The Payments Glossary

An authentication protocol adding an extra layer of identity verification for card-not-present transactions. 3DS2 uses passive device data and biometric authentication to reduce friction. Successful authentication shifts fraud liability to the issuer.

A US electronic network for financial transactions that processes large volumes of credit and debit transfers in batches. ACH is used for direct deposits, bill payments, and B2B transfers, typically settling in 1–2 business days, though Same-Day ACH now enables faster movement.

The financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer communicates with the card network and the issuing bank to authorize and settle transactions, and assumes the risk of merchant fraud or insolvency.

The process by which a card transaction is approved by the issuing bank before funds are captured. Authorization confirms that the cardholder has sufficient funds or credit, and places a hold on the amount. It does not transfer funds — that happens at capture.

A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. Payment companies must implement AML programs including customer due diligence, transaction monitoring, and suspicious activity reporting.

Aggregating multiple transactions and processing them together at scheduled intervals rather than in real time. Older acquirers operate on daily batch cycles, while modern platforms increasingly offer continuous settlement.

The first 6–8 digits of a payment card number that identify the issuing institution. BINs determine card type, issuing bank, country of issue, and card level — enabling correct routing and interchange application.

The step in a card payment where authorized funds are actually requested from the issuing bank and transferred to the acquirer. Capture can happen at the same time as authorization (immediate capture) or later (delayed capture), and is what triggers the actual movement of money.

A reversal of a card transaction initiated by the cardholder's bank, typically after a dispute. Chargebacks force the merchant to return funds and often incur a fee. High chargeback rates can result in merchant account termination. Chargebacks are distinct from refunds, which are merchant-initiated.

An organization that sets the rules and provides the infrastructure for processing card transactions between issuers and acquirers. The major global networks are Visa, Mastercard, American Express, and UnionPay. Networks earn revenue through interchange and assessment fees.

A transaction where a physical card is used at a point of sale terminal — swiped, dipped (EMV chip), or tapped (NFC contactless). CP transactions typically carry lower fraud risk and lower interchange rates than card-not-present transactions because the cardholder is physically present.

A transaction where neither the card nor the cardholder is physically present — typical for e-commerce, phone orders, or subscriptions. CNP transactions have higher fraud risk and generally higher interchange rates, and are a primary target for 3DS and other fraud prevention tools.

The process of reconciling orders between transacting parties — the step between a payment being authorized and funds being settled. During clearing, the acquirer and issuer exchange transaction data through the card network, and net amounts are calculated for final settlement.

Any payment that moves between different countries or currencies. These involve FX conversion, correspondent banking relationships, and compliance with multiple regulatory regimes. They are often slower and more expensive than domestic payments, but are being transformed by new infrastructure.

A relationship where one bank (the correspondent) provides services to another bank (the respondent) in a foreign jurisdiction, enabling cross-border transactions. Correspondent networks are the backbone of SWIFT-based international payments but add cost, latency, and opacity to transactions.

The percentage of transactions that result in chargebacks over a given period. Card networks set thresholds — Visa's standard limit is 0.9%, Mastercard's is 1.0%. Exceeding these can trigger card network monitoring programs, fines, or loss of card acceptance privileges.

Card Verification Value — a 3 or 4 digit security code printed on payment cards, not stored in the magnetic stripe. CVV2 is the CNP-specific variant used to verify that the cardholder has physical possession of the card. PCI DSS prohibits merchants from storing CVV data post-authorization.

The merchant's response to a chargeback, submitting evidence to the acquirer and card network to dispute the cardholder's claim and reclaim reversed funds. Effective representment requires timely, organized evidence.

A payment made by tapping a card or mobile device on an NFC-enabled terminal. Contactless payments using Apple Pay, Google Pay, or contactless cards complete in under a second.

A payment instruction from the payer's bank to transfer funds to the beneficiary's bank. Credit transfers are push payments — the sender initiates the movement of funds. They are the basis for SEPA Credit Transfers and most modern account-to-account payment schemes.

A service offered at point of sale that allows international cardholders to pay in their home currency rather than the local currency. While convenient, DCC often carries unfavorable exchange rates for the cardholder. The merchant or acquirer typically captures the FX spread.

