Payments glossary
The acquiring industry runs on jargon. These are the terms that matter when you evaluate a processor, defined plainly by people who operate one.
3-D Secure (3DS)
3-D Secure is a card-network authentication protocol that verifies a cardholder's identity during an online transaction (via their bank's risk checks or a challenge like a one-time passcode) and shifts fraud chargeback liability from the merchant to the issuer.
ACH (Automated Clearing House)
ACH is the US electronic network, governed by NACHA, that moves funds directly between bank accounts in batches, powering direct deposit, bill pay, and bank-to-bank payments.
Acquirer (acquiring bank)
An acquirer is the bank or licensed institution that maintains a merchant's account with the card networks, accepts transactions on the merchant's behalf, and settles the resulting funds to the merchant.
AVS (Address Verification Service)
AVS (Address Verification Service) is a card-network fraud tool that compares the billing address a customer provides with the address on file at the issuing bank, returning a match code the merchant can use to accept or reject the transaction.
Basis point (bps)
A basis point is one hundredth of one percent (0.01%), the standard unit for quoting payment-processing margins, markups, and revenue shares.
Card-not-present (CNP)
Card-not-present is a transaction category in which the physical card is not read by the merchant (eCommerce checkouts, phone and mail orders, and recurring billing), making the merchant responsible for verifying the cardholder remotely.
Card-present (CP)
Card-present is a transaction category in which the physical card and cardholder are at the merchant's location and the card is read electronically (tapped, dipped, or swiped) at the point of sale.
Chargeback
A chargeback is a forced reversal of a card transaction initiated by the cardholder's issuing bank, which pulls the funds back from the merchant while the dispute is investigated.
Dunning
Dunning is the structured process of retrying failed payments and escalating customer communication until the payment recovers or the account is written off.
Independent sales organization (ISO)
An independent sales organization (ISO) is a company registered with a sponsor bank and the card networks to sell merchant accounts and payment services on behalf of an acquirer, earning residual income on the merchants it signs.
Interchange
Interchange is the fee, set by the card networks and paid to the cardholder's issuing bank, that a merchant's acquirer owes on every card transaction and passes through as the largest component of processing cost.
Interchange-plus pricing
Interchange-plus is a pricing model in which the merchant pays actual interchange and network fees at cost, plus a separately stated processor markup, rather than a bundled flat rate.
Issuer (issuing bank)
An issuer is the bank or financial institution that provides a card to a consumer or business, approves or declines each transaction on that card, and extends the credit or holds the deposits behind it.
KYB (Know Your Business)
KYB (Know Your Business) is the verification process that confirms a business entity is real, legally registered, and operating as claimed, the company-level counterpart to KYC's verification of individuals.
KYC (Know Your Customer)
KYC (Know Your Customer) is the identity verification process financial institutions and payment companies must perform on individuals, confirming who a person is and screening them against sanctions and risk lists, before providing services.
MCC (Merchant Category Code)
An MCC (merchant category code) is the four-digit code, assigned by the acquirer under card-network standards, that classifies a merchant's line of business and affects its interchange rates, card acceptance rules, and risk treatment.
Merchant ID (MID)
A merchant ID (MID) is the unique identification number an acquirer or payment facilitator assigns to a merchant account, used by the card networks to route, settle, and report that merchant's transactions.
Merchant underwriting
Merchant underwriting is the risk assessment a processor, acquirer, or payment facilitator performs before approving a business to accept payments, evaluating identity, financial health, and the likelihood of fraud or chargeback losses.
PayFac-as-a-Service
PayFac-as-a-Service is a model in which a registered payment facilitator provides its infrastructure, registrations, and risk management to software platforms so they can embed payments and earn payment revenue without becoming registered PayFacs themselves.
Payment facilitator (PayFac)
A payment facilitator (PayFac) is a company that is registered with the card networks and a sponsor bank to board sub-merchants under its own master merchant account, letting those sub-merchants accept payments without each obtaining a traditional merchant account.
PCI DSS
PCI DSS (Payment Card Industry Data Security Standard) is the security standard, maintained by the PCI Security Standards Council, that every organization storing, processing, or transmitting cardholder data must follow.
Recurring billing
Recurring billing is the automated charging of a customer's stored payment method on a fixed or usage-based schedule, typically for subscriptions or installment plans.
Representment
Representment is the process by which a merchant contests a chargeback by re-presenting the transaction to the issuer with evidence that the charge was legitimate.
Residuals
Residuals are the recurring share of payment-processing revenue paid to an ISO, agent, or partner for the merchants it has signed, continuing for as long as those merchants keep processing.
Settlement
Settlement is the process by which funds from cleared card or ACH transactions actually move from the cardholder's bank through the networks to the merchant's bank account.
Sponsor bank
A sponsor bank is a card-network member financial institution that lends its network access to a payment facilitator, ISO, or processor through a registration agreement, taking regulatory responsibility for that entity's payments activity.
Surcharging
Surcharging is the practice of adding a disclosed fee to credit-card transactions that passes the merchant's cost of acceptance to the cardholder, subject to network caps and state law.
Tokenization
Tokenization is the process of replacing a card number or bank account number with a non-sensitive surrogate value (a token) so that stored payment credentials are useless to anyone who steals them.