Payment Processing & Fintech Glossary
89 terms defined. An authoritative reference for Payment Processing & Fintech.
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A
ACH (Automated Clearing House)
A US electronic network for bank-to-bank money transfers that processes payroll, bill payments, and direct deposits. ACH transactions are batched and typically settle in 1–3 business days at a fraction of card processing costs.
ACH Credit
An ACH transaction that pushes funds into a recipient's bank account. Used for payroll direct deposit, vendor payments, and refunds; the originating party initiates the transfer from their own account.
ACH Debit
An ACH transaction that pulls funds from a payer's bank account with their authorization. Common for recurring bill payments and subscription charges; can be returned for insufficient funds or unauthorized status.
ACH Transfer
Electronic bank-to-bank transfer through the Automated Clearing House network. Costs $0.20-1.00 per transaction (vs. 2-3% for cards). Settlement: 3-5 business days standard, 1 day for same-day ACH. Ideal for recurring payments, B2B transactions, and high-value purchases where card fees are prohibitive.
Acquiring Bank
The financial institution that maintains the merchant account, processes card transactions on behalf of merchants, and settles funds. The acquirer assumes financial risk for transactions processed under its sponsorship.
Address Verification Service (AVS)
A fraud prevention tool that compares the billing address provided by the cardholder with the address on file at the issuing bank. AVS mismatches signal potential fraud and can be used to decline or flag transactions.
Assessment Fee
A fee charged directly by card networks (Visa, Mastercard, Discover) on each transaction as a percentage of volume. Assessment fees are non-negotiable and passed through to merchants by processors.
Authorization Hold
A temporary hold placed on a cardholder's account when a transaction is authorized but not yet captured. The funds are reserved but not transferred until the merchant submits the capture request, typically within a few days.
B
Basis Points (BPS)
A unit of measure equal to one-hundredth of a percentage point (0.01%). Processors quote rates in basis points; for example, 25 bps equals 0.25% of the transaction amount.
Batch Fee
A small per-batch fee charged each time a merchant submits a settlement batch for processing. Typically $0.10–$0.35 per batch; merchants who batch multiple times daily can see this add up.
BIN Attack
A fraud method where criminals use Bank Identification Numbers to systematically test card number combinations through small transactions, identifying valid cards to exploit for larger fraudulent purchases.
Blended Rate
A single processing rate that averages interchange, assessment, and processor markup into one percentage. Common with flat-rate providers; easy to budget but obscures the true cost breakdown.
Buy Now, Pay Later (BNPL)
A payment option splitting purchases into 4-6 interest-free installments. Providers (Klarna, Affirm, Afterpay) pay the merchant upfront and collect from the customer over time. Merchant fees: 2-8% per transaction. Increases average order value 20-30% but attracts impulsive spending and higher return rates.
C
Capture
The process of finalizing a previously authorized transaction to initiate the actual transfer of funds from the cardholder's bank to the merchant. Capture must occur after authorization for funds to settle.
Card on File (CoF)
A stored payment credential used to charge a customer for future purchases without requiring them to re-enter card details. Proper CoF management requires using network tokenization and updating stored credentials when cards are reissued.
Card Security Code (CVV/CVC)
The 3- or 4-digit code printed on a payment card used to verify that the cardholder has physical possession of the card during card-not-present transactions. CVV data cannot be stored after authorization per PCI DSS rules.
Card Testing
Fraudulent activity where stolen card numbers are validated by running small transactions on a merchant's website before using the cards for large fraudulent purchases elsewhere. High decline rates and micro-transactions are key indicators.
Card-Not-Present (CNP)
A transaction conducted without the physical card, such as online, phone, or mail order purchases. CNP transactions carry higher interchange rates and greater fraud liability due to the inability to verify physical card possession.
Card-Present (CP)
A transaction where the physical payment card is present at the point of sale and the cardholder interacts directly with the terminal. CP transactions carry lower interchange rates due to reduced fraud risk.
Chargeback
A forced reversal of a transaction initiated by the cardholder's bank. Merchants lose the transaction amount plus a fee ($15-100). Chargeback rates above 1% can result in account termination or placement on the MATCH list. Prevention: clear billing descriptors, delivery confirmation, 3D Secure authentication.
