Payment Glossary

The payment industry loves jargon. Here's what it all means.

All (77)Pricing (10)Infrastructure (12)Risk & Compliance (19)Technical (16)Business Models (10)Regulatory (10)

A

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.

B

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.

C

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.

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.

N

Network Token

Technical

A token provisioned by the card network (Visa, Mastercard) rather than the PSP. Network tokens are updated automatically when cards are reissued, improving approval rates for stored cards. Also called scheme tokens. Offer better security and authorization rates than PSP tokens. Essential for subscription businesses to reduce involuntary churn.

R

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.

S

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.

T

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.

V

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.

W

Webhook

Technical

An HTTP callback that notifies your system of payment events in real-time. PSPs send webhooks for authorization results, settlement confirmations, chargebacks, and refunds. Essential for keeping your system synchronized with payment status. Must be implemented securely with signature verification. Unreliable webhook handling causes order fulfillment and accounting issues.

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