The percentage of payment authorization attempts that are declined by the issuing bank. Declines can be hard (permanent — e.g., stolen card) or soft (temporary — e.g., insufficient funds). Optimizing decline rates through retry logic and network tokenization is a key revenue lever.

A formal challenge by a cardholder to a transaction on their account. Disputes can escalate to chargebacks if not resolved at the inquiry stage. Effective dispute management requires merchants to submit evidence — transaction records, delivery proof, refund confirmations — within tight timeframes.

A payment that draws directly from the payer's bank or card balance — no credit extended. Debit transactions carry lower interchange rates than credit card transactions.

A pull payment mechanism allowing an organization to collect payments directly from a customer's bank account with prior authorization. Common for recurring billing — subscriptions, utilities, insurance premiums.

Europay, Mastercard, and Visa — the global standard for chip-based payment cards. EMV chips generate a unique transaction code for each payment, making them far harder to clone than magnetic stripes. EMV adoption shifted counterfeit fraud liability from banks to merchants in markets without chip terminals.

The integration of financial products — payments, lending, insurance, banking — directly into non-financial platforms. Enabled by BaaS providers and payment APIs, embedded finance allows any software company to offer fintech features.

A digital wallet that stores payment credentials, enabling payments without entering card or bank details each transaction. eWallets can be closed-loop, semi-closed, or open-loop.

The conversion of one currency into another during a cross-border payment. FX involves a mid-market rate plus a spread charged by banks or payment processors. FX management — including hedging, transparent pricing, and multi-currency accounts — is a key differentiator for global payment platforms.

A set of tools, rules, and machine learning models used to detect and block fraudulent transactions before they are processed. Modern fraud prevention combines device fingerprinting, behavioral analysis, velocity checks, and real-time scoring to balance security with conversion rate.

Financial technology — companies that use technology to deliver financial services in more efficient, accessible, or innovative ways than traditional institutions. Fintechs span payments, lending, insurance, wealth management, and banking infrastructure.

The value of funds in transit between payment initiation and final settlement. Reducing float by moving to real-time settlement is a key driver of instant payment adoption.

A payment gateway is the technology layer that captures and transmits payment data from a merchant to a processor or acquirer. Gateways handle encryption, tokenization, and communication with card networks. They can be standalone or bundled with processing.

A settlement method where each transaction is settled individually and in full, rather than being netted against other transactions. Real-Time Gross Settlement (RTGS) systems like Fedwire process high-value transactions in real time throughout the business day.

A payment form hosted by a PSP rather than the merchant, redirecting customers to a secure page to enter payment details. Hosted pages reduce PCI scope since card data never touches merchant infrastructure.

A standardized format for identifying bank accounts internationally, widely used in Europe and increasingly globally. An IBAN can contain up to 34 alphanumeric characters and encodes the country code, bank identifier, and account number to reduce errors in cross-border transfers.

A fee paid by the acquirer to the issuing bank on each card transaction. Interchange is the largest component of merchant card acceptance costs, and rates vary by card type, transaction type, and geography. Interchange optimization is a major focus for high-volume merchants.

The financial institution that issues payment cards to consumers and businesses. The issuer approves or declines transactions, extends credit, manages cardholder accounts, and bears primary fraud risk for CNP transactions. Issuers receive interchange fees for bearing this risk.

A global messaging standard for financial transactions that enables richer, structured data compared to legacy formats. ISO 20022 is being adopted globally for high-value payment systems, enabling better reconciliation, compliance screening, and straight-through processing.

A property of payment API requests ensuring the same operation can be attempted multiple times without creating duplicate transactions. Idempotency keys allow systems to safely retry failed requests.

A payment available to the recipient within seconds, 24/7/365, with immediate irrevocable finality. Global schemes include FedNow, Faster Payments, SEPA Instant, PIX, and UPI.

A transparent pricing model where merchants pay the exact interchange rate set by the card network, plus a fixed processor markup. Preferred by high-volume merchants for transparency and cost efficiency.

Settlement of payment proceeds the same day a transaction is processed, eliminating the typical 1–3 day delay. Enabled by real-time rails, direct bank connectivity, and modern payment infrastructure.