Chargeback Reason Code
A standardized code assigned by card networks to classify the reason for a chargeback dispute, such as fraud, non-receipt of goods, or processing errors. Reason codes guide the merchant's evidence requirements for representment.
Checkout Conversion Rate
The percentage of users who complete a purchase after initiating checkout. Average: 45-55% for e-commerce. Optimized by: reducing form fields, offering guest checkout, supporting multiple payment methods, displaying trust badges, and implementing address auto-fill. Each 1% improvement directly increases revenue.
Contactless / NFC Payment
A payment method using Near Field Communication technology that allows cards or mobile wallets to transact by tapping near a compatible terminal. Contactless is faster than chip and qualifies for card-present interchange rates.
D
E
Early Termination Fee (ETF)
A penalty charged when a merchant cancels a processing contract before the agreed term expires. ETFs can range from a few hundred to several thousand dollars depending on contract terms.
Effective Rate
The actual total processing cost divided by total volume processed, expressed as a percentage. Calculating your effective rate is the best way to compare pricing across processors regardless of the pricing model used.
EMV Chip
A global standard for payment cards with embedded microprocessor chips that generate a unique transaction code for each purchase. EMV dramatically reduces counterfeit card fraud compared to magnetic stripe transactions.
F
FedNow
The Federal Reserve's instant payment service launched in 2023, enabling real-time interbank transfers around the clock. FedNow competes with RTP and aims to expand instant payment access across all US financial institutions.
Flat-Rate Pricing
A pricing model where all transactions are charged the same percentage regardless of card type or transaction method. Simple to understand but often more expensive for merchants with a mix of debit and premium reward cards.
Fraud Prevention
Systems and rules that detect and block fraudulent transactions before they process. Tools include AVS (address verification), CVV checks, velocity filters, device fingerprinting, and machine learning models. Stripe Radar and Braintree's fraud tools are built-in. Balance: too strict = false declines losing good customers.
Fraud Score
A real-time risk score assigned to a transaction by a fraud detection system based on factors like device fingerprint, IP location, velocity, and behavioral patterns. Higher scores indicate greater fraud likelihood.
Funding Timeline
The number of business days between transaction settlement and funds deposited into the merchant's bank account. Standard funding is 2–3 business days; next-day and same-day options are available for qualifying merchants.
G
H
I
Independent Sales Organization (ISO)
A third-party company authorized to resell merchant processing services on behalf of acquiring banks. ISOs handle merchant acquisition, support, and relationship management under agreements with sponsor banks.
Instant Bank Transfer
A payment method that moves funds directly between bank accounts in real time using RTP, FedNow, or similar rails. Offers lower costs than card acceptance and is increasingly used for e-commerce and marketplace payouts.
Interchange Fee
The fee charged by the card-issuing bank on each transaction, set by card networks (Visa, Mastercard). Typically 1.5-3.5% for credit cards, 0.5-1% for debit. The largest component of processing costs. Rates vary by card type, merchant category, and transaction method (card-present vs. online).
Interchange Reimbursement Fee
The fee paid by the acquiring bank to the issuing bank for each card transaction. Set by card networks like Visa and Mastercard, interchange is the largest component of total processing costs.
Interchange-Plus Pricing
A transparent pricing model where the merchant pays actual interchange costs plus a fixed processor markup. This model typically offers lower effective rates than flat-rate or tiered pricing for medium-to-high volume merchants.
Issuing Bank
The financial institution that issues payment cards to consumers and is responsible for approving or declining transactions. The issuing bank pays the acquiring bank during settlement and collects repayment from the cardholder.
K
L
Level 2 Data
Enhanced transaction data including customer code and tax amount submitted with B2B card transactions. Providing Level 2 data qualifies corporate card transactions for lower interchange rates.
Level 3 Data
The most detailed transaction data, including line-item detail, commodity codes, and ship-to information, submitted with large corporate and government card purchases. Level 3 data unlocks the lowest available interchange rates for qualifying transactions.
Liability Shift
A change in who bears financial responsibility for fraudulent chargebacks. When merchants use EMV chip readers or 3D Secure authentication, liability for counterfeit or card-not-present fraud shifts from the merchant to the card issuer.
