Starting a new business is already a challenge, and understanding all the technical jargon in the world of payments doesn’t make it any easier. In an industry rife with acronyms and specialized terms, it can feel like you’re trying to learn a whole new language. So, to help you get a handle on things, we’ve put together this glossary of essential payment terms that every entrepreneur should know.
Acquiring Bank
An acquiring bank, or merchant bank, is a financial entity that allows businesses to accept card transactions. They are the link between your business and the cardholders’ issuing banks, facilitating the transfer of funds during transactions.
Authorization
An authorization is a process by which a card issuer approves or declines a transaction. During this process, the issuer checks whether the cardholder has sufficient funds and whether the card is valid.
Batch Processing
Batch processing refers to the practice of collecting and storing transactions over a specific period (usually a day) and processing them all at once, usually at the end of the business day.
Card Verification Value (CVV)
The CVV is a security feature on credit and debit cards. On most cards, it’s a three-digit number on the back. It’s used to verify that the person making the transaction has the physical card, helping to prevent fraud.
Chargeback
A chargeback occurs when a cardholder disputes a transaction, leading to a reversal of the transaction. The merchant is often left bearing the cost unless they can provide evidence that the transaction was valid.
Interchange Fees
Interchange fees are transaction fees that the merchant’s bank account must pay whenever a customer uses a credit/debit card to make a purchase. These fees are paid to the card-issuing bank to cover handling costs, fraud and bad debt costs and the risk involved in approving the payment.
Merchant Account
A merchant account is a type of bank account that allows businesses to accept payments via debit or credit cards. It serves as an agreement between the retailer, a merchant bank, and payment processor for the settlement of card transactions.
Payment Gateway
A payment gateway is the technology that captures and transfers payment data from the customer to the acquirer and then transfers the payment acceptance or decline back to the customer.
PCI DSS Compliance
The Payment Card Industry Data Security Standard (PCI DSS) is a set of requirements intended to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.
Point-of-Sale (POS) System
A POS system is the combination of hardware and software used to accept payments at the time and place where a sale takes place. Modern POS systems can also include inventory, customer relationship, and business management features.
Tokenization
Tokenization is a method of protecting sensitive data by replacing it with an algorithmically generated number, or “token.” It’s often used in credit card processing to safeguard the cardholder’s data.
Understanding these terms can help demystify the process of setting up your merchant processing and make your journey into business ownership a little smoother. Remember, the world of payments is always evolving, so keep learning and stay adaptable.
Need more guidance about payment processing? Our team is always ready to assist. Don’t hesitate to reach out to us directly.
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