A

Acquirer

A financial institution that processes payments made by credit or debit card on behalf of a merchant. The acquirer enables merchants to accept payments from card-issuing banks.

Acquirer Agreement

A contract between an ISV, ISO, or payment facilitator and the acquirer that sells processing services. This agreement covers a range of topics, including processing rates, transaction fees, value-added services, liability, and applicable service level agreements (SLAs).

Acquiring Processor

An acquiring processor is a third-party payment processor that provides acquiring services to merchants. The acquiring processor enables merchants to accept credit and debit card payments from card-issuing banks, and facilitates the processing, settlement, and funding of those transactions. Acquiring processors may also provide value-added services, such as fraud prevention, chargeback management, and reporting and analytics.

Address Verification Fees (AVF)

Fees charged for confirming the address of a credit cardholder. This is usually done through the Address Verification System (AVS), which verifies that the zip code entered during processing matches the zip code on the cardholder's billing statement.

Address Verification System (AVS)

The system that verifies that the zip code submitted at the time of processing matches the zip code on the cardholder's billing statement.

Annual Fees

Charges associated with a credit card. This can include membership fees, as well as rewards costs.

Anti-Money Laundering (AML)

Anti-Money Laundering activities and controls are practices and procedures designed to identify and protect against financial criminals seeking to disguise illicitly gained funds as legitimate. Many institutions, particularly those in the financial sector, are required to have detailed programs in place to prevent, detect, and report potential money laundering activities under the Bank Secrecy Act (BSA).

Authorization

The process of obtaining approval to confirm the customer has enough funds on their payment card to cover a transaction.

Automated Clearing House (ACH)

A network between banks that facilitates the transfer of money between depository accounts at participating banks.

Automated Clearing House (ACH) Credit

Funds are electronically deposited into a bank account.

Automated Clearing House (ACH) Debit

Funds are electronically debited from a bank account.

Automated Clearing House (ACH) Refund

A returned ACH transaction.

Automated Clearing House (ACH) Return

A failed ACH transaction.

B

Bank Identification Number (BIN)

The BIN is a sequence of digits identifying the financial institution that issued a credit or debit card. The first six or eight digits of the card number are the BIN.

Bank Identifier Code (BIC)

The BIC is a code that identifies the bank that will receive a payment. It is the same as the bank's SWIFT code.

Bank Secrecy Act (BSA)

The BSA is a U.S. law that requires financial institutions to help detect and prevent money laundering. It is also known as the Anti-Money Laundering Law.

Basis Points (BPS)

A BPS is a unit of measurement used in finance, which is equal to 0.01%. It is commonly used to describe changes in interest rates, or for calculating fees based on a percentage of a transaction.

Batch Fee

A batch fee is a charge for submitting a batch file to a payment processor. These fees are typically volume-based, and are charged based on the processing load of the transactions in the file.

Business-to-Business (B2B)

B2B refers to any transaction or scenario where one business sends money to another business.

Business-to-Consumer (B2C)

B2C refers to any transaction or scenario where a business sends money to a consumer.

C

Card Association

An organization that sets the rules and regulations for the use of payment cards, such as Visa, Mastercard, and American Express.

Card Networks

Card networks refer to the four major payment systems in the US, which are Visa, Mastercard, American Express, and Discover.

Card-Not-Present (CNP)

A CNP transaction is when the card cannot be physically presented to the merchant at the time of purchase. These transactions can be completed over the phone, internet, mail, mobile device, or any time the physical card is not interacting with a card reader.

Card-Present (CP)

A CP transaction is when the cardholder can physically present a card to the merchant. Transactions can be completed by swiping the card through a magnetic card reader, waving the card in front of a contactless payment terminal, or inserting the card into a chip-reading device to request transaction authorization.

Card Verification Value 2 (CVV2/CVC2)

A CVV2/CVC2 is a three-digit code imprinted on the back of a payment card used to validate the individual presenting the card is the actual cardholder.

Card Verification Value/Code (CVV/CVC)

A CVV/CVC is a three-digit code contained in the magnetic stripe of a payment card relied upon by the issuer to validate the presence of the actual card in a magnetic stripe read transaction.

