Payment Industry Terminology¶

This page provides definitions of key terms and concepts used in the payment processing industry.

Hardware & Security¶

HSM (Hardware Security Module)¶

A physical device designed to manage and protect cryptographic keys and perform cryptographic operations. HSMs are used in payment systems to:

Generate, store, and manage encryption keys
Encrypt and decrypt PIN blocks
Generate and verify MACs (Message Authentication Codes)
Ensure PCI compliance for sensitive data operations

Card¶

A physical or virtual payment instrument issued by a financial institution that allows cardholders to make purchases or withdraw cash. Types include:

Debit Card: Linked directly to a bank account
Credit Card: Provides a line of credit for purchases
Prepaid Card: Preloaded with funds
Virtual Card: Digital-only card for online transactions

Cardholder¶

The individual or entity to whom a payment card is issued and who is authorized to use it for transactions.

Card Number (PAN - Primary Account Number)¶

The unique number embossed or printed on a payment card, typically 13-19 digits, that identifies the card issuer and cardholder account.

Card Network¶

The infrastructure and organization that processes payment card transactions between merchants, acquirers, and issuers. Also known as Card Schemes.

Card Brand¶

The company that owns and operates a card network. Major card brands include:

Visa: Global payment technology company
Mastercard: Worldwide payment processing network
American Express: Combined issuer and network
Discover: US-based payment network
JCB: Japan Credit Bureau, primarily Asian market
UnionPay: China-based international payment network

Financial Institutions & Processors¶

Issuer¶

The financial institution (typically a bank) that:

Issues payment cards to cardholders
Maintains cardholder accounts
Authorizes or declines transactions
Settles transactions with cardholders
Bears the credit risk for credit cards

Issuer Processor¶

A third-party service provider that handles payment processing operations on behalf of issuers, including:

Transaction authorization
Transaction routing
Account management
Statement generation
Fraud detection

Acquirer (Acquiring Bank)¶

The financial institution that:

Establishes relationships with merchants
Processes card transactions on behalf of merchants
Deposits funds into merchant accounts
Bears the risk of merchant insolvency

Acquiring Processor¶

A service provider that processes transactions on behalf of acquirers, handling:

Transaction routing to card networks
Settlement processing
Merchant reporting
Chargebacks

Transaction Flow Entities¶

Merchant¶

A business or individual that accepts payment cards as a form of payment for goods or services.

Payment Gateway¶

A technology service that:

Captures payment information from customers
Encrypts and transmits transaction data
Routes transactions to processors
Returns authorization responses

Payment Service Provider (PSP)¶

An entity that provides payment processing services to merchants, often combining gateway, acquiring, and additional services.

Transaction Terms¶

Authorization¶

The process of approving or declining a transaction in real-time based on:

Available funds or credit
Fraud checks
Card validity
Merchant category restrictions

Clearing¶

The exchange of transaction details between acquirers and issuers through the card network after authorization.

Settlement¶

The actual transfer of funds between the acquirer and issuer to complete a transaction, typically occurring 1-3 days after authorization.

Chargeback¶

A transaction reversal initiated by the cardholder's issuer, typically due to:

Disputed charges
Fraudulent transactions
Service/product not received
Processing errors

Refund¶

A merchant-initiated reversal of a transaction to return funds to a cardholder.

Security & Compliance¶

PCI DSS (Payment Card Industry Data Security Standard)¶

A set of security standards designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.

Tokenization¶

The process of replacing sensitive card data with a unique identifier (token) that has no exploitable value, enhancing security in payment systems.

3D Secure (3DS)¶

An authentication protocol (including Visa Secure, Mastercard Identity Check) that adds an additional layer of security for online card transactions.

CVV/CVC (Card Verification Value/Code)¶

A 3 or 4-digit security code on payment cards used to verify that the physical card is in the cardholder's possession during card-not-present transactions.

EMV (Europay, Mastercard, Visa)¶

A global standard for chip-based payment cards and terminals, providing enhanced security through:

Dynamic authentication
Encrypted transactions
Reduced counterfeit fraud

Transaction Types¶

Card Present (CP)¶

Transactions where the physical card is present at the point of sale, typically using chip, contactless, or magnetic stripe.

Card Not Present (CNP)¶

Transactions where the card is not physically present, including:

Online purchases
Phone orders
Mail orders
Recurring payments

Contactless Payment¶

A card present transaction using NFC (Near Field Communication) technology, allowing customers to tap their card or mobile device for payment.

Fees & Rates¶

Interchange Fee¶

A fee paid by the acquirer to the issuer for each transaction, set by card networks and typically the largest component of merchant processing costs.

Merchant Discount Rate (MDR)¶

The total fee charged to merchants for accepting card payments, including interchange, network fees, and acquirer markup.

Network Fee¶

Fees charged by card networks (Visa, Mastercard, etc.) for using their infrastructure and brand.

Additional Terms¶

BIN (Bank Identification Number) / IIN (Issuer Identification Number)¶

The first 6-8 digits of a card number that identify the issuing institution and card type.

Merchant Category Code (MCC)¶

A four-digit number assigned to businesses that classifies the type of goods or services provided.

Batch Processing¶

The practice of processing multiple transactions together at a scheduled time rather than individually in real-time.

Reconciliation¶

The process of matching and verifying transaction records between different parties (merchant, acquirer, issuer, network) to ensure accuracy.