Account Takeover (ATO): A method of online fraud where someone gains access to an online account by acquiring the login, often by theft, and then takes over the account and its access from the rightful owner.
Automated Clearing House (ACH): An electronic payment network for the processing of electronic financial transactions between banks in the United States. Used for direct deposit, recurring transactions, clearing electronic checks and Demand Deposit Account (DDA) transactions.
Acquirer: A bank that accepts payments for a payments network. Often the financial institution that provides a merchant account and processes card transactions via POS equipment on behalf of a merchant. The acquirer feeds transaction data into the interchange system. Sometimes referred to as the acquiring bank.
Acquirer Reference Number (ARN): A unique number attached to a card transaction when it is passed from the merchant’s bank to the cardholder's bank. The numbers are used to track transactions and their progress. They can also be called trace IDs because they are most often used to trace where the funds for a transaction are in the process.
Affinity Card: A credit card issued in association with an organization or group; commonly professional, alumni, retirement or other associations. The card issuer often pays the organization a royalty for marketing the card.
Authorization: The process of checking and approving that a cardholder has enough funds in their account for the proposed transaction. A positive check means an authorization code is created and funds are set aside for the proposed transaction.
Address Verification Service (AVS): Fraud protection service to check that the billing address given by the customer matches the one on file with the issuing bank to make sure they are a valid customer.
Back Office Conversion: Check conversion (paper to digital) that takes place in the merchant's “back office”. Consumers must be notified that BOC will occur by posting at the point of sale or other check receiving locations.
Bank Identification Number (BIN): The first digits — typically the first four digits or first six digits — that are found on a card from an issuing or acquiring institution as unique identifiers of that institution.
Beneficiary: Person who receives funds collected by a third party. Sometimes a person sets up an account on behalf of another person. If they want the funds to be settled directly to the beneficiary, the account will need to be changed to complete KYC checks on the beneficiary and verify their bank information.
Capture: After a card is authorized, a second set of data is passed for the transaction itself and this is called capture. It signifies that an actual transaction has taken place and the data is passed to the acquiring bank for settlement.
Card Issuer: The financial institution that authorizes the issuance of a card to a consumer or organization. Card issuers retain authority over the use of the card by the end user and are liable for the use of the card.
Card Not Present Transaction (CNP): A payment card transaction where the card cannot be physically presented to the merchant at the time of the transaction. Commonly used for online, mail-order and telephone transactions but also used in a few other cases.
Card Not Present (CNP) Accounts: A merchant or seller account that principally accepts online and other card not present payments. May have higher rates than point of sale (POS) accounts with the consumer present. Because the signature is not required, these accounts are generally viewed as higher risk.
Chargeback: The result of a cardholder or the cardholder’s bank disputing a specific credit or debit card transaction. The chargeback is sent back to the merchant bank for resolution. The merchant has a set amount of time in which to defend the chargeback, depending on the rules of the card association. A chargeback fee is usually charged to the merchant in addition to the amount of the transaction.
Check 21: The Check Clearing for the 21st Century Act - a law to allow banks to handle checks electronically. Check 21 lets banks use an electronic copy of the original check to clear the check instead of the original.
Clearing: The process of transmitting information about a transaction or transactions that eventually results in a decision of approval or denial of the transactions and the settlement of funds involved.
Compliance: Any process that is used by any of the partners in a payment transaction to meet with and follow regulatory procedures applying to that transaction. These can include government regulations, card network regulations, bank regulations and others.
Credit card processors: Entities like merchant account providers that handle the details of processing credit card transactions between merchants, issuing banks, and acquiring banks. Also called third party processors.
Currency conversion: The process of converting an amount of funds from one currency into another. Typically involves one or more national currencies and is governed by published daily conversion rates for buying and selling each currency.
Decline: The transaction request has been refused, usually by the issuing bank but sometimes by other entities along the processing chain. Reasons are typically insufficient funds or more rarely fraud or theft. Reasons are coded for return with the decline.
Dispute: A claim made by a cardholder to the issuing bank questioning the validity of a credit or debit card charge. Disputes start an interaction with the merchant that could lead to retrievals or chargebacks.
Electronic Check Acceptance or ECA: A system that captures transaction information off a paper check and converts it into an electronic item processed through check clearing without the need for a paper check or via ACH. Now available to consumers via smartphone apps and some banking institutions.
