interchange rates, acquirer appetite, monitoring thresholds, and rewards eligibility. Some MCCs are restricted (gambling 7995, adult 5967) and require specialized acquirers. Misclassification can result in account termination. MCC assignment happens during underwriting based on business description.
MIT (Merchant Initiated Transaction)
Business Models
A transaction initiated by the merchant using stored credentials without cardholder involvement at the time of transaction. Includes subscription renewals, auto-replenishment, and delayed charges. Requires prior cardholder consent and proper flagging in the authorization request. MITs may be exempt from SCA in Europe. Distinct from CIT (customer-initiated transactions).
MATCH List
Regulatory
Mastercard's Member Alert to Control High-risk merchants - a database of merchants terminated for cause by acquirers. Also called TMF (Terminated Merchant File). Being on MATCH severely limits ability to obtain new merchant accounts. Listings remain for 5 years. Grounds include excessive chargebacks, fraud, collusion, and illegal activity. Erroneously listed merchants can appeal for removal.
P
Processing Fee
Pricing
A general term for fees charged to process payment transactions. Can refer to the total cost (MDR) or specifically to the acquirer's fees separate from interchange. Processing fees may include per-transaction fees, percentage fees, monthly fees, and various incidental charges. Understanding all components is essential for comparing processor costs accurately.
Payment Processor
Infrastructure
A company that handles the technical aspects of processing card transactions, including routing authorizations, managing connections to card networks, and facilitating settlement. Some processors are also acquirers; others process on behalf of acquirers. The processor handles the technical plumbing while the acquirer handles the banking relationship and merchant underwriting.
Payment Service Provider (PSP)
Infrastructure
A company that provides payment processing services to merchants, typically bundling acquiring, processing, and gateway services into a single offering. PSPs like Stripe, Adyen, and Checkout.com handle the entire payment stack, simplifying integration for merchants. PSPs may operate as PayFacs (aggregating merchants under their own MID) or facilitate direct merchant accounts with acquirers.
Payment Facilitator (PayFac)
Infrastructure
A payment model where a master merchant (the PayFac) aggregates sub-merchants under its own merchant account. PayFacs like Stripe, Square, and PayPal perform underwriting, onboarding, and risk management on behalf of their acquirers. This enables fast merchant onboarding but means sub-merchants don't have their own MIDs. PayFac model works well for smaller merchants but creates single-point-of-failure risk.
Payment Gateway
Infrastructure
The technology that securely transmits transaction data between a merchant's website/application and the payment processor. The gateway encrypts sensitive card data, routes transactions for authorization, and returns responses. Can be provided by the PSP (integrated) or operated separately (standalone). Examples include Authorize.net, Braintree, and NMI.
Payment Orchestrator
Infrastructure
A platform that sits between merchants and multiple PSPs/acquirers, providing intelligent routing, unified integration, and centralized management. Orchestrators enable routing by geography, card type, or performance; automatic failover; and token portability between processors. Examples include Spreedly, Primer, and Gr4vy. Makes sense for merchants using multiple processors at scale.
PCI-DSS
Risk & Compliance
Payment Card Industry Data Security Standard - a set of security requirements for organizations that handle cardholder data. Compliance levels range from SAQ-A (simplest, for merchants using hosted payment pages) to Level 1 (most stringent, for large processors). Non-compliance results in fines and potential loss of card acceptance. Most merchants should minimize PCI scope by using tokenization and hosted payment forms.
PSD2 (Payment Services Directive 2)
Regulatory
European regulation governing payment services, effective since 2019. Key provisions include Strong Customer Authentication (SCA) requirements, open banking mandates, and enhanced consumer protections. Applies to EEA countries and influenced UK regulations. PSD2 changed the payment landscape by requiring 3DS for most online transactions and enabling third-party access to bank accounts.
R
Rolling Reserve
Risk & Compliance
A percentage of processing volume held by the acquirer as security against chargebacks and refunds. Typically 5-15% held for 6-12 months before release. The reserve 'rolls' as new funds are held and old funds release. Affects cash flow significantly for growing businesses. Reserve terms are negotiable and often reduce after establishing clean processing history. Alternative structures include capped reserves and upfront deposits.
Representment
Risk & Compliance
The process of disputing a chargeback by providing evidence that the transaction was legitimate. Merchants submit documentation (proof of delivery, customer communication, signed agreements) to their acquirer. Win rates vary by reason code and evidence quality - typically 20-40%. Time limits are strict (usually 7-45 days depending on network). Worth pursuing for high-value transactions with good evidence.