M
Magnetic Stripe
The black stripe on a payment card that stores static cardholder data read by swiping through a terminal. Magnetic stripe transactions are more vulnerable to counterfeiting than EMV chip transactions and carry higher interchange.
Merchant Account
A dedicated bank account that holds funds from card transactions before settlement to your business bank account. Traditional processing requires one; PayFacs (Stripe, Square) use a shared master account instead. Dedicated accounts offer more control but longer setup and underwriting.
Merchant Discount Rate (MDR)
The total percentage fee a merchant pays per transaction, combining interchange, assessment fees, and processor markup. Flat-rate processors (Square: 2.6%) simplify this into one number. Interchange-plus pricing breaks it into components for transparency. Ranges from 1.5% to 3.5%.
Mid-Qualified Rate
The middle tier in a tiered pricing model, applied to manually keyed transactions or certain reward cards. Rates are higher than qualified and can significantly increase overall processing costs.
Monthly Minimum Fee
A minimum processing fee charged if a merchant's monthly transaction fees fall below a specified threshold. Merchants with low volume pay the difference between actual fees and the minimum to the processor.
N
NACHA
The organization that governs the ACH network, setting rules and standards for ACH transactions in the United States. NACHA rules define authorization requirements, return codes, and data formatting for all ACH participants.
Net Settlement
A settlement method where processing fees are deducted from the transaction total before funds are deposited, so the merchant receives less than the gross sale amount. Most common for smaller merchants.
Network Fee
Fees levied by card networks for services such as authorization routing, data transmission, and compliance programs. Network fees are separate from interchange and assessments and vary by transaction type.
Next-Day Funding
A funding arrangement where settled transactions are deposited into the merchant's account the following business day. Processors charge a premium for accelerated funding due to the added risk exposure.
Non-Qualified Rate
The highest tier in a tiered pricing model, applied to corporate cards, international cards, and transactions missing required data. Non-qualified surcharges can be 1–2% above the qualified rate.
O
P
Partial Capture
Capturing an amount less than the original authorization hold. Common in hospitality and shipping when final costs differ from the estimated amount authorized at time of purchase.
Payment Facilitator (PayFac)
A company that aggregates multiple merchants under its own master merchant account, enabling faster onboarding and simplified payment acceptance. PayFacs like Stripe and Square assume responsibility for underwriting and compliance for their sub-merchants.
Payment Facilitator (PayFac)
A company that aggregates merchants under its own master merchant account, simplifying onboarding. Stripe, Square, and PayPal are PayFacs. Merchants sign up in minutes (vs. weeks for traditional accounts). Trade-off: slightly higher fees and risk of account holds for unusual activity.
Payment Gateway
Software that securely transmits transaction data between a merchant's website or POS system and the payment processor. Gateways handle encryption, routing, and real-time authorization responses.
Payment Orchestration
A layer that routes transactions through multiple payment providers to optimize approval rates, minimize costs, and handle failover. If Stripe declines a transaction, it automatically retries through Adyen or Braintree. Used by mid-to-large businesses processing $1M+ annually.
Payment Processor
A company that handles the technical transmission of transaction data between merchants, card networks, and banks. Processors manage authorization routing, settlement, and funding on behalf of acquiring banks.
PCI Compliance
Adherence to the Payment Card Industry Data Security Standard — a set of security requirements for handling card data. Four levels based on transaction volume. Using hosted payment pages (Stripe Checkout) minimizes compliance burden to SAQ-A (simplest). Non-compliance risks fines and liability.
PCI DSS
The Payment Card Industry Data Security Standard, a set of 12 security requirements mandated by card networks for any entity that stores, processes, or transmits cardholder data. Compliance is required annually.
PCI Non-Compliance Fee
A monthly penalty charged to merchants who fail to maintain PCI DSS compliance certification. Fees typically range from $20–$100/month and are removed once the merchant completes their compliance assessment.
PCI SAQ (Self-Assessment Questionnaire)
A validation tool for merchants to assess their own compliance with PCI DSS. Different SAQ types (A, B, C, D) apply depending on how a merchant accepts and processes payments.
Point-to-Point Encryption (P2PE)
A security standard that encrypts cardholder data from the moment of card swipe or dip until it reaches the processor's secure decryption environment. P2PE significantly reduces PCI DSS scope for merchants.
