Your go-to resource for understanding key terms and concepts in the world of payment processing, e-commerce, and financial services. Whether you’re a business owner, entrepreneur, or simply curious about the ins and outs of payment technology, this glossary provides clear and concise definitions to help you navigate the complex landscape of modern payments.
A2A Payments (Account-to-Account Payments)
A2A (account-to-account) payments refer to the electronic transfer of funds directly from one bank account to another, bypassing the need for intermediary services like credit cards or payment processors. These payments are typically faster and more cost-effective than traditional methods. The growth of open banking initiatives is further expected to facilitate seamless A2A transactions.
Acquirer
An acquirer, also known as an acquiring bank, is a financial institution that processes credit and debit card transactions on behalf of merchants.
Why do you need it? Acquirers facilitate the authorization, capture, and settlement of card transactions, enabling merchants to accept card payments.
How do you use it? They provide merchants with payment processing services, equipment, and support, ensuring seamless transactions and efficient payment operations.
API Integration
API integration refers to the process of connecting different software systems through application programming interfaces (APIs) to enable seamless data exchange and functionality.
Why do you need it? API integration allows businesses to automate processes, improve efficiency, and enhance interoperability between systems.
How do you use it? By integrating APIs, businesses can streamline payment processes, sync data across platforms, and deliver a seamless user experience to customers.
Authorization
Authorization is the process of verifying the validity of a payment card and confirming that sufficient funds are available for a transaction.
Why do you need it? Authorization ensures that only legitimate transactions are approved, reducing the risk of fraud and unauthorized card use.
How do you use it? Cardholders’ issuing banks perform real-time authorization based on factors such as authentication, transaction amount, and risk assessment.
BNPL (Buy Now, Pay Later)
BNPL is a payment method that allows consumers to make purchases and defer payment until a later date, typically in installments over time.
Why do you need it? BNPL services offer consumers flexibility and convenience in managing their finances, enhancing their purchasing power.
How do you use it? Consumers can choose BNPL options at checkout, splitting their payments into manageable installments without incurring interest charges.
Card Schemes
Card schemes, also known as payment networks, are organizations that set the rules and standards for payment cards, such as Visa, Mastercard, and American Express.
Why do you need it? Card schemes facilitate card-based transactions globally, ensuring interoperability and security for cardholders and merchants.
How do you use it? They establish networks that connect issuing banks, acquiring banks, merchants, and cardholders, enabling seamless card payments worldwide.
Card Authorization
Card authorization is the process of obtaining approval from a cardholder’s issuing bank to authorize a payment transaction using a payment card.
Why do you need it? Card authorization ensures that funds are available and the cardholder has authorized the transaction before completing a payment, reducing the risk of declined transactions and fraud.
How do you use it? Businesses submit payment authorization requests to the cardholder’s issuing bank through payment processing networks, verifying cardholder information, account status, and available funds to approve or decline transactions securely.
Capture
Capture is the process of finalizing and completing a payment transaction by capturing or transferring authorized funds from the cardholder’s account to the merchant’s account.
Why do you need it? Capture ensures that authorized payment transactions are completed successfully, funds are transferred to the merchant’s account, and goods or services can be delivered to the customer.
How do you use it? Businesses initiate payment capture after receiving authorization approval for a transaction, capturing authorized funds from the cardholder’s account and finalizing the transaction for settlement and reconciliation.
Chargeback
A chargeback is a reversal of a credit card transaction initiated by the cardholder, typically due to a dispute or fraudulent activity.
Why do you need it? Chargebacks protect consumers from unauthorized charges and provide a mechanism for resolving transaction disputes.
How do you use it? Cardholders can request chargebacks through their issuing banks, triggering an investigation process to determine the validity of the dispute.
Contactless Payments
Contactless payments allow consumers to make transactions by tapping their payment cards or mobile devices on contactless-enabled terminals.
Why do you need it? Contactless payments offer speed, convenience, and enhanced security, reducing the need for physical contact during transactions.
How do you use it? Payment cards and mobile wallets equipped with near-field communication (NFC) technology communicate with contactless terminals, enabling quick and secure transactions.
Contextual Payments
Contextual payments are a type of electronic transaction where the payment method and process are tailored to the specific context of a purchase or action. This means the payment experience seamlessly integrates with the user’s activity, eliminating the need for a separate checkout process.
Examples of Contextual Payments:
- Pre-populated payment options during checkout, based on past purchases or preferred payment methods.
- In-app payments within ride-hailing apps or food delivery services.
- One-click payments eliminating the need to manually enter card details.
- Biometric authentication (fingerprint, facial recognition) for secure and convenient payments.
- QR code payments for in-store purchases, triggered by scanning a code on the product.
Cryptocurrency
Cryptocurrency is a digital or virtual currency that uses cryptography for secure transactions and operates independently of central banks.
Why do you need it? Cryptocurrencies offer decentralized and transparent payment systems, enabling peer-to-peer transactions without intermediaries.
