The payments glossary.
Interchange, chargebacks, effective rate, PCI, tokenization — the language of merchant services, in plain English. Search any term.
3-D Secure
An extra authentication layer for online payments (branded as Visa Secure, Mastercard Identity Check, etc.) that verifies the shopper with the issuer. It reduces fraud and can shift fraud-chargeback liability to the issuer.
Risk & ComplianceACH
Automated Clearing House — the U.S. network for bank-to-bank electronic transfers, used for direct deposit, bill pay, and low-cost recurring payments. ACH is cheaper than cards but settles more slowly.
Processing & TechnologyAcquiring bank
The bank (or its processor) that holds the merchant account and receives card funds on the merchant's behalf. Also called the acquirer.
Cards & NetworksAML
Anti-Money Laundering — the laws and controls that prevent payment systems from being used to disguise illicit funds. Processors and banks monitor for suspicious activity as part of compliance.
Risk & ComplianceAPI
Application Programming Interface — the connection developers use to build payments directly into a website or app. A payments API handles charges, refunds, tokens, and reporting programmatically.
Processing & TechnologyAssessment fees
Small fees the card networks (Visa, Mastercard, etc.) charge on every transaction, separate from interchange. Like interchange, they are set by the networks and passed through by every processor.
Pricing & FeesAuthorization
The real-time check that a card is valid and has enough funds or credit, resulting in an approval or decline. Authorization holds the amount but doesn't move money — that happens at settlement.
Processing & TechnologyAVS
Address Verification Service — a check that compares the billing address a customer enters against the one on file at the issuer. It helps catch fraud in card-not-present sales and can improve interchange qualification.
Risk & ComplianceBasis point
One hundredth of a percent (0.01%). Processing rates are often quoted in basis points — for example, a 25-basis-point markup is 0.25% of the transaction.
Pricing & FeesBatch
A group of the day's captured transactions submitted together for settlement. Merchants typically batch once a day; batching promptly helps transactions qualify for the best rates.
Processing & TechnologyBatch fee
A small fee charged each time a merchant settles (batches) a day's transactions for funding. Frequent batching can multiply this fee.
Pricing & FeesBIN
Bank Identification Number — the first six to eight digits of a card number, which identify the issuing bank, card brand, and card type. Processors use the BIN to determine interchange and routing.
Cards & NetworksCapture
The step that marks an authorized transaction as complete and ready to be funded. Sales are often authorized first and captured later (for example, when an order ships).
Processing & TechnologyCard network
The system that routes transactions and sets the rules between banks — Visa, Mastercard, Discover, and American Express. Networks set interchange and assessment fees and define how cards can be accepted.
Cards & NetworksCard terminal
The device that reads a card — by dip, tap, or swipe — and connects to the processor to authorize a sale. Modern terminals accept EMV chip and contactless and often print or email receipts.
Hardware & POSCard-not-present
A transaction where the card isn't physically read — online, keyed, or over the phone. These carry higher interchange and more fraud exposure, so extra verification (AVS, CVV, 3-D Secure) matters.
Cards & NetworksCard-present
A transaction where the physical card is dipped, tapped, or swiped at a terminal. Card-present sales carry lower interchange and lower fraud risk than keyed or online sales.
Cards & NetworksCash discount
A program that posts a single, higher list price and gives customers who pay with cash a discount at the register, offsetting card-processing costs. Done compliantly, it can bring a merchant's effective processing cost close to zero.
Pricing & FeesChargeback
A forced reversal initiated by the cardholder's bank when a customer disputes a charge. Chargebacks return the funds to the customer and usually cost the merchant a fee — and too many can jeopardize the account.
Risk & ComplianceChargeback ratio
The share of a merchant's transactions that turn into chargebacks. Card networks set thresholds; exceeding them can trigger monitoring programs, fines, or account termination.
Risk & ComplianceContactless payment
A tap-to-pay transaction where a card or phone communicates with the terminal over NFC without contact. It's fast and, like EMV, uses dynamic data that resists counterfeiting.
