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Common payment processing terminology

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Common payment processing terminology

May 15, 2024
Common payment processing terminology

Merchant account: A type of bank account that allows businesses to accept payments by debit or credit cards. A merchant account acts as an intermediary between the business's bank account and the payment processor.

Payment gateway: A service that authorizes and processes payments for e-commerce sites and traditional brick and mortar stores. It facilitates the transfer of information between a payment portal and the front-end processor or acquiring bank.

Payment processor: A company appointed by a merchant to handle transactions from various channels like credit cards and debit cards for merchant-acquiring banks.

Customer: The individual who makes a payment to the merchant.

Payment method: The means by which a customer can make a payment—ACH bank transfer, credit card, debit card, digital wallet, etc.

Acquiring bank (Acquirer): A bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within an association.

Issuing bank (Issuer): The bank, credit union, or other financial institution that issued the credit or debit card to the consumer. The issuer is responsible for paying the acquirer for the purchases that their cardholders make.

Point of sale (POS) system: Hardware (like card readers) and software that manage the selling and checkout process via a transactional interface (usually used in retail stores, restaurants, etc.).

Payment Card Industry Data Security Standard (PCI DSS): A set of security standards designed to ensure that all companies that accept, process, store, or transmit credit card information maintain a secure environment.

Authorization: The process of verifying that a credit or debit card has sufficient funds to cover the transaction. This is a key step in the payment process.

Card network: Organizations (like Visa, MasterCard, American Express, and Discover) that facilitate and govern the processing of card-based transactions. They set the rules and standards for issuing card companies, processing payments, card data, card details, and settling transactions between merchants, card issuers, and acquiring banks.

Settlement and reconciliation: The process where the acquiring bank pays the merchant for transactions minus the interchange fees.

Interchange fees: Fees paid between banks for the acceptance of card-based transactions. Typically, these processing fees are passed from the merchant's bank (acquirer) to the cardholder's bank (issuer).

Chargeback: A demand by a card provider for a retailer to make good the loss on a fraudulent or disputed transaction.

Transaction fee: A fee charged for each transaction processed, usually consisting of a percentage of the transaction amount plus a fixed fee.

Batch processing: The process of processing transactions in a group or batch at the end of the business day.

Tokenization: The process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security.

Bank-level encryption: The capability for a customer to log directly into their bank when completing a bank transfer, guaranteeing the level of security that banks or financial institutions use to encrypt and protect financial data and personal information.

Fraud detection: Systems designed to detect and prevent suspicious transaction activity.

SDK: A Software Development Kit helps streamline the process of application development by providing building blocks that developers can use, reducing the amount of code they need to write from scratch.

API: An Application Programming Interface, is a set of rules and protocols for building and interacting with software applications.

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