Payment Glossary
The payment industry loves jargon. Here's what it all means.
A
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.
C
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.
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.
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.
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.
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