Payment Glossary 2019

Payment Glossary 2019

Over the years, payment glossary of payment systems has been constantly improved as payment and settlement infrastructures have evolved and our knowledge of the complexities of the payment process has increased. Developments in technology highlight the importance of consistent usage of new terms, which we need to use whether or not we are technical experts. payments terminology has also been enriched by a number of analytical studies, which have added new concepts and terms.

This glossary contains an alphabetical list of all the standard terms and their definitions which are commonly used in the payments industry and should help you demystify the world of payments.

-A-

Alternative Methods Of Payment (AMOP) are a means of making a payment other than cash. Alternative methods of payment (AMOP) include payments made using a credit or debit card, loyalty program points, cryptocurrencies like bitcoin or virtual wallets like Google Pay or Apple Pay.

Automated Teller Machine (ATM)  an electromechanical device that permits authorized users, typically using machine-readable plastic cards, to withdraw cash from their accounts and/or access other services, such as balance inquiries, transfer of funds or acceptance of deposits. ATMs may be operated either online with real-time access to an authorization database or offline.

Authorization A transaction performed using a payment card to determine if the cardholder has sufficient funds on his/her card to pay for a given transaction. An authorization will take only seconds, and allows the merchant to ensure that payment will be taken from the card.

An authorized transaction is a debit or credit card purchase for which the merchant has received approval from the bank that issued the customer’s payment card.

Authentication the methods used to verify the origin of a message or to verify the identity of a participant connected to a system and to confirm that a message has not been modified or replaced in transit.

Access the right or opportunity for an institution to use the services of a particular payment system to settle payments on its own account or for customers. See also a direct participant, direct participant/member, indirect participant/member, participant/member.

Access products payment instruments that allow customers to access their deposit accounts and to transfer the deposits therein. Examples include electronic funds transfers at the point of sale and home banking facilities.

Agent an entity, such as a fund manager or a custodian, that undertakes a securities loan and negotiates the terms with the borrower on behalf of a customer-owner.

Assured payment system (APS)  an arrangement in an exchange-for-value system under which completion of timely settlement of a payment instruction is supported by an irrevocable and unconditional commitment from a third party (typically a bank, a syndicate of banks or clearing house).

Account Updater is a service that facilitates and encourages customer satisfaction, retention, and loyalty by exchanging updated account information between participating merchants and card issuers. Serving as an automated, dedicated, and secure clearinghouse, it delivers updated cardholder account information in a timely, efficient, and cost-effective manner, benefiting all parties involved in the electronic payment process.

Acquirer (merchant or Acquiring bank) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within an association.

An audit trail consists of records that document every step in a business transaction. This may mean invoices for payments issued or sales contracts documenting revenue.


American Express card is an electronic payment card branded by American Express Company. American Express issues and processes prepaid, charge and credit cards. American Express cards, also called Amex cards, are available to individuals, small businesses and corporate consumers in the United States and around the world.

Address Verification Service (AVS)   is a security measure tool provided by credit or debit card processors and issuing banks to merchants in order to detect suspicious credit card transactions and prevent credit card fraud.

Approved Review This status is specific to e-Check Net. Transactions with this status were approved while awaiting processing.

Authorized/Pending Capture  Transactions with this status have been authorized by the processor but will not be sent for settlement until capture is performed.

Authorized/Held Pending Release Transactions with this status are part of a larger order. Each individual transaction pays for part of the total order amount.


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Bank Identification Number (BIN) A unique six-digit number to identify processors, acquirers, issuers and other financial institutions involved in the interchange process; it is the first six digits of the cardholder’s account number. Also known as Issuer Identification Number (IIN).

Bank Account Number is the primary identifier for ownership of an account, whether a vendor account, checking or brokerage account, or a loan account.

Bankcard is any card issued against a depository account, such as an ATM card or a debit card. Bank cards may be limited in their use; some can only be used at ATM machines or for certain purchases.