Refund
Technical
Returning funds to a cardholder for a previously captured/settled transaction. Refunds create a new credit transaction. Original interchange may not be refunded depending on network rules and timing. Some acquirers charge per-refund fees. High refund rates can trigger acquirer scrutiny. Refund instead of void when transaction has already settled.
Retry Logic
Technical
Automated rules for retrying failed transactions. Not all declines should be retried - and retry timing matters. Insufficient funds should be retried in a few days; expired card should prompt card update. Intelligent retry can recover 10-30% of soft declines. Important for subscription billing to reduce involuntary churn from temporary payment failures.
Recurring Payments
Business Models
Transactions that repeat automatically at set intervals using stored payment credentials. Includes subscription billing and installment plans. Requires proper cardholder consent and clear terms. SCA exemptions may apply for fixed-amount recurring in Europe. Card updater services essential to maintain payment continuity when cards are reissued.
S
Scheme Fees
Pricing
Fees charged by card networks (Visa, Mastercard) for various services beyond the basic assessment. Includes authorization fees, clearing fees, cross-border fees, data usage fees, and program fees. Scheme fees have grown significantly in recent years and can add 0.1-0.3% to transaction costs depending on geography and transaction characteristics. Often bundled or passed through as part of IC++ pricing.
SCA (Strong Customer Authentication)
Risk & Compliance
A European regulatory requirement under PSD2 mandating two-factor authentication for electronic payments. Authentication must use two of: knowledge (PIN/password), possession (phone/card), or inherence (biometrics). Applies to EEA and UK transactions. Various exemptions exist: low-value transactions, trusted beneficiaries, transaction risk analysis, and recurring payments. 3DS2 is the primary implementation method.
Settlement
Technical
The process of transferring funds from captured transactions to the merchant's bank account. Settlement typically occurs in batches (daily or weekly). Timing varies by acquirer and merchant agreement - next day, T+2, or weekly. Net settlement deducts fees and chargebacks from gross volume. Faster settlement improves cash flow but may come with higher costs.
Smart Routing
Technical
Dynamically routing transactions to different processors based on rules to optimize approval rates, costs, or both. Routing criteria include card geography, card type, transaction amount, processor performance, and cost. Requires multi-acquirer setup or orchestration platform. Can improve approval rates by 2-5% and reduce costs through optimal processor selection.
Subscription Billing
Business Models
A payment model where customers are charged on a recurring schedule (monthly, annually, etc.) for ongoing access to products or services. Requires card-on-file capability and careful attention to authorization rates, dunning, and involuntary churn. Card networks have specific rules for subscription billing including clear disclosure and easy cancellation. Higher risk classification due to chargeback patterns.
T
Transaction Fee
Pricing
A fixed fee charged per transaction, regardless of transaction amount. Common examples: $0.30 per transaction with Stripe, or $0.10-0.20 per authorization in IC++ pricing. Transaction fees have greater impact on low-value transactions - a $0.30 fee on a $10 transaction adds 3% to cost. Merchants with low average ticket values should negotiate lower per-transaction fees.
TID (Terminal Identification Number)
Infrastructure
A unique identifier for a specific payment terminal or point-of-sale device. Each physical terminal or virtual terminal has its own TID. A single MID can have multiple TIDs for different locations or channels. TIDs help with transaction routing, reporting, and terminal-specific configurations.
Tokenization
Technical
Replacing sensitive card data with a non-sensitive token that can be stored safely. Tokens are useless if stolen - they can only be used by the merchant they were created for. Enables card-on-file functionality without storing actual card numbers. Reduces PCI scope significantly. Network tokens (from Visa/MC) offer additional benefits including automatic card updates.
Trial Offer
Business Models
A promotional model offering free or discounted initial access before full-price billing begins. High-risk due to chargeback patterns when customers forget conversion or didn't understand terms. Acquirers scrutinize trial-to-paid conversion rates. Clear disclosure of trial terms, billing dates, and cancellation process essential. Some acquirers prohibit 'negative option' trials entirely.
V
VAMP (Visa Acquirer Monitoring Program)
Risk & Compliance
Visa's program for monitoring merchants with excessive chargebacks or fraud. Triggered when chargeback ratio exceeds 0.9% or fraud ratio exceeds thresholds. Merchants in VAMP face monthly fees ($25K+), remediation requirements, and potential termination. Program has multiple tiers with escalating consequences. Similar to Mastercard's Excessive Chargeback Program (ECP). Getting into these programs is expensive; staying in is worse.
Void
Technical
Cancelling an authorized but not yet captured transaction. Voids release the authorization hold immediately and incur no interchange (in most cases). Must be processed before batch settlement. After settlement, the merchant must process a refund instead. Voids are the cleanest way to cancel a transaction that shouldn't proceed.
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