Payment processing glossary: every term merchants actually meet

Terms A to Z

• 3-D Secure (3DS)

  An authentication layer for online card payments that asks the cardholder's bank to verify the buyer before authorization, using passive checks or a challenge such as a banking-app prompt. A successfully authenticated transaction usually shifts fraud chargeback liability from the merchant to the issuer.

• Account updater

  A network service that refreshes stored card credentials when the issuer replaces a card, updating the number and expiry behind the saved token. For subscription businesses it is the main defence against involuntary churn from expired and reissued cards.

• ACH / EFT payment

  A bank-to-bank transfer that debits or credits an account directly instead of running a card. In Canada the equivalent of US ACH is EFT through Payments Canada. Costs are typically flat per transaction rather than a percentage, which suits invoices, rent and large B2B payments.

• Acquirer

  The financial institution or payment processor that maintains the merchant's account, routes transactions to the card networks and settles the resulting funds to the merchant's bank account. The acquirer underwrites the merchant's risk, which is why onboarding includes business verification.

• Assessment (card brand fee)

  The card network's own charge for carrying a transaction: typically a percentage of volume plus flat authorization or network-access fees, with cross-border and card-not-present add-ons when they apply. Assessments are published by Visa, Mastercard, Amex and Discover and are identical at every processor. They sit beside interchange, not inside the RapidCents markup.

• Authorization

  The first stage of a card payment: the issuer confirms the card is valid and holds the amount against the cardholder's available credit or funds. Authorization does not move money; the merchant must capture the transaction, usually at batch close, for funds to settle.

• Authorization hold

  A temporary reservation of funds on a cardholder's account placed at authorization, common for hotel deposits, fuel pumps and equipment rentals. The hold reduces available credit until the merchant captures a final amount or the hold expires and the funds release.

• Average ticket

  The typical transaction amount for a business, calculated as volume divided by transaction count. Average ticket shapes pricing: flat per-transaction fees weigh heavily on small tickets, while percentage pricing dominates cost on large ones. Underwriters also compare actual tickets against the stated profile.

• AVS (Address Verification Service)

  A fraud check for card-not-present payments that compares the billing address a customer enters against the address on file at the issuing bank. Mismatches raise a flag the merchant or gateway rules can act on, reducing fraudulent orders on e-commerce and virtual terminal payments.

• Batch settlement

  The end-of-day process where a terminal or gateway sends all captured transactions to the acquirer as one batch for clearing and funding. Closing the batch on time affects when deposits arrive; an unclosed batch delays every payment in it.

• BIN (Bank Identification Number)

  The first six to eight digits of a card number, identifying the issuing bank, card brand, card type and country. Processors and fraud tools use BIN data to route transactions, apply the correct interchange category and spot mismatches such as a foreign card on a local order.

• Capture

  The instruction that turns an authorization into a real charge, sending the final amount for clearing and settlement. Restaurants capture after tip adjustment; e-commerce merchants often capture at shipment. Uncaptured authorizations expire and the held funds return to the cardholder.

• Card brand assessments

  Small percentage fees the card networks (Visa, Mastercard, Amex) charge on volume, separate from interchange, covering network operation. On an interchange-plus statement they appear as their own line; in blended pricing they are folded invisibly into the single rate.

• Card-not-present (CNP)

  Any transaction where the physical card is not read by a terminal: online checkout, virtual terminal, payment links, phone and mail orders. CNP transactions carry higher interchange and higher fraud risk than card-present payments, which is why tools like AVS, CVV and 3-D Secure exist.

• Card-present

  A transaction where the card or wallet physically interacts with a terminal by tap, insert or swipe. Card-present payments carry lower interchange and lower fraud liability than card-not-present, because the chip or NFC cryptogram proves the card was genuinely there.

• Chargeback

  A forced reversal of a card payment initiated by the cardholder's bank after a dispute, pulling the funds back from the merchant along with a chargeback fee. Merchants can contest with evidence (representment), but prevention through clear descriptors, receipts and 3-D Secure costs far less than fighting.

• Chargeback ratio

  Chargebacks as a percentage of transactions in a month, watched closely by card networks and acquirers. Sustained ratios near one percent can place a merchant in a network monitoring program with fines or account termination, so reducing disputes protects the ability to accept cards at all.

• Code of Conduct (Canada)

  The Code of Conduct for the Payment Card Industry in Canada, which gives merchants rights including clear pricing disclosure, notice of fee increases, and the ability to cancel contracts without penalty after certain fee changes. It also governs how Interac debit and credit brands coexist on cards.