Back-to-back transactions a pair of transactions that requires a counterparty to receive and redeliver the same securities on the same day. The transactions involved may be outright purchases and sales or collateral transactions (repurchase agreements or securities loans).

Batch the transmission or processing of a group of payment orders and/or securities transfer instructions as a set at discrete intervals of time.

Billing Cycle is the interval of time from the end of one billing, or invoice, statement date to the next billing statement date for goods or services that a company provides on a recurring basis.

Billbacks is an amount paid by a manufacturer or vendor to a distributor for the difference between the distributor’s initial acquisition price and the actual agreed upon price for products/services sold to a specific end customer or partner.

Bilateral net settlement system a settlement system in which participants’ bilateral net settlement positions are settled between every bilateral combination of participants. See also net credit (or debit) position.

Bill of exchange a written order from one party (the drawer) to another (the drawee) to pay a specified sum on demand or on a specified date to the drawer or to a third party specified by the drawer. Widely used to finance trade and, when discounted with a financial institution.

Blacklisting is known as the Member Alert to Control High-Risk (MATCH) list or formerly as the Terminated Merchant File (TMF). However, instead of listing deceitful buyers; they keep a registry of those merchants who have infringed the card associations’ rules. The main causes of this type of blacklisting are the following: fraud, money laundering, insolvency, factoring (the selling of invoices by a business owner to a third party at a discount), dealing with a disproportionate number of chargeback cases and closing an account with a negative balance.


Balance-based system an electronic money system in which the electronic funds are stored on a device as a numeric ledger, with transactions performed as debits or credits to a balance.

-C-

Card security code (CSC)  is a combination of features used in credit, debit and automated teller machine (ATM) cards for the purpose of establishing the owner’s identity and minimizing the risk of fraud, The CSC is also known as the card verification code (CVC) or card verification value (CVV).

Capturing payments When a customer makes a payment using a credit card, the payment information needs to be captured and sent to their bank for processing. You can capture payments manually or automatically.

Captured/Pending Settlement Transactions with this status have been approved and captured and will be picked up and sent for settlement at the transaction cut-off time.

Could Not Void Transactions with this status experienced a processing error during a payment gateway generated void. These voids can be resubmitted if the batch is still open.

Chargeback (A dispute) is the return of credit card funds used to make a purchase to the buyer. A chargeback can occur if a consumer disputes a purchase made using their credit card, claiming that it was fraudulent or made without their knowledge or permission. When a buyer disputes a purchase, the credit card company involved reverses the charge, reimbursing the buyer in full and debiting the business’ account.

Cardholder Verification Method (CVM)  is a verification method used to confirm a credit card being used in a purchase is in the possession of its owner.

Credit Card is a type of payment card in which charges are made against a line of credit instead of the account holder’s cash deposits. When someone uses a credit card to make a purchase, that person’s account accrues a balance that must be paid off each month. Although failure to pay off the credit card on time could result in interest charges and late fees, credit cards can also help users build a positive credit history.

Cash card is a payment card that allows you to pay for things with money stored on it or sometimes withdraw cash from an ATM. If you have a checking account, you almost certainly have a type of cash card called a debit card. All cash cards have a magnetic stripe that stores card data, but more advanced cash cards, called smart cards, also store info with an extra secure chip.

Cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.

A charge card is a type of electronic payment card that charges no interest but requires the user to pay his/her balance in full upon receipt of the statement, usually on a monthly basis. Charge cards are offered by a limited number of issuers. They can include an uncapped spending limit with generous reward benefits for the cardholder.

Cheque a written order from one party (the drawer) to another (the drawee, normally a bank) requiring the drawee to pay a specified sum on demand to the drawer or to a third party specified by the drawer. Cheques may be used for settling debts and withdrawing money from banks.

Contactless Payments is a secure method for consumers to purchase products or services via debit, credit or smart cards, it is an innovation in point-of-sale payments that do not require the traditional transactions used in either cash or conventional credit or debit card design.