Cards & NetworksConvenience fee
A flat fee a merchant may add for paying through an alternative channel (for example, paying a bill online instead of in person). Unlike a surcharge, it is tied to the channel, not the card, and has its own network rules.
Pricing & FeesCountertop terminal
A stationary terminal that sits at the checkout and connects by ethernet, Wi-Fi, or phone line. It's the workhorse for fixed retail and restaurant counters.
Hardware & POSCredit card
A card that draws on a line of credit from the issuing bank. Credit cards, especially rewards and corporate cards, generally carry higher interchange than debit.
Cards & NetworksCVV
The three- or four-digit security code on a card, used to verify the customer has the physical card in card-not-present sales. It must never be stored after authorization.
Cards & NetworksDebit card
A card that draws directly from the cardholder's bank account. Debit interchange is regulated and usually lower, and debit can often be routed over cheaper networks to save money.
Cards & NetworksDigital wallet
An app that stores a customer's cards for tap-to-pay or online checkout, such as Apple Pay, Google Pay, or Samsung Pay. Wallet transactions are tokenized, so the real card number isn't shared with the merchant.
Cards & NetworksDiscount rate
An older term for the percentage a merchant pays on card sales. On modern statements it's clearer to compare processors by effective rate, which includes per-item and fixed fees too.
Pricing & FeesDispute
A customer's challenge to a transaction, which can lead to a chargeback if unresolved. Merchants can fight disputes with evidence (a "representment").
Risk & ComplianceDowngrade
When a transaction fails to qualify for the best interchange rate and is billed at a higher one — often due to missing data, a late batch, or a rewards/corporate card. Downgrades quietly raise your effective rate.
Pricing & FeesDual pricing
Showing two prices — one for cash and one for card — so customers see the difference at the point of sale. It's a compliant way to offset card costs, closely related to cash discount and surcharging.
Cards & NetworksEffective rate
Your total processing fees for a period divided by your total card volume, expressed as a percentage. It is the single best number for comparing processors because it captures every fee — not just the headline rate. You'll find it near the bottom of your statement.
Pricing & FeesEMV
The global chip-card standard (named for Europay, Mastercard, and Visa) that generates a unique code for each transaction, making counterfeit fraud far harder. Accepting EMV chip transactions shifts counterfeit-fraud liability away from the merchant.
Cards & NetworksEncryption
Scrambling card data so it can't be read in transit or storage without the key. Point-to-point encryption (P2PE) protects data from the moment a card is read at the terminal.
Processing & TechnologyFlat-rate pricing
A pricing model that charges one simple percentage (and sometimes a per-transaction fee) for every sale, regardless of the real interchange cost. It is predictable and easy to understand, but you overpay on cards with low interchange.
Pricing & FeesFraud
Unauthorized use of a card or account to obtain goods or money. Card-present fraud is curbed by EMV; card-not-present fraud is fought with AVS, CVV, 3-D Secure, and monitoring tools.
Risk & ComplianceFunding
The deposit of settled card sales into the merchant's bank account, minus fees. Funding timing (same-day, next-day, or later) varies by processor and matters for cash flow.
Processing & TechnologyHigh-risk merchant
A business that acquirers consider more likely to generate chargebacks, fraud, or regulatory issues (e.g. certain MCCs). High-risk accounts face stricter underwriting, reserves, and higher rates.
Risk & ComplianceHosted payment page
A secure checkout page hosted by the gateway or processor, so card data never touches the merchant's own servers. It reduces PCI scope and is a fast way to take payments online.
Processing & TechnologyInterchange
The wholesale fee the card networks set and pass to the card-issuing bank on every transaction. Interchange is the largest part of what a merchant pays to accept cards, and no processor can lower it — only mark it up. Rates vary by card type, business category, and how the card is entered.
Pricing & FeesInterchange downgrade
When a transaction is settled at a more expensive interchange category than the best available, usually from missing data or a delayed batch. Consistent downgrades inflate your effective rate.
