Online Payment and Credit Card Processing Terminology Every Online Merchant Should Know

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As an online merchant, you may have come across some unfamiliar payment terms. Here at DPO, there are some terms that we are often asked about by our customers. Here you will find a glossary of important online payment and credit card processing terminology. Read on to broaden your understanding of online payments:

Acquiring bank

An acquiring bank is a financial institution that processes card payments (both credit and debit) on behalf of your business. Acquiring banks work with major card companies like Visa or MasterCard. They act as a go-between, accepting customer payments from card issuing banks and verifying transactions. It is the acquiring bank’s role to decline or accept a transaction based on customer information provided by the issuing bank.

Issuing bank

An issuing bank is a financial institution that provides credit or debit cards directly to customers. Issuing banks are associated with major card companies such as Visa or MasterCard. Every credit card issued will feature the issuing bank’s name and the associated card company’s logo.

Mobile point-of-sale (mPOS)

An mPOS is a mobile device such as a smartphone or tablet, equipped with a mobile app that allows businesses to perform payment transactions. Using an mPOS device to make mobile payments is a cost-effective and portable alternative to the traditional cash register.

CNP

CNP stands for ‘card not present’. A CNP transaction is one where the cardholder does not physically present their card to the merchant. Card payments made online or over the phone are CNP transactions.

Hard decline

A hard decline informs the merchant that the customer’s credit or debit card is not authorized to make a payment. It cannot be reversed, so the payment should not be re-attempted. Reasons for a hard decline include invalid data, account closure, or use of a card previously reported as lost or stolen.

Soft decline

A soft decline informs the merchant that the customer’s bank has declined the transaction temporarily. A soft decline can be re-attempted. There are many reasons for a soft decline, including an incorrect credit card number, incorrect expiration date, or insufficient funds.

Friendly fraud

Friendly fraud is also known as chargeback fraud. It occurs when a customer makes a payment using their own card, received the goods or services, but then requests a chargeback from their issuing bank.

Chargeback

A chargeback is a transaction reversal. It is designed to protect customers from fraud. If a customer suspects a fraudulent transaction has taken place, they can request a chargeback from their issuing bank. The merchant’s bank is then debited to refund the transaction. To dispute a chargeback, the merchant must then provide evidence that the transaction was not fraudulent.

PCI DSS

PCI DSS stands for ‘Payment Card Industry Data Security Standard’. PCI DSS is a worldwide standard for organizations that handle credit card information, managed by the PCI Security Standards Council. It is a mandatory standard that protects cardholder information by ensuring organizations meet certain high level security requirements.

Payment service provider (PSP)

A payment service provider (PSP) is a 3rd party, like Direct Pay Online, that allows merchants to accept a wide variety of payment methods through a complete payment solution. Payment methods usually include credit cards, ewallets, mobile money and bank transfers.

Payment gateway

A payment gateway is a service for merchants that allows merchants to process credit and debit card payments. Its role is to transmit transaction information to and from the payment processor. Paygate.co.za is an example of a payment gateway.

Payment processor

A payment processor is a financial institution that provides online merchants with background payment processing services. It receives transaction information from the payment gateway and sends it to the cardholder’s issuing bank for authorization. It also sends the transaction details to the merchant account. Responses from the issuing bank and merchant account are sent back to the payment gateway through the payment processor.

Settlement

Settlement occurs when the acquiring bank sends funds from the merchant account to the merchant’s company bank account.

Authorization

Authorization is the process which checks to see if a cardholder’s credit card is approved to complete a certain transaction. If authorization is successful, the transaction is completed.

Pre-authorization

Credit card pre-authorization puts a temporary hold on customer funds. While the hold is in place, these funds cannot be withdrawn from an ATM or used to make another payment. It acts as a security guarantee to ensure that customers pay for the services they use. Cards are often pre-authorized when a customer checks into a hotel or rents a car, for example.

Merchant account (MID)

A merchant account is a bank account that enables a merchant to accept and process credit and debit cards. Every merchant account has a merchant ID (MID) – a unique identification number.

Clearing

Clearing refers to the activities that occur from the time that an electronic payment request is made, until funds are transferred.

We hope this glossary has provided you with answers to your questions about online payment terminology. If you have any further queries, feel free to contact us here.

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