Card-not-Present Transactions (CNP)  occur when neither the cardholder nor the credit card is physically present at the time of the transaction. It’s most common for orders that happen remotely — over the phone or by fax, internet, or mail.

Credit transfer is a payment instruction from a customer (Originator/payer) to its bank or payment service provider to transfer an amount of money to another account (Beneficiary/ payee).

Collateral is a property or other asset that a borrower offers as a way for a lender to secure the loan.

Clearinghouse a central location or central processing mechanism through which financial institutions agree to exchange payment instructions or other financial obligations (eg securities).

-D-

Digital Customer Recognition (DCR) Used to identify customers who have shopped with the merchant previously across channels. Can be used for loyalty programs.

Dynamic Currency Conversion (DCC) or Cardholder Preferred Currency (CPC) is a process whereby the amount of a Visa or MasterCard transaction is converted by a merchant or ATM to the currency of the payment card’s country of an issue at the point of sale.

Debit Card Bank card used in cash transactions, the amount of a purchase is withdrawn from the available balance in the cardholder’s account. If the available funds are insufficient, the transaction is not completed. Also called asset card (in the US), or payment card (in the UK).

Deposit is a transaction involving a transfer of funds to another party for safekeeping. The second definition is a portion of funds that are used as security or collateral for the delivery of a good.

Direct Debit payment is an arrangement between a bank and a customer in which the bank is given written authorization to automatically debit a customer’s account to pay a creditor or service provider based on a fixed schedule of payments or invoiced amounts.

Discount Rate is a charge to a merchant by a payment processor or bank on the total purchase amount for every card transaction the merchant accepts in their store. The discount rate is typically deducted from the overall purchase amount plus taxes and tips and subtracted from the amount paid to the merchant upon settlement.

Declined Transaction refers to the declination of a credit card that is being used as a payment method.


-E-

E- Wallets (digital wallet) is a system that securely stores users’ payment information and passwords for numerous payment methods and websites. Digital wallets can be used in conjunction with mobile payment systems, which allow customers to pay for purchases with their smartphones. A digital wallet can also be used to store loyalty card information and digital coupons.

E-Payment System (E-Commerce Payments) is a way of making transactions or paying for goods and services through an electronic medium, without the use of checks or cash. It’s also called an electronic payment system or an online payment system. 

Electronic point of sale (EPOS) Self-contained, computerized equipment that performs all tasks of a store checkout counter. It allows payments by bank or credit cards, verifies transactions, provides sales reports, coordinates inventory data, and performs several other services normally provided by employees.

Electronic check (E-Check)  is an electronic form of a paper check.

Effective Rate  The effective rate shows the amount of volume a business pays in credit card processing fees to process a given amount. It is shown as a percentage and is calculated by dividing gross processing fees by gross sales.

Electronic Funds Transfer System (EFTS) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is Direct Deposit.


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Free-of-payment delivery is delivery of securities with no corresponding payment of funds.

Face-to-face payment is payment carried out by the exchange of instruments between the payer and the payee in the same physical location.

Federal Deposit Insurance Corporation(FDIC) provides deposit insurance to depositors within U.S. banks. Its primary source of funding is through member dues from included banks.

Floor Limit The specific amount of money for which transactions that go beyond it require an authorization.

Fraud this means that there was an attempted transaction made by a criminal. The target of fraud can either be a merchant or a shopper (depending on the approach of the fraudster).

Fraud defence is an important part of the payment process and is a service that can be provided by the payment provider

Fraud prevention is to avoid transaction disputes and to make payment processing safer, it is necessary to put in place a series of fraud prevention tools.

-G-

Gross settlement system a transfer system in which the settlement of funds or securities transfer instructions occurs individually (on an instruction by instruction basis).

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Hosted Payment Pages (HPP) hot list in a card-based system, a list – held by the merchant terminal or another device – of suspicious card numbers or ranges of suspicious card numbers. The hot list is used to detect and block any transaction with such cards.

Hybrid system a payment system that combines characteristics of Real Time Gross Settlement (RTGS) Payment systems and netting systems.