Money MovementInterchange-plus pricing
A transparent pricing model where you pay the exact interchange cost plus a fixed, disclosed markup (e.g. interchange + 0.20% + $0.10). Because the markup is separate from the underlying cost, you can see precisely what your processor earns. It is usually the cheapest model for established merchants.
Pricing & FeesISO
Independent Sales Organization — a company authorized to sell merchant accounts and support merchants on behalf of an acquiring bank. A good ISO adds service, pricing, and technology on top of the bank's rails.
Processing & TechnologyIssuing bank
The bank that gives a cardholder their card and pays the merchant's acquirer during settlement. The issuer earns interchange and decides whether to approve or decline each authorization.
Cards & NetworksJunk fees
Recurring charges that don't reflect a real cost of processing — statement fees, monthly minimums, PCI fees, "regulatory recovery" fees, and the like. They're a common place merchants overpay and are usually negotiable or avoidable.
Pricing & FeesKYC
Know Your Customer — the identity checks financial providers run to confirm who they're doing business with, as part of anti-money-laundering rules. For businesses, the equivalent is KYB (Know Your Business).
Risk & ComplianceMagstripe
The magnetic stripe on the back of a card, holding static data that can be copied. Because it's easy to clone, magstripe transactions carry more fraud risk than chip or contactless.
Cards & NetworksMarkup
The portion of your processing cost that your processor keeps, on top of the wholesale interchange and assessment fees. On an interchange-plus plan the markup is stated plainly; on tiered or flat-rate plans it is bundled and harder to see.
Pricing & FeesMerchant
Any business that accepts card or electronic payments from customers. A merchant needs a merchant account (or a payment facilitator) to be able to take cards.
Money MovementMerchant account
A specialized bank account that lets a business accept card payments and receive the funds. It's underwritten based on the business's risk and category (MCC).
Processing & TechnologyMerchant category code
A four-digit code the card networks assign to classify what a business sells (for example, 5812 for restaurants). Your MCC affects your interchange, risk classification, and which programs apply.
Money MovementMID
Merchant Identifier — the unique number assigned to a merchant account so the networks and processor can identify where funds should go. A business may hold several MIDs across locations or channels.
Processing & TechnologyMobile card reader
A compact reader that pairs with a phone or tablet to accept cards anywhere, ideal for field service, markets, and pop-ups. Also called mPOS.
Hardware & POSMonthly minimum
A floor on the fees a processor collects each month. If your actual processing fees fall below the minimum, you're charged the difference — so low-volume months cost more than they should.
Pricing & FeesNet settlement
A funding method where processing fees are deducted before your sales are deposited, so you receive the net amount. The alternative is gross funding, where full sales are deposited and fees are debited separately.
Money MovementNetwork token
A token issued by the card networks that updates automatically when a customer's card is reissued or expires. It reduces failed recurring charges and improves approval rates.
Processing & TechnologyNext-day funding
Depositing a merchant's settled card sales into their bank account by the next business day. Faster funding improves cash flow, and some processors offer same-day options.
Money MovementNFC
Near-Field Communication — the short-range wireless technology behind tap-to-pay and mobile wallets like Apple Pay and Google Pay.
Cards & NetworksPAN
Primary Account Number — the full card number embossed on a card. Protecting the PAN is central to PCI compliance; tokenization replaces it so the real number is never stored.
Cards & NetworksPayment facilitator
A "PayFac" that onboards many sub-merchants under its own master merchant account, letting them start accepting cards quickly (think Square or Stripe). It trades some control and pricing flexibility for speed and simplicity.
Processing & TechnologyPayment gateway
The software that securely passes card data from a website, app, or virtual terminal to the processor for authorization. It's the online equivalent of a physical card terminal.
Processing & TechnologyPayment processor
The company that moves a card transaction between the merchant, the card networks, and the banks — handling authorization, clearing, and settlement. Your processor sets your pricing and support experience.
Processing & TechnologyPCI compliance
Meeting the PCI DSS requirements for handling card data securely. Using tokenization, encryption, and a hosted or point-to-point-encrypted setup dramatically shrinks what you have to secure.