Chargeback

A chargeback is a transaction made by the card issuer to the merchant's acquiring bank due to a dispute, POS error, or fraud. An excessive number of chargebacks can result in issues with card networks who may refuse to onboard merchants on their networks.

Chargeback Fee

A chargeback fee is a fee charged for a chargeback. In the instance of a chargeback, additional work may be required to remediate the issue, including but not limited to: notifications, evidence collection, escalation, and other services. Most, if not all, service providers involved in the transaction may charge chargeback fees to the end merchant that incurs the initial chargeback.

Concentration Risk

Concentration risk is the level of risk in a bank's portfolio arising from concentration to a single counterparty, sector, or country.

Consumer-to-business (C2B)

Refers to transactions where a consumer pays a business.

Currency Transaction Report

US financial institutions must file a report with FinCEN for each deposit, withdrawal, exchange, or transfer that exceeds a certain amount.

Custodian

A financial institution responsible for safeguarding assets for other individuals or institutions.

Custody

The act of safeguarding and administering clients' investments or assets.

Customer Due Diligence

Policies, practices, and procedures that enable a financial institution to predict the types of transactions in which the customer is likely to engage.

D

Debit

The amount withdrawn from an account.

Dispute

A claim made by a cardholder to the issuing bank that questions the validity of a credit or debit charge. Disputes are also known as chargebacks.

Dues and Assessments

Fees paid to the card network for use of their credit card and to process transactions on their networks.

Dynamic Currency Conversion (DCC)

A service that allows customers to pay in their home currency when making a purchase in a foreign country. DCC is typically offered by the merchant's payment processor or acquiring bank.

E

Early Termination Fees

Fee that merchant(s) may incur as a result of the merchant terminating the processing agreement before the end of a specified period of time.

eCheck

An electronic form of a check.

eCheck Refund

A reversed eCheck.

eCheck Return

A failed eCheck.

Electronic Funds Transfer (EFT)

EFT is an electronic way of transferring money from one bank account to another without the need for bank interaction. One of the most commonly used EFT programs is direct deposit, which allows for payroll to be deposited straight into an employee's bank account.

Embedded Payments

Embedded payments refer to the integration of payment processing as an integral part of a business offering or product.

Equipment Fees

Equipment fees are charges imposed on merchants for the leasing or maintenance of payment processing equipment.

F

Foreign Exchange (FX)

Foreign exchange is the trading of one currency for another. When a trade occurs, the receiving or originating institution applies a fee.

Freeze

Freezing is the restriction of the exchange, withdrawal, liquidation, or use of assets or bank accounts. While not forfeiture, frozen property remains the property of the natural or legal person(s) that held an interest in them at the time of the freezing.

Front Company

A front company is a business set up and controlled by another organization. While not necessarily illegal, front companies are often used by criminals to launder money by giving the funds the appearance of legitimate origin. Front companies may subsidize products and services below market rates or even below manufacturing costs.

G

Gateway

A gateway is a secure connection that allows payment transaction messages to be transmitted between the point of sale and the acquiring processor.

I

Independent Sales Organization (ISO)

An ISO is a company that contracts with a member bank to provide merchant or cardholder solicitation. ISO representatives sell payment processing solutions to businesses, including card readers and payment processing rate contracts for a given acquirer or ISO.

Integrated Payments

Integrated payments refer to the act of incorporating a payments processing system into an existing business offering or product. This type of payments processing shares data between the business management system and the payments system.

Integrated Software Vendor (ISV)

An ISV is an individual or organization that sells software that incorporates a payments strategy or processing as part of its product offering. This type of software is generally associated with an integrated payments approach.

Interchange Fees

Interchange fees are fees that issuing banks receive.

Interchange Rate

The fee paid by the acquiring bank to the card issuer for each transaction. Interchange rates are set by the card associations and can vary based on factors such as the type of card, the merchant's industry, and the transaction amount.

IRS Reporting Fees

IRS reporting fees are charged by payment processing services for reporting payment processing information directly to the IRS for a given merchant.

Issuer

The issuing bank, which is the card network that issues a credit or debit card.