• Contactless limit

  The maximum amount a card allows for a tap without a PIN. In Canada most credit cards permit tap up to $250, while mobile wallets like Apple Pay and Google Pay have no fixed ceiling because the device authenticates the payer biometrically.

• Countertop terminal

  A wired or Wi-Fi terminal that lives at a fixed checkout: fast, always powered and always connected. Countertop units suit lanes with steady volume, while wireless and smart terminals trade a little of that stability for mobility.

• CVV / CVC

  The three- or four-digit security code printed on a card but never stored in the chip or magnetic stripe. Requesting it in card-not-present payments proves the buyer has the physical card. PCI DSS forbids storing the code after authorization, even encrypted.

• Debit routing

  How a debit transaction chooses its network path. In Canada, in-person debit runs on Interac at a flat fee, while the same card used online may route as Visa Debit or Debit Mastercard at percentage pricing. The routing difference is why in-person debit is usually the cheapest tender a merchant accepts.

• Decline code

  The reason code returned when an authorization fails: insufficient funds, expired card, suspected fraud, do-not-honour. Soft declines (temporary, retryable) and hard declines (permanent, do not retry) call for different handling, which is why recurring engines classify codes before retrying.

• Descriptor

  The business name that appears on a cardholder's statement for a transaction. Unrecognizable descriptors are a leading cause of friendly-fraud chargebacks, so the descriptor should match the name customers know, optionally with a phone number or city.

• Discount fee

  On a merchant statement, the cost of accepting the card — historically a single blended percentage taken off the deposit. On interchange-plus it should unpack into interchange, card brand assessments and the processor markup. If the line still arrives as one percentage, the statement is bundled even if the sales deck said otherwise.

• Dispute

  The process a cardholder starts when questioning a charge, which may resolve as an inquiry, a chargeback or nothing. Responding quickly with order records, delivery proof and refund history resolves many disputes before they harden into chargebacks with fees attached.

• Dynamic currency conversion (DCC)

  An option offered to foreign cardholders to pay in their home currency at the terminal, at a conversion rate that includes a margin. The cardholder sees a familiar currency; merchants should present it neutrally, as networks require the choice to be the cardholder's.

• E-commerce payment processing

  Accepting cards and wallets on a website or app through a gateway: checkout or hosted fields on the front end, authorization and settlement behind it, with AVS, CVV and 3-D Secure managing card-not-present risk. Conversion and fraud control pull in opposite directions; tuning both is the craft.

• Effective rate

  Total processing fees divided by total card volume over the same period, expressed as a percentage. Because it folds every markup, monthly fee and surcharge into one number, the effective rate is the only honest way to compare two processors or two pricing models.

• EMDR (Effective Merchant Discount Rate)

  Total processing cost divided by total processed volume for one period, expressed as a percentage. It is also called effective rate. The formula folds interchange, assessments, processor markup, per-item fees, monthly fees, PCI, gateway and chargeback fees into one number, which is why it is the only honest comparison between two providers.

• EMV

  The chip-card standard (Europay, Mastercard, Visa) that generates a unique cryptogram per transaction, making counterfeit card fraud at the terminal impractical. Liability for counterfeit fraud on non-EMV terminals shifted to merchants years ago, which is why every modern terminal reads chips.

• Force post

  A capture submitted against an approval code obtained outside the normal online authorization path: a voice-authorized sale when the network was down, a store-and-forward ticket, or a delayed close. It is not a way to charge a card that was declined. Keyed MOTO and many force posts are entered at the virtual terminal.

• Friendly fraud

  A chargeback filed by a genuine customer, whether by confusion (unrecognized descriptor), impatience (faster than requesting a refund) or intent (keeping goods without paying). It now accounts for a majority of dispute volume and is fought with evidence, clear descriptors and visible refund paths.

• Gateway

  The software layer that securely carries a payment from a website, app or virtual terminal to the processor. A gateway encrypts card data, applies fraud rules, and returns the approval or decline; it may be bundled with acquiring or provided separately.

• High-risk merchant

  A business an acquirer classifies as elevated risk because of chargeback exposure, regulatory scrutiny or delivery lag: travel, subscriptions, CBD, tickets. High-risk accounts face closer underwriting, possible reserves and higher pricing, and benefit most from processors that underwrite the category knowingly.

• Hosted checkout

  A payment page hosted by the processor rather than the merchant's own site. Card entry happens on the processor's servers, which keeps the merchant's PCI scope minimal, at the cost of less visual control than embedded fields offer.