Electronic funds transfer (EFT): The electronic transfer of funds between two bank accounts, using electronic means rather than paper methods. Includes ACH, wire transfers, payroll deposits and any other fund transfer made completely electronically.
Europay, Mastercard and Visa (EMV): A commonly-available chip-based standard for smart payment cards using chip and pin systems for card present transactions. Designed to combat fraud by making cards much harder to counterfeit.
Gateway: An organization or system initiating transactions between merchants and the acquiring firms. Often provides additional fraud, identity, and reporting functions as well as equipment and software to process transactions.
Image Replacement Document (IRD): Also known as a substitute check. An electronic image of the original paper check that conforms to the requirements set forth by the Check Clearing for the 21st Century Act (Check 21). Because of Check 21, IRDs act as the legal equivalent of the original paper check and enable financial institutions to settle check transactions.
Interchange: The domestic and international systems operated by VISA and MasterCard for authorization, settlement and the passing through of interchange and other fees, as well as other monetary and non-monetary information related to bankcard activities.
Interchange fee: A fee specified by card associations that is paid by the acquirer to the issuing bank for each credit or debit card transaction to cover transaction costs. The acquirer passes this fee to merchants, in addition to any other fees charged for processing credit or debit card transactions. The fee depends on a number of variables, such as card type, business type, card acceptance method, settlement or batch timeframe, information submitted with the transaction, and more. Fees usually range between 1-3%.
Issuing bank: The bank that holds the customer’s credit or debit card account and settles funds to the acquiring bank for payment to the merchant. The issuing bank bills the cardholder for transactions at a later date, typically monthly.
Know Your Customer (KYC): The compliance process of confirming the identity of a merchant or customer. Most commonly refers to government, bank, and card network requirements to verify identity to prevent fraud, identity theft, money laundering, and terrorist financing.
Magnetic Ink Character Recognition (MICR): A character recognition technology used on checks to make electronic scanning easier. Used for the bank routing number and account number at the bottom of a check.
Money Transmitter License (MTL): Every US state has a regulatory body overseeing money transmission. Many (but not all) states require institutions that handle payments to become registered money transmitters and procure a license to operate in their state.
Near Field Communication (NFC): A form of communication used mostly in smartphones or other handheld devices for payments that allows devices to communicate with a payment terminal to complete transactions.
Payment Card industry (PCI): The credit, debit, prepaid and other payment card businesses. Also refers to the requirements that they have set out that provide security management, policies, procedures, network architecture, software design and more.
Payment Card Industry Data Security Standard (PCI DSS): A proprietary information security standard for the payment card industry. A requirement for merchants and payment processors to meet security requirements that are used extensively across almost all card systems for security.
PCI compliance: A common term used to indicate that a particular organization meets the Payment Card Industry Data Security Standard (PCI DSS) requirements. Failure to meet PCI compliance can mean penalties or the suspension of the ability to make card transactions.
Payment Service Provider (PSP): Provides online services for accepting electronic payments by a variety of payment methods including credit card, direct debit, bank transfer, and others. WePay is a PSP. A PSP is a designation by Visa and Mastercard that allows merchants to onboard submerchants under their account.
Reason Code: A code used to provide additional information about a transaction and (typically) a rejection or change in status. Information covered could include a chargeback, subsequent presentment, fee collection, funds disbursement, or request for a source document.
Reserve account: For high-risk merchants, an account that holds a reserve portion of funds. The acquiring bank requires reserve accounts to cover chargebacks, disputed charges, fees and other expenses. Some organizations require reserve accounts of all new merchant accounts.
Retrieval request: When a cardholder or issuing bank wants more information about a transaction, the issuing bank sends a retrieval request. The merchant has a defined period in which to send the information. Typically a failure to respond will result in a chargeback and often a retrieval request fee will be assessed to the merchant.
Settlement: The transfer of funds to satisfy a payment transaction that has been approved. Once approval is granted, the funds travel back to the acquiring bank and the merchant account, with associated fees deducted along the way.
Settlement Statement: A statement provided to a merchant that shows the approved sales and credit activity, billing information, fees and chargebacks (if any) that occurred during the statement period.