The process by which payment providers verify the identity, legitimacy, and ownership structure of business customers. KYB is required under AML regulations and involves collecting company registration documents, beneficial ownership information, and business activity details.

Regulatory requirement for financial institutions to verify the identity of individual customers before providing services. KYC involves identity verification, address verification, and sanctions screening. KYC compliance is mandated under AML/CTF laws globally.

A rule by card networks that transfers fraud liability from one party to another based on the security measures deployed. If a merchant without EMV chip capability processes a counterfeit card, liability shifts to the merchant rather than the issuer.

The internal record-keeping system that tracks balances and transactions across accounts. A financial ledger ensures consistency between what a payment platform has processed and what each party owes or is owed.

A four-digit code assigned by card networks to classify the type of business a merchant operates. MCCs affect interchange rates, fraud scoring, spending controls, and rewards calculations. Certain MCCs trigger additional compliance and processing restrictions.

The entity legally responsible for a transaction — handling compliance, refunds, chargebacks, and tax. Many SaaS platforms use an MoR model where a third party acts as the seller of record, absorbing regulatory complexity.

A special bank account that allows businesses to accept payment card transactions. The merchant account holds card payment proceeds before transfer to the business bank account.

A bank or payment account that can hold, send, and receive funds in multiple currencies without requiring conversion at each step. Essential for global businesses minimizing FX costs.

The nonprofit organization that governs the ACH network in the United States, setting the rules, standards, and guidelines for ACH transactions. NACHA rule violations can result in fines and processing restrictions.

A settlement method where payment obligations between parties are netted against each other, and only the net difference is settled. Card networks operate net settlement, significantly reducing the volume of actual money movement.

A payment credential issued by a card network that replaces a card's primary account number for use in specific channels or devices. Network tokens improve authorization rates, reduce fraud, and auto-update when cards are reissued.

The process of checking individuals, entities, and transactions against the Office of Foreign Assets Control's sanctions lists. OFAC compliance is mandatory for all US financial institutions and payment processors.

A regulatory framework requiring banks to share customer financial data with authorized third parties via APIs, with customer consent. It enables account-to-account payments, financial data aggregation, and new fintech services without card networks.

The 14–19 digit number on a payment card that identifies the issuer and the cardholder account. PCI DSS strictly governs PAN storage, and tokenization replaces the PAN with a surrogate value to reduce exposure.

A layer of technology that intelligently routes transactions across multiple processors, acquirers, and methods. Orchestration enables failover, least-cost routing, multi-processor redundancy, and A/B testing of payment flows.

A company that provides merchants with access to payment processing services — accepting cards, bank transfers, and alternative payment methods. PSPs abstract the complexity of acquiring, network relationships, and compliance.

Payment Card Industry Data Security Standard — a set of security requirements for any entity that stores, processes, or transmits cardholder data. PCI DSS compliance has four levels based on transaction volume, with extensive controls around security, encryption, and auditing.

A temporary hold placed on a cardholder's funds without an immediate capture, common in hospitality, car rentals, and fuel dispensers. Pre-authorizations typically expire after 7–30 days if not captured.

A payment initiated by the sender that pushes funds to the recipient's account. Examples include bank transfers, FedNow, and most account-to-account payment schemes. Push payments have lower fraud risk and lower return rates.

A payment where the recipient initiates the transaction and pulls funds from the payer's account — common in direct debit and card payments. Pull payments require upfront authorization and carry higher return risk than push payments.

A PSP model where a master merchant account is used to onboard and manage sub-merchants. PayFacs enable fast merchant onboarding but take on more compliance and fraud risk.

Brazil's instant payment system launched in 2020, enabling 24/7 real-time transfers using simple keys. It has dramatically transformed payments in Brazil, becoming the country's dominant payment method.

A payment method where a QR code is scanned by the payer's device to initiate a transfer. Widely adopted across Asia through Alipay, WeChat Pay, and UPI, QR payments are a lower-cost alternative to card acceptance.

Instant payment systems that allow individuals and businesses to send and receive funds within seconds, 24/7/365, with immediate finality. Examples include FedNow, Faster Payments (UK), PIX (Brazil), and UPI (India).

The process of matching payment records across systems to ensure consistency and identify discrepancies. Efficient reconciliation is critical for finance teams and becomes more complex at high transaction volumes or with multiple payment providers.