Home banking is the practice of conducting banking transactions from home rather than at branch locations. Home banking generally refers to either banking over the telephone or on the internet (i.e. online banking).


-I-

Issuer (or Issuing bank) is the financial institution that issues credit cards to consumers on behalf of the card networks (Visa, MasterCard). The issuer acts as the middle-man for the consumer and the card network by contracting with the cardholders for the terms of the repayment of transactions.

In-app payments (or Mobile payments) are Payments made by shoppers via mobile apps. These payments are usually made with cards or local payment methods, and utilize either native mobile APIs or web pages optimized for mobile (also called as a mobile web).

An interchange fee is a fee charged by banks that cover the cost of handling and credit risk inherent in a bank credit or debit card transaction. Interchange fees are usually paid to the bank funding a transaction and thus bearing the risk.

integrated circuit card (IC) is a type of payment or identification card that has an embedded circuit, such as a computer chip. Integrated circuit cards are made of plastic or similar material and are most often associated with specific credit cards known as EMV cards.

Initial margin cash or collateral that is deposited with the clearinghouse to ensure performance on obligations to it (also known as performance bond and original margin).


-L-

Local Card Schemes are payment networks linked to payment cards, such as debit or credit cards, of which a bank or any other eligible financial institution can become a member. By becoming a member of the scheme, the member then gets the possibility to issue or acquire cards operating on the network of that card scheme.


Local payment methods (or Alternative payment methods) it allows merchants to accept e-commerce and in-app payments without the use of cards. These methods include bank transfers, direct debit, e-wallets, mobile payments and so on.

The loyalty program is a structured and long-term marketing effort which provides incentives to repeat customers who demonstrate loyal buying behaviour.


Large-value funds transfer system (LVTS) a funds transfer system through which large-value and/or high-priority funds transfers are made between participants in the system for their own account or on behalf of their customers. Although, as a rule, no minimum value is set for payments made in such systems, the average size of such payments is usually relatively large

Large-value payments system (LVPS) (Wholesale Payment Systems (WPS))  payments, generally of very large amounts, which are mainly exchanged between banks or between participants in the financial markets and usually require urgent and timely settlement.

letter of credit L/C   a promise by a bank or other issuer to a third party to make payment on behalf of a customer in accordance with specified conditions. Frequently used in international trade to make funds available in a foreign location.

Limited-purpose prepaid card a prepaid card which can be used for a limited number of well-defined purposes. Its use is often restricted to a number of well-identified points of sale within a well-identified location.

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Merchant is a business that exchanges goods for monetary funds.


Merchant Account The bank account through which companies are able to process debit or credit card payments is what is known as a merchant account.

Mobile payment  The payment is done by making use of a mobile device is what is known as mobile payment.

Magnetic Stripe Reader (MSR)/Swipe  Device that reads card data from the magnetic stripe on the reverse of the card.


Mail Order/Telephone Order (MOTO) A card-not-present transaction, where the payment details are presented to a merchant by a shopper by means of mail (not email), fax, or telephone. MOTO transactions are typically carried out offline: instead of entering payment details on an online payment form, shoppers make a call to a call centre or send a coupon/voucher to communicate their credit card number.

Machine Transfer Entry (MTE) An entry initiated at an electronic terminal, such as an automated teller machine (ATM). This entry can either be a debit or a credit.

Manual Keyed Entry (MKE) involves manually typing the details from a customer’s card into either the Cash Register or the Pin Entry Device (PED).

Multifunctional cards a card which, in addition to a stored value card function, may include other payment facilities such as a debit or credit card function and/or non-payment facilities.

Multipurpose prepaid card a prepaid card which can be used at the outlets of several service providers for a wide range of purposes, and which has the potential to be used on a national or international scale but may sometimes be restricted to a certain area.

-N-

No CVM (Cardholder Verification Method) A transaction where there is no owner verification check for a credit card. No CVM payments have a low transaction threshold.

