Payment processing involves many technical terms and concepts. This glossary explains the key terminology you'll encounter when setting up and managing credit card processing for your business. Whether you're new to payments or looking to deepen your understanding, you'll find clear, practical definitions here.
ACH
Automated Clearing House — electronic bank-to-bank money transfers used for direct deposits and bill payments.
Acquiring Bank
The bank that processes credit card transactions on behalf of merchants (also called merchant's bank).
Basis Points (BPS)
Unit of measurement for fees and interest rates; 1 basis point = 0.01%. For example, 75 basis points = 0.75%.
Batch
A group of transactions submitted together for processing at the end of a business day.
Card Not Present (CNP)
Transactions where the cardholder is not physically present, such as online or phone orders.
Chargeback
A reversal of a credit card transaction initiated by the cardholder or their bank, typically due to disputed charges or fraud.
Discount Rate
The percentage fee a merchant pays per transaction, typically ranging from 1-4% depending on card type and risk.
EMV
Europay, Mastercard, Visa — the global standard for chip card technology that provides enhanced security.
Gateway
Software that securely authorizes and processes online payments by communicating between merchant, payment processor, and bank.
Interchange
Fee paid by acquiring banks to card-issuing banks for each transaction, typically 1-3% of transaction value.
Issuing Bank
The financial institution that issues credit or debit cards to consumers.
Merchant Account
A special bank account that allows businesses to accept credit card payments from customers.
Processor
The company that processes payment transactions, facilitates communication between parties, and manages settlement.
PCI DSS
Payment Card Industry Data Security Standard — mandatory security requirements for handling credit card data.
Qualified Rate
The lowest interchange rate tier, typically for standard credit/debit card transactions with no special features.
Recurring Billing
Automated, regularly scheduled charges to a customer's card for ongoing services (subscriptions, memberships).
Settlement
The process of funds from card transactions being deposited into a merchant's account, typically within 1-3 business days.
Tokenization
Process of replacing sensitive payment data with a unique identifier (token) for secure storage and transactions.
Underwriting
The evaluation process merchants go through to be approved for accepting credit cards, assessing risk and eligibility.
Volatility
The variation in transaction amounts and frequency; high-volatility merchants are considered higher risk.
Key Payment Processing Facts
Essential numbers and insights about the payment processing industry.
Tips to Minimize Processing Costs
- Encourage customers to use debit cards and PIN entry when possible (lower fees than credit cards)
- Use level 3 data for B2B transactions to qualify for lower interchange rates
- Process transactions in batches regularly to avoid fees and chargebacks
- Keep your PCI compliance current to maintain the best rates
- Monitor your chargeback ratio — it impacts your costs and account status
- Review your statements monthly for unexpected fees or rate changes