Risk & CompliancePCI DSS
The Payment Card Industry Data Security Standard — the security rules every business that handles card data must follow. Compliance is validated through scans and a questionnaire, and reduces the risk (and cost) of a breach.
Risk & CompliancePCI fee
A fee some processors charge for PCI compliance support or non-compliance penalties. It is often avoidable — many providers include PCI tools at no cost, so a recurring PCI charge is worth questioning.
Pricing & FeesPIN debit
A debit transaction authenticated with the customer's PIN and routed over a debit network. It can be cheaper than running the same card as signature/credit, depending on the ticket size.
Cards & NetworksPIN pad
A secure keypad where customers enter their debit PIN, either built into a terminal or attached to a POS. PIN entry enables cheaper debit routing and adds security.
Hardware & POSPoint of sale
The hardware and software where a sale is completed — from a countertop terminal to a full POS system with inventory, reporting, and staff management. Often shortened to POS.
Processing & TechnologyReason code
A code from the card network that explains why a chargeback was filed (fraud, product not received, duplicate charge, etc.). The reason code dictates what evidence you need to fight it.
Risk & ComplianceRecurring billing
Automatically charging a customer's stored payment method on a schedule, used for subscriptions, memberships, and installment plans. It relies on tokenization to store the card securely.
Processing & TechnologyRefund
Returning funds to a customer for a settled transaction. Refunds reverse the sale but the original processing fees are often not returned.
Processing & TechnologyRepresentment
The process of contesting a chargeback by submitting evidence — receipts, delivery proof, or communications — to show the charge was valid. Winning a representment returns the disputed funds.
Risk & ComplianceReserve
Funds an acquirer holds back from a merchant's deposits to cover potential future chargebacks or losses, common for higher-risk accounts. A rolling reserve holds a percentage of each batch for a set period.
Risk & ComplianceResidual
The ongoing share of processing revenue paid to a sales agent or ISO for the merchants they support. Residuals align an agent's incentives with keeping merchants happy long-term.
Money MovementRetrieval request
A request from an issuer for a copy of a transaction's details, often a precursor to a chargeback. Responding quickly with documentation can head off a dispute.
Risk & ComplianceSettlement
The process that moves money from the issuing bank to the merchant's account for a batch of captured transactions. Settlement is when a sale actually turns into a deposit.
Processing & TechnologySmart terminal
An all-in-one countertop device that combines card acceptance with apps for inventory, reporting, and staff — essentially a POS system in a single terminal (e.g. Clover).
Hardware & POSStatement fee
A recurring monthly charge for producing your merchant statement. It is a classic "junk fee" — it reflects no real per-transaction cost and can usually be negotiated away.
Pricing & FeesSurcharge
A fee added to a card transaction to pass the cost of credit-card acceptance to the customer. Surcharging is governed by card-network rules and state law — it applies to credit only (not debit), must be disclosed, and is capped.
Pricing & FeesTap to Pay
Technology that lets a phone or tablet accept contactless cards and wallets directly, with no extra hardware. It turns a smartphone into a card reader over NFC.
Hardware & POSTiered pricing
A model that buckets transactions into "qualified," "mid-qualified," and "non-qualified" tiers, each with a different rate. It is hard to audit because the processor decides which transactions land in the expensive tiers, which is where merchants quietly overpay.
Pricing & FeesTokenization
Replacing a card number with a random, meaningless "token" that can be stored and reused safely. Because the token is worthless if stolen, tokenization shrinks PCI scope and protects stored payment data.
Processing & TechnologyUnderwriting
The review an acquirer performs before (and during) a merchant relationship to assess risk — business type, volume, credit, and history. It determines approval, pricing, reserves, and limits.
Risk & ComplianceVirtual terminal
A web page that turns any computer into a card terminal, letting staff key in phone or mail orders. Because the card isn't present, these transactions carry higher interchange.
Processing & TechnologyVoid
Canceling an authorized transaction before it settles, so no money moves. A void is cleaner than a refund because it happens before funding.
Processing & Technology