15 Credit Card Payment Processing Terminology You Should Know

The world has gone beyond long queues in banks and carrying around a stack of cash to make a simple payment.

By the swipe of a card or a simple mobile transfer, payments are made everyday.

To get the most out of your business, you need to take some time to learn certain terms and definition that will keep popping out along the way.

The online payment process begins long before the visitor clicks the “buy button” to purchase something from your website/ online store.

And every stage of the sales funnel, from setting up your payment system to getting confirmed sales is defined by various terms and definitions.

There are several of this credit card payment processing terminology that is used almost interchangeably when describing online payments.

We have 15 here for you:

Online payment terminology:

1) Authorization Fee

This is also called a transaction fee. This is the amount charged to a merchant account each time a communication happens between the software or point-of-sale terminal and the authorizing network.

2) Authorization Response

An issuing financial institution’s electronic message reply to an authorization request, which may include:

  • Approval – transaction was approved
  • Decline – transaction was not approved
  • Call Center – response pending more information, merchant must call the toll-free authorization phone number. This occurs if there is a problem with the card holders card.

3) Credit Card

A payment card that is issued to an individual by a bank and can be used to purchase merchandise or services on credit.

4) Credit Card payment brand:

Associations such as Visa, MasterCard, and American Express.

They charge you an interchange fee, which they share with the issuing bank.

Some brands such as American Express and Discover issue cards directly to consumers, without a bank intermediary.

5) Credit Card Processing

The complex electronic process of transacting and verifying a credit card transaction.

Once authorized, the process initiates an ACH transfer of funds from the issuing bank to the credit card processor, who then deposits the transaction proceeds into the merchant’s account.

6) Credit Card Processor

An entity that handles the electronic verification and initiation of Electronic Funds Transfers (EFT) into the Automated Clearing House system on behalf of clients.

The term is used interchangeably with merchant services provider, merchant account provider or merchant acquirer

7) Electronic Funds Transfer (EFT)

An automated transfer of funds using an electronic medium.

8) Electronic Wallet

Also known as an e-wallet, it allows the user to charge payment for goods and services to their card without using the card.

Software on the user’s mobile device securely stores credit card account and payment information and works in conjunction with complimentary software on the merchant’s end.

9) Encryption

The process of translating data into secret code (encoding) to ensure secure transmission.

An effective way to help ensure data security, it is also referred to as end-to-end encryption (E2EE).

10) Issuing bank or issuer

The financial institution that provides the credit card to the end user.

11) Payment gateway

A service that receives the online payment request from your website and directs it to the payment processor.

It is a Software on a third-party provider’s server that handles the transmissions between a merchant and their processor required to complete an electronic transaction.

12) Payment processor

A service that enables Merchants to receive debit or Credit Card payments online by providing a connection to an Acquiring Bank.

These processors perform many functions such as evaluating whether transactions are valid and approved.

If the customer has sufficient funds, the transaction is authorized, the funds are transferred from the customer’s account, and your website is notified.

13) Payment provider

A payment provider (or payment service provider) is the company that operates the payment gateway or payment processor services.

In some cases, the payment gateway and payment processor are combined into a single service known by either name.

14) Payment service or payment system

Where a payment provider offers multiple types of payment gateways – with different features and pricing – each type is referred to as a payment service or payment system.

For example, Payoneer is a payment service provider that offers a number of payment services such as US Payment Service and Withdraw to Bank Service.

15) Merchant account

When an online transaction is successfully completed, the funds are transferred from the purchaser’s account to your merchant account, a special kind of bank account used exclusively to hold funds received from credit and debit card transactions.

To accept online payments, you usually need to set up a merchant account with your payment provider.

Funds accumulating in your merchant account are transferred to your organization’s bank account on a regular basis.

There you have it. 15 important credit card payment processing terminology that you should know.

Sources: Transfirst, Payoneer.