Netting systems are entail offsetting the value of multiple positions or payments due to be exchanged between two or more parties.

Net credit (or debit) position is the sum of the value of all the transfers the participant has received up to a particular point in time, minus the value of all the transfers the participant has sent. If the difference is positive, the participant is in a net credit position. If the difference is negative, then the participant is in a net debit position.

Network money electronic money which is transferred via telecommunications networks such as the internet.

Note-based system an electronic money system in which the electronic funds are represented by records (electronic notes) that are uniquely identified by a serial number and are associated with a fixed, unchangeable denomination.

-O-

Online banking also known as internet banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution’s website.


Offline transaction Offline acceptance of payments in situations where no network connection is currently available. Debit cards will typically decline a transaction while most credit cards are configured to approve a relatively small amount offline.

The optimization routine is routine processes in a payment system to determine the order in which payments are accepted for settlement. Optimization routines are used to improve system liquidity and increase settlement efficiency.


Omnichannel payment solution  A set of services and technical solutions provided by a payment service provider, which allow a merchant to accept cashless payments across all channels (online, inside a mobile app or on a point of sale). Most PSPs enable merchants to accept payments via specific channels only.

One-click payments Simplify the purchasing process for returning shoppers by allowing them to make a payment without entering their full card and address information. By enabling one-click payments, the shopper’s details are stored during the first payment.

Online PIN Where the entered PIN is sent online to the card issuer for verification. The entered PIN is encrypted before it is sent. An online PIN is used when the specific card scheme (payment method) and specific card support it.

-P-

Paper Check is a form of payment that draws money directly from a checking account. The “payer” — the writer of the check — writes the name of the “payee” on the “pay to the order of” line and signs the check on the signature line. A check is safer than paying cash because the cancelled check becomes a permanent record of the payment.


Payment Gateway is an application service provider that authorizes credit card and electronic check payments for businesses. A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone, or interactive voice response service) and the front-end processor or acquiring a bank. When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction.

Payment processor A system that connects to a shopper’s bank and a merchant’s bank in order to make a payment transaction on behalf of a merchant from various channels such as credit cards and debit cards. Usually, a payment processor obtains the payment information from a payment gateway and broken down into two types: front-end and back-end. Bank Account Type.

Primary account Card number (PAN)  is embossed and/or encoded on a plastic card that identifies the issuer and the particular cardholder account.


Payment Service Provider (PSP) An organization that offers online payment solutions to businesses, It combines the functions of both a payment gateway and a payment processor, can connect to multiple acquiring and payment networks. Additionally, it can be an acquirer and provide risk assessments and other financial services.

Consumer Cross-Border Payment (PBR) is a debit or a credit entry to or from the account of a consumer where the participants are in two different countries.

Payment lag the time lag between the initiation of the payment order and its final settlement.

Payment message/ instruction an order or message to transfer funds (in the form of a monetary claim on a party) to the order of the beneficiary. The order may relate either to a credit transfer or to a debit transfer.

Payments bank is operating on a smaller scale without involving any credit risk.  it can carry out most banking operations but can’t advance loans or issue credit cards. It can accept demand deposits, offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking, and third-party fund transfers.

Payment scheme is a body that sets the rules and technical standards for the execution of payment transactions using the underlying payment systems. Payment schemes manage the day-to-day operations of the payment systems and processes and ensure any regulatory requirements associated with the processing of payments are met. payment netting settling payments due on the same date and in the same currency on a net basis.

Payment order an order or message requesting the transfer of funds (in the form of a monetary claim on a party) to the order of the payee. The order may relate either to a credit transfer or to a debit transfer. Also called payment instruction.

Payment system a payment system consists of a set of instruments, banking procedures and, typically, interbank funds transfer systems that ensure the circulation of money.

Payment versus payment a mechanism in a foreign exchange settlement system which ensures that a final transfer of one currency occurs if and only if a final transfer of the other currency or currencies takes place.