Processing Statement
A monthly document detailing all transactions, fees, chargebacks, and net funding for a merchant account. Reviewing statements regularly helps merchants verify billing accuracy and identify cost-reduction opportunities.
Q
R
Recurring Billing
Automatically charging a customer on a set schedule (weekly, monthly, annually) for subscription-based services. Requires stored payment credentials and explicit customer authorization. Stripe Billing, Chargebee, and Recurly are specialized platforms. Dunning management handles failed payment retries.
Refund vs. Void
A void cancels an uncaptured authorization while a refund reverses a settled transaction. Voids are immediate; refunds take 3–7 business days to appear because funds must be returned after settlement.
Representment
The process by which a merchant formally disputes a chargeback by submitting evidence to the card network proving the transaction was legitimate. Successful representment reverses the chargeback and returns funds to the merchant.
Reserve Account
Funds withheld by a processor from a merchant's settlements as a financial buffer against potential chargebacks, refunds, or fraud losses. Reserves protect the acquirer and are common for new or high-risk merchants.
Retrieval Fee
A fee charged when a card issuer requests transaction documentation to investigate a cardholder inquiry. Typically $5–$15 per request; responding promptly helps avoid escalation to a full chargeback.
Retrieval Request
A pre-chargeback inquiry where an issuing bank requests documentation about a transaction on behalf of a cardholder. Responding with complete records often resolves the dispute without it escalating to a full chargeback.
Rolling Reserve
A type of reserve where a fixed percentage of daily settlements is held for a defined period (e.g., 10% for 180 days) and then released on a rolling basis. It provides ongoing protection while gradually freeing up merchant funds.
RTP (Real-Time Payments)
A payment rail operated by The Clearing House that enables immediate, 24/7/365 fund transfers between participating US bank accounts. RTP transactions settle in seconds and are irrevocable once sent.
S
Same-Day ACH
An ACH processing option that allows transactions submitted before designated cutoff times to settle the same business day. NACHA expanded same-day ACH to support credits and debits up to $1 million per transaction.
Same-Day Funding
A funding arrangement where transactions settled before a specific daily cutoff time are deposited the same business day. Requires a compatible bank and typically incurs additional per-transaction fees.
Settlement
The process of transferring funds from the payment processor to the merchant's bank account. Standard settlement: 1-2 business days for card transactions. Same-day or instant settlement is available from some processors for an additional fee (typically 1-1.5%). ACH settlement takes 3-5 business days.
Settlement Batch
A group of captured transactions submitted together to the processor for funding at the end of a business day. Merchants typically submit one batch per day to consolidate transactions and minimize fees.
Statement Fee
A monthly administrative fee charged by processors for generating and delivering account statements. Ranges from $5–$15 per month and is often negotiable or waivable for high-volume merchants.
Subscription Billing
A recurring billing model where customers pay a fixed fee at regular intervals (monthly, annually) for continued access to a product or service. Requires robust dunning management to handle failed payments and reduce churn.
T
Tiered Pricing
A pricing model that groups transactions into qualified, mid-qualified, and non-qualified tiers with different rates. Processors control tier assignments, which can lead to unpredictable costs and lack of transparency.
Tokenization
Replacing sensitive card data with a non-sensitive substitute (token) that has no exploitable value. Tokens are stored instead of actual card numbers, reducing PCI compliance scope and data breach risk. Used by Apple Pay, Google Pay, and stored card features in Stripe and Braintree.
Tokenization
The process of replacing sensitive card data with a unique, randomly generated token that has no exploitable value. Tokens can be stored safely for recurring billing without exposing real card numbers to a data breach.
V
Velocity Check
A fraud detection rule that monitors the frequency of transactions from a single card, IP address, or device within a defined time window. Exceeding thresholds triggers a block or review to prevent card testing attacks.
Void
Canceling an authorization hold before it is captured, releasing the reserved funds back to the cardholder. Voids prevent settlement and are faster than refunds since no money actually moves.
Volume Limit
A cap on the total transaction volume a merchant is approved to process within a given period, set during underwriting. Exceeding volume limits without prior approval can trigger account holds or termination.