Understanding Card Payments and Payment Processing Terms

acquirer

An acquiring bank or an acquirer processor or both.

acquirer processor

Also known as frontend processor, is a payment processor that supports the acquiring bank in the four-party model.

acquiring bank

A bank that 'acquires' card payments from issuing banks for depositing in a merchant account.

payment authorization

The first stage before clearing and settlement when an issuing bank authorizes a card transaction.

backend processor

An alternative term for issuer processor.

card not present (CnP) transaction

A card payment, either via a digital card, virtual card or simply online, that does not involve the presentation of a physical card to a merchant.

card on file

What is a less specific term for credential on file (CoF)?

card provisioning

The inclusion of a payment card in a digital wallet as a digital card.

card rail

A payment rail for payment cards that underlies a card scheme.

card scheme

A payment scheme specifically for card payments.

cardholder preferred currency (CPC)

an alternative term for dynamic currency conversion.

Click to Pay

An open loop digital wallet, based on secure remote commerce (SRC) specifications, that allows one-click card not present (CnP) transactions on e-commerce sites.

contactless card

A payment card equipped for contactless payment.

corporate card

Also known as a travel & expense or travel & entertainment (T&E) card, is a credit card for employees with liability either with the corporation or the employee or both.

credential on file (CoF)

Sometimes more loosely known as card on file in reference to payment card details, is customer payment credentials stored online by a merchant.

digital card

A digital representation of an existing physical card, but it is also sometimes used to refer to a virtual card with no physical counterpart.

dynamic currency conversion (DCC)

Also known as cardholder preferred currency (CPC), is conversion at the point of sale (POS) of a foreign currency transaction into the currency associated with the payment card along with any forex (FX) fees.

Europay, MasterCard, and Visa

What does EMV stand for?

To replace magnetic strips with chips on payment cards

What is the primary purpose of EMV specifications?

Near-field communication (NFC)

What technology does EMV specifications include for contactless payments?

A technology included in EMV specifications for secure online transactions

What is secure remote commerce (SRC)?

A method included in EMV specifications to enhance payment security by replacing sensitive card information with a token

What is payment tokenization

An authentication protocol included in EMV specifications for online payments

What does EMV 3-D Secure (EMV 3DS) refer to?

EMVCo

A payment network body, originally founded by Europay, Mastercard and Visa, that oversees the EMV specifications for card payments.

four-corners model

An alternative term for four-party model.

four-party model

what is the name of the model with four main parties in a credit card payment

cardholder, merchant, issuing bank, acquiring bank.

Who are the four parties in a four party model?

payment processing

the authorization, clearing and settlement of card payments by a payment processor liaising with an issuer or an acquirer on a payment network.

in-app provisioning

An alternative term for push provisioning.

independent sales organization (ISO)

A sales organization that relies on its acquirer and payment gateway relationships to refer a merchant to a payment service provider (PSP) for help with payment acceptance.

independent software vendor (ISV)

A vendor that enables a merchant to accept payments within its existing software infrastructure.

interchange fee

A fee charged for a card payment by an issuer to an acquirer who then deducts the fee from what it deposits in a merchant account as a cost to the merchant.

issuer

An issuing bank or a non-bank able to issue cards through a BIN sponsorship.

issuing bank

A bank that issues payment scheme-branded payment cards under license and then submits payment information to an acquiring bank.

issuer processor

Also known as a backend processor, is a payment processor that supports the issuing bank in the four-party model.

merchant account

A business bank account, and associated merchant ID, provided by an acquiring bank.

merchant acquirer

An alternative term for acquiring bank.

merchant category code (MCC)

A classification of retailers by type for card payments, particularly as it pertains to interchange fee and rewards program considerations.

merchant discount rate (MDR)

The percentage of the value of each card transaction that is paid by the merchant to the acquirer to cover the processing fee, scheme fee and interchange fee.

merchant of record (MoR)

The entity responsible for handling card payments made at a merchant, which may be the merchant itself or may be an external payment service provider (PSP).

payment facilitator (PayFac)

A payment service provider (PSP) that gathers multiple merchants under one merchant ID (MID) and sometimes also acts as a processor.

payment processing

The authorization, clearing and settlement of card payments by a payment processor liaising with an issuer or an acquirer on a payment network.

payment processor

A payment service provider (PSP) that conducts payment processing either as an issuer processor or an acquirer processor.

processing fees

Fees charged by an acquirer to a merchant for its services

processing fee

A fee charged by an issuer processor to an issuer for its services.

procurement card (P-card)

Also known as a purchasing card, is a card for low-value business purchases that links with other P-cards to a master account that must be paid in full by a business at the end of each billing cycle.

purchasing card (P-card)

An alternative term for procurement card (P-card).

push provisioning

An alternative term for in-app provisioning.