Issuing Processor

An issuing processor is an entity that is directly connected to any of the card networks, and transmits authorization, clearing, and settlement messages between acquirers and issuers.

K

KYC

KYC stands for "Know Your Customer," which is a set of anti-money laundering policies and procedures used to determine the true identity of both customers and merchants. These regulations are in place to prevent money laundering, terrorist funding, and other criminal activity.

KYE

KYC policies and procedures are also used to detect conflicts of interest, money laundering, past criminal activity, and suspicious activity related to employees of an institution. This is known as "Know Your Employee" or KYE.

L

Layering

Layering is a complex process of creating financial transactions in order to disguise the audit trail and provide anonymity. This is often done to distance illegal proceeds from their source.

Legal Risk

Legal risk refers to the risk that lawsuits, adverse judgments, or contracts that cannot be enforced may disrupt or harm a financial institution. Due diligence in identifying customers and understanding and managing exposure to money laundering is crucial in protecting against legal risk.

L2/L3 Processing

L2/L3 data are features provided by Visa and Mastercard that help reduce interchange rates for transactions made using corporate and commercial credit cards that meet a set of requirements. By providing this additional information, merchants can potentially reduce their processing fees.

Liquidated Damages

Liquidated damages are a penalty or fee charged by the acquirer in the event that a merchant agreement is terminated early. This fee is used to recoup costs associated with opening and maintaining the account.

M

Markup Fees

Markup fees are fees that credit card processors charge. These fees are negotiable.

MATCH™ List

The MATCH™ list, also known as the Terminated Merchant File (TMF), is a list maintained by Mastercard that identifies high-risk merchants or those that have been terminated by another entity within the last five years.

Merchant

A merchant is any business that accepts payments from credit or debit cards, or alternative payment methods. Merchants offer goods or services in exchange for payment.

Merchant Account

A type of bank account that allows a business to accept payments from debit and credit cards. Merchant accounts are typically provided by acquiring banks or payment processors.

Merchant Category Code (MCC)

A Merchant Category Code (MCC) is a four-digit number that classifies a business by the type of goods or services it provides.

Merchant Identification Number (MID)

A Merchant Identification Number (MID) is a unique code provided to a merchant by their payment processor.

Middleware Partner

A middleware partner is a solution that connects a platform with a payment processor.

Money Laundering

Money laundering is the process of concealing the origins of illegally obtained money, typically through transfers involving foreign banks or legitimate businesses.

Monitoring

Monitoring is an element of a financial institution's anti-money laundering program in which customer activity is reviewed for unusual or suspicious patterns, trends, or outlying transactions that do not fit a normal pattern. Transactions are often monitored using software that weighs the activity against a threshold of what is deemed "normal and expected" for the customer.

N

National Automated Clearing House Association (NACHA)

A national association responsible for developing and enforcing rules and guidelines for the Automated Clearing House (ACH) network.

Non-Governmental Organization (NGO)

A non-profit organization that is independent of government control, and performs a variety of humanitarian functions, including bringing citizen concerns to governments, advocating for causes, and encouraging political participation.

Non-Sufficient Funds Fee (NSF)

A fee charged to process and track transactions that have been reversed due to insufficient funds in the account.

Notice of Change (NOC)

A notice generated by a Receiving Depository Financial Institution (RDFI) in an ACH transaction to inform the Originating Depository Financial Institution (ODFI) of a change in the bank account being accessed in a transaction.

O

Operational Risk

The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems, or as a result of external events. Poor management of operational risk can disrupt or harm the business of the bank.

Originating Depository Financial Institution (ODFI)

The financial institution that acts as the interface between the Federal Reserve or ACH network and the originator of the transaction.

Originator

The entity that initiates or starts a transaction flow.

P

Payment Card Industry Data Security Standards (PCI -DSS)

A security standard that ensures organizations handling payment cards have increased controls around cardholder data to reduce credit card fraud. Compliance must be validated on an annual basis.

Payment Card Industry Fees

Fees that organizations must pay to maintain PCI compliance, including audit fees, external security assessment fees, infrastructure hosting fees (if cloud-based), and consulting fees (if needed in the absence of a formal compliance officer).