How do you use it? Users can buy, sell, and store cryptocurrencies using digital wallets and exchange platforms, leveraging blockchain technology for secure and transparent transactions.
Debtor Management
Debtor management, also known as accounts receivable management, is the process of monitoring, tracking, and collecting outstanding payments or debts owed to a business by its customers or clients.
Why do you need it? Debtor management helps businesses optimize cash flow, reduce bad debt losses, and maintain positive relationships with customers by effectively managing and recovering overdue payments.
How do you use it? Businesses establish debtor management procedures, such as sending invoices, issuing reminders, implementing collection strategies, and negotiating payment terms, to track and recover outstanding debts in a timely manner.
Digital Wallet
A digital wallet is a software-based platform that allows users to store, manage, and transact digital currencies and payment methods.
Why do you need it? Digital wallets offer convenience, security, and flexibility in managing financial assets and making payments both online and offline.
How do you use it? Users can add payment cards, bank accounts, and cryptocurrencies to their digital wallets, using them for purchases, transfers, and other financial transactions.
Dunning & Debt Collection
Dunning and debt collection are processes used by businesses to follow up on overdue payments, unpaid invoices, or outstanding debts owed by customers or clients.
Why do you need it? Dunning and debt collection help businesses recover outstanding debts, improve cash flow, and minimize bad debt losses by implementing structured collection efforts and escalation procedures.
How do you use it? Businesses initiate dunning procedures, such as sending payment reminders, notices, and escalation letters, to communicate with debtors and encourage payment, and may engage debt collection agencies or legal proceedings for more aggressive recovery actions.
E-commerce
E-commerce, short for electronic commerce, refers to the buying and selling of goods and services over the internet.
Why do you need it? E-commerce enables businesses to reach a global audience, reduce overhead costs, and provide convenient shopping experiences to customers.
How do you use it? Businesses create online stores or marketplaces, offering products and services for sale, accepting payments, and delivering goods to customers’ doorsteps.
Embedded Finance (Embedded Financial Services)
Embedded finance refers to the integration of financial services, such as payments, lending, insurance, or investment tools, directly within the platforms and applications of non-financial businesses. This means financial services become seamlessly embedded into the user experience, eliminating the need for customers to navigate separate financial institutions or applications.
Examples:
- Ride-hailing apps allowing users to pay for their ride directly within the app.
- Travel booking platforms offering travel insurance within the booking process.
- E-commerce platforms providing installment loan options at checkout.
Fraud Management
Fraud management encompasses strategies and technologies implemented by businesses to detect, prevent, and mitigate fraudulent activities in payment transactions.
Why do you need it? Fraud management helps businesses protect themselves and their customers from financial losses and reputational damage caused by fraudulent transactions.
How do you use it? By leveraging tools such as machine learning algorithms, behavior analysis, and transaction monitoring, businesses can identify suspicious activities and take proactive measures to combat fraud.
Guaranteed Payments
Guaranteed payments refer to payment methods or services that provide assurance to merchants that they will receive funds for transactions, even in cases of payment disputes or chargebacks.
Why do you need it? Guaranteed payments offer peace of mind to merchants by minimizing the risk of transaction disputes and ensuring timely receipt of funds.
How do you use it? Merchants can choose payment solutions that offer guaranteed payments, such as payment gateways with built-in fraud protection or payment processing services with chargeback protection features.
Issuer / Issuing Bank
An issuer, also known as an issuing bank, is a financial institution that issues payment cards, such as credit cards or debit cards, to consumers.
Why do you need it? Issuers provide consumers with access to payment cards, allowing them to make purchases and access funds through electronic transactions.
How do you use it? Issuers issue payment cards to qualified applicants, manage cardholder accounts, process transactions, and handle billing and account management activities.
Pay by Link / Payment Link
Pay by Link, also known as Payment Link, is a payment method that allows businesses to generate unique URLs or links that customers can use to make payments online.
Why do you need it? Pay by Link offers flexibility and convenience in accepting payments, especially for businesses conducting remote sales or invoicing customers.
How do you use it? Businesses generate payment links for specific transactions or invoices, sending them to customers via email, messaging apps, or SMS. Customers click on the link to access a payment page and complete the transaction securely.
And there you have it! Feel free to explore each term for a deeper understanding of its significance in the world of payments and financial technology. If you have any questions or need further clarification on any term, don’t hesitate to reach out!
Payment Orchestration
In a nutshell, payment orchestration streamlines the entire payment journey by bringing together various players involved in processing a transaction. This includes authorization, routing payments to the right processor, and final settlement. Businesses benefit from increased agility and faster growth with payment orchestration. Entering new markets becomes easier as you can integrate regional payment providers and offer a wider range of currencies. Compliance with regulations is also simplified.
For online businesses, payment orchestration platforms act as a bridge between their website and numerous payment processors. This allows them to connect with multiple processors at once, streamlining both the backend and customer-facing (frontend) aspects of the payment process. Customers are happy too, as they get to choose from a variety of payment options.
