Let’s Revise! – 21 Online Payment Definitions You Should Know
From the outside it may seem that online payments are easy. You just need to attach your webpage to a paying agent of your choice and swoosh, ready to go. The money just starts flowing.
I really wish it were that easy. In all honesty though, things tend to get a tad complicated sometimes. Both during the process of verification, while you are setting your account to process payments, and after that, when you start to accept payments, you’ll probably encounter a specific vocabulary, terms that don’t always sound obvious.
Fear not – in this post we compile and shortly describe the most common definitions. If you are our long-time reader, you’ll probably know most of the terms below, as they were often mentioned in our previous posts.
Time for a quick revision!
3-D Secure
An authentication method developed by Visa, also implemented by other card organisations. Owes its name to three domain model (acquirer domain, issuer domain and interoperability domain.)
3-D Secure makes the payment process safe and trustworthy, protects against fraud, yet may be a little inconvenient to use for some customers, as it adds another step (a pop-up window) to the transaction and may not handle mobiles well.
One needs to think about pros and cons (and additional fee) before getting involved.
Acquirer / Acquiring Bank
A merchant bank. Its function is to connect the merchant, the card association and the issuing (cardholder) bank. The acquirer offers to the merchant a line of credit (a merchant account) and allows them to accept payments with credit and debit cards.
A merchant’s business comes with risk – it can be higher or lower, but it’s always there. Acquiring bank shares the merchant’s risk and, what follows, monitors the merchant’s transactions. If there are too many questionable transactions, the bank may apply additional fees.
Chargeback
Chargeback is, in shortest definition, the return of the money paid. Chargeback protects customers, especially in case of fraudulent activity and consumer disputes.
Requested by cardholder and initiated by issuing bank, it returns the funds to the client. Unlike refunds though, chargebacks are not merchant-friendly, as there are fines for them. If the chargebacks rate is too high, the acquirer definitely will rethink further cooperation with the merchant.
Credit Card
A plastic card allowing the owner to spend money on services and goods, up to a limit depending on the line of credit granted by the issuer.
CVV/CVC
A card security code, generated by the card issuer. Improves safety of credit and debit card transactions.
Direct Debit
This payment method works differently in various countries. In some the process is automatic and looks similar to a credit card payment, while in others it’s manual and the merchant is able to collect payment only after customer’s written authorisation with their bank.
Fraud
An unauthorised payment, usually followed by chargeback.
Assessing the fraud risk of a transaction can prevent many mishappenings of this kind.
High Risk Merchant
Some businesses are more risky than others. It may be because of the business model, may be because of the offered product (for example travel services), which can be especially prone to fall victim to chargebacks.
Acquiring banks classify the risk and apply additional fees to businesses that are high risk.
Issuer / Issuing Bank
This is where the customer gets their credit card from. The financial institution, which may, but doesn’t have to be a bank, that is associated with card networks (such as Visa, MasterCard or American Express) and issues the cards on their behalf.
Merchant
A seller, a company selling online.
Merchant Account
A must-have if your business sells online; one merchant can have several of those accounts.
A merchant account (a line of credit) is created in an acquiring bank, when a merchant signs a contract with an acquirer to process online payments.
The service is offered for a fee and works similarly to a regular bank account, although, unlike with normal account, you can’t withdraw money the “usual way”. Merchant accounts transfer payments regularly to other (business or private) accounts.
MO/TO Payments
Mail Order Telephone Order. A “card not present” transaction, during which the buyer does not physically present the card to the merchant, but gives them necessary data by phone or e-mail.
PCI DSS
An abbreviation for Payment Card Industry Data Security Standards. If you are PCI compliant (and you should be!), you become more trustworthy as a merchant.
Recurring Payments
A mechanism that processes payments for repetitive transactions. Also known as recurring billings/subscriptions.
A set amount of money is collected from card, bank account or PayPal regularly, at set time intervals (it is called standing order and is initiated by the payer) or variable amounts are withdrawn by a seller with customer’s authorisation (direct debit.)
Refund
Refunds are more welcome than chargebacks – the customer gets their money back without unpleasant repercussions for the merchant.
If a merchant receives a complaint from a customer, it’s essential to handle the matter quickly and to not leave any bad blood that would result in a chargeback.
Offering refunds the right way may actually help your e-business grow.
Retrieval Request
Sometimes the card issuer contacts the merchant with a request for information about an e-commerce transaction.
The merchant has to respond to the inquiry and provide the requested documentation. If the merchant fails to do that, the request will automatically become a chargeback. There is no way to straighten things up afterwards, if the chargeback is caused by failing to respond to a retrieval request.
Rolling Reserve
A buffer allowing the merchant’s acquirer to maintain calm when a sudden spike in chargebacks happens, or when there is a lot of chargebacks overall. Rolling reserve is used where there is risk such as: large average tickets, high processing volume, poor personal credit etc.
It is usually created along with the merchant account for a certain period of time, and is based on the acquiring bank withholding a percentage of the transaction amount.
Settlement Currency
The currency in which a seller receives payments from their merchant accounts.
Transaction Currency
The currency in which the seller accepts payments for products from the customers.
Transaction Descriptor
It helps the buyer to identify the transaction. A well made transaction descriptor will save you from those awkward situations when a customer issues a chargeback just because they don’t recognise the purchase.
Depending on the merchant’s needs, they can use a static descriptor (one descriptor set for all payments) or dynamic descriptors for various services and products.
Wire Transfer
An electronic transfer of funds. During the payment process the buyer is redirected to their bank’s website, where they approve wire transfer automatically or type in necessary data manually.
And there we have it: the most used words in online payments universe. Have something to add here? Let us know in the comments section.