Push-to-card payment

A near real-time push payment onto a debit or credit card.

Revolving credit

Owed balance on a credit card that transfers over to another billing cycle after a minimum payment has been made and continues to be charged interest by the issuer.

Scheme fee

A fee charged to issuers and acquirers by a payment network for membership of its card scheme.

Secure remote commerce (SRC)

The EMV specifications behind Click to Pay that incorporate payment tokenization and EMV 3-D secure (3DS).

Stand-in processing (STIP)

A payment network conducting payment authorization on behalf of an issuing bank or issuer processor when its authorization systems are temporarily unavailable.

Straight-through processing (STP)

Transaction processing that eliminates the need for a seller to manually input transaction information.

Three-party model

An alternative to the four-party model with the role of issuing bank and acquiring bank combined.

Travel & entertainment card

An alternative term for travel & expense (T&E) card.

Travel & expense (T&E) card

An alternative term for corporate card.

Virtual card

A digital card with no physical representation.

Virtual card number (VCN)

The primary account number (PAN) associated with a virtual card.

Account to account (A2A) payment

A payment made directly from one account to another.

ACH transfer

A transfer made via an automated clearing house (ACH) for net settlement.

Alternative payment method (APM)

A way of paying that does not involve cash or a physical card, although a card payment may be involved on the backend.

Automated clearing house (ACH)

A provider of clearing services for the batch processing of account to account (A2A) payments for net settlement.

Batch processing

The processing of multiple payments in one go.

Bulk processing

An alternative term for batch processing.

Clearing

The recording and reconciliation of a transaction between banks in preparation for settlement.

Clearing and settlement mechanism (CSM)

A provider of clearing and settlement services, broadly used as an umbrella term in the EU for automated clearing house (ACH) and TARGET Instant Payment Settlement (TIPS).

Closed-loop payments

Payments accepted only at designated partners.

Contactless payment

A payment method that allows transactions without physical contact between the card and the reader.

Credit transfer

Any account to account (A2A) payment that is also a push payment.

Direct debit

Any account to account (A2A) payment that is also a pull payment, typically used for recurring payments.

Electronic funds transfer (EFT)

An account to account (A2A) payment that may be a push payment or a pull payment.

Embedded payment

A form of embedded finance that allows a merchant or other non-financial institution to integrate payments into its environment.

Faster payment

An alternative term for real-time payment, sometimes specifically used in reference to the UK's Faster Payment System.

Instant payment

An alternative term for real-time payment, commonly associated with the EU because of its TARGET Instant Payment Settlement (TIPS) infrastructure.

Multi-rail payments

Multiple payment rail options provided simultaneously in one place.

Net settlement

The settlement of grouped transactions after batch processing.

Open-loop payments

Payments made anywhere that accepts a payment network.

Payment gateway

An online version of a point of sale (POS) device.

Payment initiation service provider (PISP)

A payment service provider (PSP) that makes payments on behalf of customers via open banking.

Payment network

A payment rail infrastructure and the provider of that infrastructure.

Payment rail

The infrastructure provided by a payment network that facilitates transactions.

Payment service provider (PSP)

Any enabler of non-cash payments that is typically on the acceptance side but also makes payments.

Payment scheme

An alternative term for payment network.

Payment switch

The router of a transaction along a payment rail to the appropriate parties.

Payment tokenization

Data tokenization applied to a primary account number (PAN).

Peer to peer (P2P) payment

A payment from an individual to another individual.

Peer to merchant (P2M) payment

A payment from a customer to a merchant.

Point of sale (POS) device

Technology to accept payments at the point of sale as the physical counterpart to an online payment gateway.

pull payment

a payment initiated by the payee, such as a direct debit.

push payment

a payment initiated by the payer, such as a credit transfer.

real-time gross settlement (RTGS)

the immediate settlement of a single, usually high-value, payment.

real-time payment (RTP)

an irrevocable account to account (A2A) payment that is completed immediately at any time of day.

request to pay (R2P)

a messaging system over a real-time payment rail that allows a payee to request payment from a payer with pre-confirmed payment information and irrespective of banking app.

QR code payment

a contactless payment that allows consumers to make payments by scanning a QR code with their mobile device.

SEPA credit transfer (SCT)

a credit transfer within the single Euro payments area (SEPA).

SEPA instant credit transfer (SCT Inst)

a SEPA credit transfer (SCT) as an instant payment.

settlement

the transfer of funds between banks after clearing.

single Euro payments area (SEPA)

a unified approach to payments across Eurozone countries that consists of four payment schemes across Eurozone banks.

softPOS

software that converts a mobile device into a point of sale (POS) device without additional hardware.