Paying agent an institution that, acting on behalf of an issuer, makes payments to holders of securities (eg payments of interest or principal).

payment the payer’s transfer of a monetary claim on a party acceptable to the payee. Typically, claims take the form of banknotes or deposit balances held at a financial institution or at a central bank.

Payment card company a company which owns trademarks of payment cards (credit, debit or prepaid cards) and may also provide a number of marketing, processing or other services to institutions issuing its cards.

Payment instrument any instrument enabling the holder/user to transfer funds.

Payout a large amount of money paid at once to either an individual or a business entity. For example, an online marketplace transmits a payout to their sub-merchants for the products/services they provide to the marketplace customers.

Point of sale (POS) allows a shopper to make a cashless in-store payment in a merchant’s shop. This payment is usually made using cards, although some local methods (like Apple Pay or Android Pay) can be used as well.

Point-of-Purchase (POP) A one-time debit entry to the account of a receiver who is notified, at the point of purchase, that their check (source document) will be converted into a single entry ACH transaction. The source document must be voided and returned to the receiver at the point of purchase.

Point-of-sale payments (or In-store payments) Payments made by shoppers via point-of-sale systems to buy products or services from merchants on a physical location. These payments are usually made with cards

Point-of-sale terminal (payment terminal, pin entry device (PED) A device that communicates with a shopper’s card at the point of sale.

Prearranged Payment and Deposit (PPD) A credit or debit entry to the account of a receiver where there is either standing or one time has written authorization that has been signed or similarly authenticated.

Point-of-sale Terminal Fleet Management (POSTFM) Allows merchants to view and edit the configuration of their terminals from anywhere.

Prepaid card a card on which value is stored, and for which the holder has paid the issuer in advance. See also an electronic purse, limited-purpose prepaid card, multipurpose prepaid card, stored value card.

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Real-time bank transfers settlement system(RTGS) a settlement system in which processing and settlement take place on a transaction-by-transaction basis in real time.

Recurring payments is an ongoing payment on a periodic basis for a product or service.

Retail payments(large-value payment) is a non-time-critical payment of relatively low value. These payments are typically made outside of the financial markets and are both initiated by and made to individuals and non-financial institutions.

Refund is a payment from the state or federal government taxing authority to reimburse an individual for overpaid taxes. Businesses and merchants also issue refunds to customers in exchange for the return of purchased goods and when services are unsatisfactory or unfulfilled.

Risk management (Revenue Protect) A set of services and techniques to analyze and assign a risk score to each payment transaction. Filtering high-risk transactions allow merchants to minimize the number of fraudulent payments and therefore maximize the revenue.

Rolling Reserve is a percentage of the transaction value held by an acquiring bank and then released on a scheduled basis to the merchant.
Retailer card a card issued by non-banking institutions, to be used in specified stores. The holder of the card has usually been granted a line of credit.
Retail funds transfer system a funds transfer system which handles a large volume of payments of relatively low value in such forms as cheques, credit transfers, direct debits, ATM and EFTPOS transactions.
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Settlement The completion of a transaction by transferring the funds that correspond to each party to the transaction settlement offer is an offer of money or property by one of the people or organizations involved in a legal argument in an attempt to end the argument without having to go to court.
Scheme fee A fee that is paid by the acquirer to the card scheme for each payment transaction made with the card scheme. The fee amount is determined by the corresponding card scheme, in addition to the Interchange fee.
-T-
Transaction reference number (TRN) a unique reference number used to identify individual payment or securities settlement instructions.
Transfer order an order or message requesting the transfer of assets (e.g. funds, securities, other financial instruments or commodities) from the debtor to the creditor.Transfer system: a set of legal, technical and procedural arrangements for the transfer of assets such as money or securities.
-V-
Value date the date on which it is agreed to place a payment or transfer at the disposal of the receiving user. The value date is also used as a point of reference for the calculation of interest on the funds held on an account.
Variation margin profits and losses calculated on a daily basis in open futures contracts and options, resulting in the counterparty to the bilateral trade making a payment to the relevant clearing
house or vice versa.