Payment Facilitator (PayFac)

A service provider that enables merchants to accept payments online or in-person.

Payment Gateway

A service that connects a merchant's website or point-of-sale system to the payment processor or acquiring bank. The payment gateway is responsible for securely transmitting payment card data between the merchant and the payment processor.

Payment Gateway Fees

Fees charged by payment gateways for the authorization, capture, and processing of transactions.

Payment Processor

Software or technology that processes transactions between merchants, issuing banks, and acquiring banks.

Placement

The act of laundering proceeds derived from illegal activity and placing them into the financial system.

Predicate Crimes

Crimes whose proceeds, if involved in a transaction, can give rise to prosecution for money laundering. Predicate crimes are sometimes defined as felonies or "all offenses in the criminal code."

Push-to-Card (P2C)

A real-time payments standard that allows individuals or businesses to instantly transmit funds to a specific card on a given card network. Funds are generally available immediately up to a specified limit based on use case.

R

Receiving Depository Financial Institution (RDFI)

An RDFI is a qualified institution that can receive ACH entries.

Reconciliation

The process of matching the transactions processed by the payment processor with the transactions recorded by the merchant. Reconciliation is an important part of accounting and helps ensure that the merchant is accurately tracking their sales and revenue.

Refund

A refund is when a customer cancels their purchase, and the merchant returns the funds to the customer.

Representment

Representment is a part of the chargeback process where the merchant disputes the customer's claim.

Reputational Risk

Reputational risk is the risk that adverse publicity will harm the financial institution's business practices and associations.

Retrieval Request Fee (RRF)

An RRF is a fee charged when the customer or the customer's issuing bank requests a copy of a sales draft.

Risk-Based Approach

A risk-based approach is an assessment of the risks associated with different types of businesses, clients, accounts, and transactions to maximize the effectiveness of an anti-money laundering program.

S

Seize

To prevent funds or assets from being transferred or moved based on an action initiated by a competent authority or a court under a freezing mechanism. However, unlike a freeze, a seizure allows the competent authority to take control of specified funds or other assets, which remain the property of the person or entity that held an interest in them at the time of the seizure, although the competent authority will often take over possession, administration, or management of the assets.

Settlement

A group of transactions that are batched together in a settlement to pay out the merchant.

Standard Industrial Classification (SIC)

A list of codes maintained by the government that identifies and classifies different types of businesses. These codes are used by card networks to derive MCC codes.

Statement Fees

Fees charged for statement services.

Subpoena

A legal process issued by a court to require the appearance of a witness at a judicial proceeding, sometimes requiring the witness to bring specified documents.

Suspicious Activity

Irregular or questionable customer behavior or activity that may be related to money laundering or other criminal offenses, or the financing of terrorist activities. It may also refer to a transaction that is inconsistent with a customer’s known legitimate business, personal activities, or the normal level of activity for that kind of business or account.

Suspicious Activity Report (SAR)

A government filing required by reporting entities that includes a financial institution’s account of a questionable transaction. Many jurisdictions require financial institutions to report suspicious transactions to relevant government authorities.

T

Terminal ID

A unique identification number provided by the credit card processor to the merchant. This number can be used to identify the origin of a transaction.

Termination Rights

The right to end a payment processing contract that already exists.

Tokenization

The process of encrypting payment card information into a "token." This token is a hashed version of the card that uses encryption to protect the cardholder's personal information. This technology allows for "card on file" processing without putting the cardholder or the payment card network at risk. Tokenization is regulated by the PCI standard, and any provider of the service must be certified and audited before use.

U

Ultimate Beneficial Owner

The individuals who own a significant portion of, and have ultimate control over, a legal entity or arrangement.

Underwriting

The process of evaluating the risk of a merchant and determining whether to approve or decline their application for processing services. Underwriting typically involves a review of the merchant's financial history, credit score, and industry type.

V

Void Transaction

A transaction that is canceled before it is settled using a customer's credit or debit card.

W

Wire Transfer

A near real-time transfer of funds between bank accounts. This feature is limited to bank to bank or intrabank transfers.