A merchant-initiated reversal of a transaction that returns funds to the cardholder. Refunds differ from chargebacks in that they are voluntary and cooperative, and do not count against chargeback rate thresholds.

Funds held back by a payment processor from a merchant's settlement as a risk mitigation measure, protecting against chargebacks, refunds, or merchant insolvency. Can be rolling, capped, or upfront.

The automated system evaluating risk levels of transactions, onboarding applications, or user behaviors. Risk engines combine rules and ML models to make real-time accept/review/reject decisions.

Single Euro Payments Area — a European initiative standardizing euro-denominated bank transfers across 36 countries. SEPA Credit Transfer and SEPA Instant enable low-cost, fast EUR transfers. SEPA Direct Debit enables EUR pull payments.

The final transfer of funds from the acquirer to the merchant's bank account, completing the payment lifecycle. Settlement timing varies — card settlements often take 1–3 business days, while some instant payment schemes settle in seconds.

The use of real-time logic, rules, and ML models to direct a payment to the optimal acquirer, processor, or network based on authorization rate, cost, latency, and geographic reach.

A transaction where the payment is divided between multiple parties — common in marketplace models where funds need to be split between the platform and sellers.

The automated end-to-end processing of a payment without manual intervention. High STP rates reduce costs, improve speed, and minimize errors.

Society for Worldwide Interbank Financial Telecommunication — a global messaging network used by banks to securely transmit payment instructions across borders. SWIFT does not move funds itself; it transmits messages instructing banks to transfer funds.

Payment processing for software-as-a-service businesses, typically involving recurring billing, subscription management, proration, dunning, and global tax compliance.

A testing environment that simulates real transaction flows without processing actual money. Sandboxes allow developers to build and test integrations including declines, disputes, and refunds before going live.

Fees charged by card networks to processors and acquirers for use of their networks. Scheme fees are passed through to merchants on interchange-plus pricing as assessments or network fees.

A cryptocurrency designed to maintain a stable value relative to a reference asset, typically the US dollar. Stablecoins like USDC are increasingly used for cross-border payments due to near-instant settlement and 24/7 availability.

A European regulatory requirement mandating electronic payments use two-factor authentication. Enforced via 3DS2 for CNP transactions.

A recurring payment model where customers are charged automatically at defined intervals for continued access to a product or service. Requires dunning, proration, retry handling, and multi-currency support.

Replacing sensitive payment data with a non-sensitive surrogate value that can be used in its place. Tokens are meaningless outside the system that generated them, reducing the value of data breaches and PCI scope.

Ongoing surveillance of financial transactions to detect suspicious patterns indicative of fraud, money laundering, or sanctions violations. Required by AML regulations globally for payment firms.

A settlement convention meaning funds transfer two business days after the transaction date. Modern PSPs and real-time payment schemes have compressed or eliminated this delay.

India's real-time payment system enabling instant bank-to-bank transfers using virtual payment addresses. It has become India's dominant payment method and is being internationalized globally.

The process by which an acquirer or PSP assesses the risk of providing payment processing to a merchant. Evaluates business model, financial health, industry risk, and potential chargeback exposure.

A card number generated digitally — without a physical card — for a single transaction or specific merchant. Virtual cards are widely used in B2B payments and expense management for control, security, and reconciliation.

A fraud prevention rule that flags or blocks transactions based on unusual frequency patterns — too many transactions from the same card, IP, device, or email within a defined time window.

The cancellation of an authorized transaction before it is captured and settled. Voiding is only possible between authorization and capture — after capture, a refund must be issued instead.

An HTTP callback sent to a merchant's server in real time when a specific event occurs — payment authorized, dispute opened, refund processed. Webhooks enable event-driven architectures and eliminate the need for polling.

An electronic transfer of funds directly between bank accounts, typically processed through networks like Fedwire or CHAPS. Wire transfers are typically used for large-value, time-sensitive payments and are generally irrevocable once sent.

Settlement of payment proceeds to the merchant on the same day the transaction is processed — eliminating the typical 1–3 day delay. Enabled by real-time payment rails, direct bank connectivity, and modern payment infrastructure.