Payment Processing Terms Every Merchant Should Know

Payment Processing Terms Every Merchant Should Know

Successful online payment collection is the lifeline of any business, without which no entity can thrive. Until a few years ago, cash was the dominant form of payment among customers, but that has changed a lot in recent years, with more people switching towards digital payments. 

Therefore, online merchants must get ready to embrace global payments gateway and enable as many forms of digital payment options as possible to make it easy for customers to use a variety of payment methods for purchasing goods and services online. 

However, to do that effectively, you will need to familiarize yourself with a few payments processing terms to understand the system better. 

Let’s look at a few of the most common terms used across the industry! 

1. Acquiring Bank

 It is the financial institution responsible for processing card transactions on behalf of the merchant. It allows that merchant to accept online card payments and clear the transactions.

2. Associations/Network

 These are basically ‘card network’ such as VISA, MasterCard, Rupay, etc., that offers guidelines and regulate card transaction acceptance rules. 

3. API 

 Application programming interface, commonly known as API, is responsible for providing predefined classes, functions, procedures, constants, and structures. 

4. Authorization

 This process involved validating the transaction funds available on a credit or debit card. This authorization process occurs whenever transaction details are either entered or swiped through a terminal such as a POS machine. The issuing bank then accepts or declines the transaction depending on funds availability. 

5. Authorization Fee

 It’s a fee charged every time a communication is initiated between a payment acceptance terminal and the authorizing network. 

6. Bank Identification Number

 BIN, also known as Bank Identification Number, is part of the number string that’s part of the credit or debit card, usually the first 4 to 6 numbers on the card. It is used to authorize, process, and clear payments. 

7. Business Identifier Code

 This code is assigned to financial institutions involved in international commercial transactions. 

8. CNP or Card Not Present 

When a payment transaction is initiated without a physical card, such as online payment, the user just enters the card information even without having access to the physical card itself. This is referred to as a CNP or card not present. 

9. Card Present

 This is the exact opposite of a CNP, where the cardholder and the payment card are both present while making the transaction. 

10. Chargeback 

 A chargeback applies when a merchant should refund the customer due to unavailability of product, damaged goods, etc. 

11. Clearing

 It refers to the whole process from the initial transaction to the settlement process.

12. Credit Card Processing 

 As the name implies, the entire process of authorizing, verifying, and transacting using a credit card is called credit card processing.

13. Credit Card Processor

 This device is responsible for handling credit card processing, including verification and electronic funds transfer. 

14. Dynamic 3D Secure 

 It’s an XML-based technical protocol that has been developed by one of the world’s leading card networks—VISA. This adds an additional layer of security to online transactions using credit and debit cards and also helps in improving the performance of transactions. 

15. Electronic Wallets

 It allows users to make payments without using any card. A user can use his mobile phone to make payments for goods and services using an app linked to their bank account. 

16. Payment Gateway

 It’s a platform that helps authenticate a cardholder’s details for offline and online transactions. 

17. Merchant Account

 This account allows businesses to accept online payments. No online merchant can accept online payment without having a merchant account. It can be defined as an agreement between a credit card processor and the merchant to accept card-based transactions. 

18. Merchant Account Provider

 It provides the services required to process card payments to the merchant by acting as an intermediary between the issuing banks, the merchant, and the credit card network. 

Being familiar with a few of the leading terms used in the industry reduces the learning curve when it’s time to choose between online payment platforms and implement the best one for your business. 

So, whether you are an online merchant or have an offline store, just keep these terms in mind to help you better understand the system.