Payment Processing Terms every Merchant should Know
For any business, collecting payments is one of the most important tasks. Despite the launch of the Digital India initiative, in India cash is still dominantly used as a means for transactions.
But this has changed in the last few years. As digitization is revolutionizing every field, the payment acceptance scenario is also shifting towards digitization.
In the present day and age, if you own a business, accepting payments via digital means is becoming a common norm.
There is a lot to know about digital payment acceptance. Right from which solution would be the right fit for your business to what are the general terms of payment processing.
Though the concepts can be difficult to understand, every business owner must have a common understanding of them.
With this in mind, and starting from the basics, here are some common payment processing terms every business owner should know:
1) Acquiring Bank
An acquiring bank is a financial institution that processes card transactions. These transactions are on behalf of a merchant.
Acquiring a bank allows the merchant to accept card payments and is responsible for clearing all transactions.
Networks or more common term ‘card networks’ refer to the card association made by Visa, MasterCard, American Express, and Discover. This association gives guidelines and regulates card transaction acceptance rules.
Application programming interface or API is an application that provides classes, functions, procedures, structures, and constants that are predefined.
It is the process of validating transaction funds available on a credit or debit card. It is done at the time the transaction is entered or swiped through a terminal.. An authorization is either approved or declined by the issuing bank.
5) Authorization Fee
This is the amount charged to you each time a communication happens between the payment acceptance terminal and the authorizing network.
6) Bank Identification Number
A bank Identification Number or BIN is a part of the number string located on a card (credit/debit). BIN is generally an initial sequence of four to six numbers on the card. It is developed to identify the bank for authorization, processing, and clearing process.
Here are some examples of BIN format for the most widely-used card schemes:
MasterCard: 51**** or 55****
7) Business Identifier Code (BIC)
A business Identifier Code is a code assigned to financial institutions involved in international commercial transactions.
8) Card Not Present (CNP)
CNP is a payment transaction made where the card is not present physically. A common example is an online order and payment.
9) Card Present
As opposed to CNP, a transaction where the cardholder and payment card are both presents is known as a card-present transaction.
When a merchant is liable to refund the cardholder’s money due to any of the reasons that may be in favor of the cardholder/ its customer, it is called a chargeback. It can be a claim against a charge, initiated by a customer with their bank.
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The clearing is the whole process from which the transaction is initiated until it gets settled.
12) Credit Card Processing
It is a process of authorizing, verifying, and transacting the credit card transaction.
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13) Credit Card Processor
The device that handles credit card processing is known as a credit card processor. It handles verification, and fund transfers electronically.
14) Credit Card Reader
It is a terminal used for reading/swiping credit cards. This terminal is an electronic device that reads data stored on the magnetic stripe on the credit card. This includes information like cardholders details and card verification value (CVV)
15) Dynamic 3D Secure
3DS (3 Domain Secure) is an XML-based technical protocol developed by VISA to improve online transaction performance and to add an additional security layer for online credit and debit card transactions. It consists of specifications that include requirements and specifications for participants involved in transactions.
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16) Electronic Wallet
An e-wallet allows the user to charge a payment for goods and services to their card without using the actual card. An electronic wallet is an application on a customer’s mobile device. For a successful transaction through an e-wallet, it needs to be linked with the customer’s bank account.
It is the process of encoding information. It converts original information into the cipher-text. Necessary for secure transmission, encryption is an effective way to keep the data safe.
18) Friendly fraud
It is also known as chargeback fraud. It occurs when a customer makes an online shopping purchase with their own credit card and, following the receipt of the goods, requests a chargeback. In case it gets approved, the customer receives the entire amount as a refund.
19) High-Risk Business
Business is considered to be high-risk if:
Service or solution has a more extended period of chargeback liability.
The business operates in an industry that has a high-chargeback history.
The account has a “reputation” risk.
20) International Bank Account Number (IBAN)
It is an account number used in international settlements.
21) Issuing Bank
It is the bank of the cardholder or customer and it is responsible for paying the required transaction amount to the acquirer bank.
22) Know Your Customer (KYC)
KYC is a set of documents with regulated information about the customer’s identity.
23) Merchant Account
It is an account that allows businesses to accept payments. It is an agreement merchant and credit card processor that allows merchants to accept credit card transactions.
24) Merchant Account Provider
Also known as a merchant acquirer, it provides merchants with the services and solutions needed to process payment cards. It acts as an intermediary between a merchant, the issuing banks and credit card networks.
25) Merchant Processing Agreement (MPA)
In this Payment Processing Terms The contract of a set of regulations and responsibilities between a merchant and merchant account provider.
26) Payment Gateway
A payment gateway is a platform or a service that helps authenticate cardholders’ details for offline and online businesses.
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27) Payment service provider (PSP)
A payment service provider (PSP) is a 3rd party that offers services and solutions so that the merchant can accept electronic payments by various payment accepting methods such as cards, bank transfers, mobile payments, etc.
28) Payment processor
It provides merchants with payment processing services to complete an electronic transactions. It extracts information from the payment gateway and transfers it to the issuing bank for authorization. It sends transaction details to the merchant account.
PCI-DSS stands for Payment Card Industry Data Security Standards. PCI DSS security standards help protect the safety of data. They set operational and technical standards for firms accepting or processing online technical transactions, and for software developers and, manufacturers of applications and devices used in those transactions.
In this payment processing terms Point-of-Sale or POS is a term often placed at the check out where a customer makes payment. As technology has evolved POS has also evolved from bulky appearance to a smaller more comfortable device that is wireless and mobile. Link:
31) Mobile point-of-sale (mPOS)
An mPOS is a mobile device such as a smartphone or tablet, with a mobile application that allows businesses to perform payment transactions. It is an alternative and portable version of POS terminal.
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32) Recurring Billing
It is a transaction charged to a cardholder on a designated periodic basis eg. membership
33) Real-Time Processing
in this Payment Processing TermsIt refers to the process that involves continuous input, process, and output within a short amount of time, In the payment processing terms it can be considered as a transaction within seconds.
A settlement is a process when the acquiring bank sends funds from the merchant account to the merchant’s company bank account. The settlement, being a process of merchants receiving money by their customers, is an extremely important part of an online platform.
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SSL stands for Secure Socket Layer, a system for encrypting payment card data sent over the internet.
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