Glossary

Automated clearing house, used by agencies for electronic funds transfer (EFT). This is a bank-to-bank payment made in the US via the ACH Network instead of the credit card interchange network . Also referred to as an ACH transfer. The ACH Network is governed by Nacha.

The financial institution that holds the merchant's account and receives funds from the card-issuing bank on behalf of the merchant. It processes and settles transactions for the merchant. hey process and settle transactions, acting as the merchant's partner in accepting electronic payments.

The card-issuing bank pays the acquiring bank the sum of a transaction on behalf of the cardholder. Banks can be both a card-issuing bank and an acquiring bank, but they typically specialize in one or the other.

A marketing model in which a company compensates a third party to generate traffic or leads to the company's products and services. 

Authorization; this is what happens when a transaction is allowed to proceed and the customer makes their payment. This can be done with a credit card, via an online transaction, a smart phone, or any other connected device.

Bank identification number. The first four to six digits on a credit card that indicate the issuing bank; also the first 6 digits of a merchant account ID.

Card acceptor ID. Provided by the merchant's acquiring bank, this string of numbers identifies the store location or transaction point. 

This 3 or 4-digit security code on a credit/debit card is used to verify that the person making the transaction physically possesses the card. Essential for card-not-present transactions.

• Authorization: The cardholder initiates a payment; the payment gateway securely encrypts and transmits the card data to the payment processor. The processor routes the request through the card networks to the issuing bank, which verifies funds and approves or declines the transaction in seconds.
• Clearing & Settlement: Approved transactions are batched, and the payment processor works with the card networks to facilitate the transfer of funds from the issuing bank to the acquiring bank, which then deposits the funds into the merchant's account.

Merchants incur various fees for this service, including interchange fees (paid to the issuing bank), assessment fees (paid to card networks), and processor markup fees. These costs can be structured through different models like interchange-plus pricing (generally most transparent) or tiered pricing.

PCI Compliance refers to a business's adherence to the Payment Card Industry Data Security Standard (PCI DSS). PCI DSS is a set of security requirements established by the PCI Security Standards Council (composed of major card brands like Visa and Mastercard). It's designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment, protecting sensitive cardholder data from breaches and fraud.

This is the financial institution that provides credit or debit cards directly to consumers (cardholders). When a cardholder makes a purchase, the issuing bank is responsible for approving the transaction and ultimately paying the acquiring bank on behalf of the cardholder.

Also known as card associations or credit card interchange networks. These are the global companies, such as Visa, Mastercard, American Express, Discover, and JCB, that facilitate communication and transfer of information between issuing banks, acquiring banks, and payment processors. They set the rules, regulations, and interchange fees for all transactions on their network.

A credit card processing pricing model that categorizes transactions into different "tiers" (e.g., "qualified," "mid-qualified," "non-qualified"), each with its own rate. This model can be less transparent than interchange-plus pricing because it bundles various fees, and a transaction can unexpectedly fall into a higher-cost tier, often leading to higher overall processing expenses for the merchant.

Often considered the most transparent and cost-effective pricing model for credit card processing. It breaks down the processing fee into three clear components: the raw interchange fee (paid to the issuing bank), the assessment fee (paid to the card networks), and a separate, fixed markup charged by the payment processor. This clarity allows merchants to see exactly what they're paying beyond the direct cost of the transaction.

A fraud prevention tool used primarily for card-not-present transactions (like online or phone orders). AVS verifies that the billing address provided by the customer matches the address on file with their card-issuing bank, adding an extra layer of security.

A web-based application or software that allows a merchant to manually enter and process credit card payments using any internet-connected computer or device. It functions like a virtual credit card machine, making it ideal for businesses that primarily take payments over the phone, by mail, or need a flexible way to process one-off transactions without a physical POS system.

A comprehensive hardware and software solution used by businesses, typically in physical retail locations, to process sales transactions. A POS system can include a terminal, cash register, barcode scanner, receipt printer, and card reader, allowing for inventory management, sales tracking, and customer management in addition to payment processing.

A merchant account established with a bank or payment processor located in a jurisdiction outside a business's primary country of operation. High-risk merchants or businesses looking to expand globally often consider offshore accounts when domestic options are limited or less favorable.