By acting as a central hub for payment service providers and popular payment methods like PayPal, Mastercard, and Visa, payment orchestration platforms give online retailers a single point of control for managing their payment infrastructure.
Payment Reconciliation
Payment reconciliation is the process of matching and comparing financial records from payment transactions to ensure accuracy and completeness.
Why do you need it? Payment reconciliation helps businesses identify discrepancies, errors, or fraud in transaction data, ensuring financial integrity and compliance.
How do you use it? Businesses compare transaction records from various sources, such as bank statements, payment gateways, and accounting systems, to reconcile payments received, fees, refunds, and chargebacks.
PCI Compliance
PCI compliance refers to adherence to the Payment Card Industry Data Security Standard (PCI DSS), a set of security standards designed to protect payment card data during storage, processing, and transmission.
Why do you need it? PCI compliance helps businesses protect sensitive cardholder data, reduce the risk of data breaches and fraud, and maintain trust with customers and payment card brands.
How do you use it? Businesses implement security measures and controls outlined in the PCI DSS, such as encryption, access controls, network segmentation, and regular security testing, to achieve and maintain compliance.
SEPA (Single Euro Payments Area)
SEPA, or Single Euro Payments Area, is a payment integration initiative in the European Union (EU) that simplifies and standardizes euro-denominated bank transfers, direct debits, and card payments across participating countries.
Why do you need it? SEPA enables businesses and consumers to make cross-border euro payments within the EU as easily, safely, and efficiently as domestic payments.
How do you use it? Businesses use SEPA-compliant payment instruments, such as SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD), to send and receive euro-denominated payments across SEPA countries, leveraging standardized formats and processes.
Settlement
Settlement is the process of transferring funds between financial institutions to fulfill payment obligations and complete transactions.
Why do you need it? Settlement ensures that funds are transferred from the payer’s account to the payee’s account, enabling the completion of payment transactions.
How do you use it? Settlement occurs after the authorization and capture of payment transactions, with financial institutions exchanging payment instructions and transferring funds electronically to settle transactions.
Split Payments for Marketplace and Affiliates
Split payments for marketplace and affiliates are payment processing solutions that enable businesses to distribute incoming payments among multiple recipients, such as sellers, partners, or affiliates, in a single transaction.
Why do you need it? Split payments facilitate revenue sharing, commission payouts, and disbursements in multi-party transactions, streamlining payment processing and improving operational efficiency for businesses operating marketplaces or affiliate programs.
How do you use it? Businesses integrate split payment functionality into their payment processing systems or platforms, configuring rules and parameters to allocate funds automatically to designated recipients based on transaction details.
Subscription Billing
Subscription billing is a recurring billing model where customers are charged at regular intervals, typically monthly or annually, for access to products or services.
Why do you need it? Subscription billing provides businesses with predictable revenue streams, fosters customer loyalty, and offers customers convenience and flexibility in accessing products or services.
How do you use it? Businesses set up subscription plans, define pricing and billing cycles, automate recurring payments, and manage subscriber accounts to deliver ongoing value and collect payments seamlessly.
Tokenization
Tokenization is the process of replacing sensitive data, such as payment card numbers, with unique identifiers called tokens, which have no exploitable value and are used for transaction processing and storage.
Why do you need it? Tokenization enhances payment security by preventing the exposure of sensitive data during transactions and reducing the risk of data breaches and fraud.
How do you use it? Businesses tokenize payment card data using secure tokenization systems or services, replacing card numbers with tokens for payment processing, storage, and transmission.
Virtual Terminal
A virtual terminal is a web-based application or interface that allows businesses to process card-not-present transactions, such as mail order or telephone sales, by manually entering payment card details.
Why do you need it? Virtual terminals provide businesses with a convenient and flexible way to accept payments remotely, expanding sales channels and reaching customers who prefer non-online purchasing methods.
How do you use it? Businesses log in to the virtual terminal, enter payment card details provided by customers, and initiate transactions for authorization and processing, typically using a computer or mobile device connected to the internet.
Virtual IBANs
Virtual IBANs, or International Bank Account Numbers, are electronic bank account identifiers assigned to customers or entities by financial institutions for specific purposes, such as receiving payments or managing funds.
Why do you need it? Virtual IBANs provide businesses with virtual accounts that can be used for payment processing, reconciliation, and fund management, without the need for physical bank accounts in multiple jurisdictions.
How do you use it? Businesses open virtual IBAN accounts with financial institutions, which assign unique IBANs and provide account management services, enabling businesses to receive payments, segregate funds, and streamline financial operations across borders.
Note: The glossary provided above aims to offer simplified explanations of common payment terms for informational purposes only. While efforts have been made to ensure accuracy and clarity, it is important to note that the definitions provided may vary in context and application across different industries and jurisdictions. Readers are encouraged to seek professional advice or consult relevant authorities for specific inquiries or concerns regarding payment terminology and practices. The inclusion of any term or definition does not constitute endorsement or recommendation of any product, service, or provider mentioned. Use of the information provided is at the reader’s own discretion and risk.