• Idempotency (payments)

  Designing payment requests so a retry cannot double-charge: the same idempotency key returns the original result instead of creating a second transaction. Networks time out and connections drop, so idempotent payment creation is the difference between a safe retry and an angry customer.

• Integrated payments

  Connecting the payment terminal to the POS, ERP or business software so amounts pass electronically and results post back automatically. Integration removes double entry at the counter and the transposition errors that surface at month-end reconciliation.

• Interac

  Canada's domestic debit network. In-person Interac debit is priced as a flat few cents per transaction rather than a percentage, which makes debit-heavy businesses like grocery meaningfully cheaper to run than percentage-priced credit would suggest. Interac e-Transfer handles bank-to-bank transfers between people and businesses.

• Interchange

  The fee the card networks set and the cardholder's issuing bank collects on every card transaction. It varies by card type, entry method and merchant category: premium credit cards cost more than basic ones, and card-not-present costs more than tapped. Interchange is the same for every processor; only the markup differs.

• Interchange-plus pricing

  A pricing model that passes network interchange through at cost and adds a disclosed processor markup on top, shown separately on the statement. Because the two components are visible, interchange-plus statements can be audited and compared, unlike blended or tiered pricing where they arrive combined.

• International payments

  Accepting cards issued outside Canada or settling in other currencies. Cross-border transactions carry additional network fees and higher interchange, and multi-currency settlement lets a business price in USD or EUR without forced conversion on every sale.

• Interoperability (payments)

  The ability of payment infrastructure — terminals, tokens, host connections — to work across more than one processor without replacement. Interoperability turns switching costs into a negotiating position: hardware and integrations survive a provider change instead of anchoring the merchant to one.

• Invoice payments

  Collecting on issued invoices by embedding a payment link or portal in the invoice itself, so the client pays by card or bank transfer the moment they read it. Attaching the payment method to the invoice measurably shortens days-sales-outstanding compared to invoices that ask for an e-transfer separately.

• ISO (Independent Sales Organization)

  A company that sells merchant accounts on behalf of an acquirer, setting its own markup within the acquirer's structure. Two merchants with the same underlying acquirer can pay very different rates depending on which ISO signed them, which is why the reseller layer matters when comparing quotes.

• Issuer

  The bank that issued the customer's card and lends or holds the money being spent. The issuer approves or declines each authorization, collects interchange, and represents the cardholder in disputes. The issuer and acquirer sit on opposite sides of every card transaction.

• KYC (Know Your Customer)

  The identity verification a payment provider performs before opening a merchant account: business registration, beneficial owners, and screening against sanctions and watch lists. Canadian providers carry these obligations under federal anti-money-laundering rules, which is why onboarding asks for documents.

• Level 2 / Level 3 data

  Extra transaction detail (tax amounts, invoice numbers, line items) submitted with B2B and government card payments. Supplying it qualifies eligible corporate-card transactions for lower interchange categories, which can reduce cost materially for wholesale and B2B merchants.

• MCC (Merchant Category Code)

  A four-digit code classifying what a business sells, assigned at onboarding. MCC affects interchange rates, card rewards eligibility, and whether certain card types can be surcharged, so an incorrect MCC can quietly cost a merchant money or create compliance problems.

• MDR (Merchant Discount Rate)

  The total percentage a merchant pays on a card sale, combining interchange, network assessments and the processor's margin. A quoted MDR without a breakdown is a blended rate; the breakdown is what makes pricing comparable between providers.

• Merchant account

  The account an acquirer maintains for a business to accept card payments, distinct from its bank account. Card proceeds clear through the merchant account before depositing to the business's bank, which is why changing processors never requires changing banks.

• Merchant statement

  The monthly report of processing activity: volume, transaction counts, interchange, markup, monthly fees and adjustments. Statement formats vary deliberately; reading one means finding total fees, dividing by volume for the effective rate, and checking which pricing model produced the lines.

• Mobile wallet

  Apple Pay, Google Pay and similar apps that store tokenized cards on a phone or watch and pay by NFC with biometric approval. Wallet transactions are device-authenticated, so they typically skip the contactless PIN limit and carry lower fraud rates than plain card taps.

• Monthly minimum

  A floor on processing fees: if the percentage fees a merchant generates fall below the minimum, the processor bills the difference. Minimums punish seasonal and low-volume months, so they belong on the checklist of contract terms to find before signing.

• Multi-location processing

  Running several sites under one processing relationship with per-location reporting and consolidated group totals. Done well, each location reconciles its own deposits while head office sees fees and volume across the estate; done poorly, one blended deposit hides which site is underperforming.

• NFC (Near Field Communication)

  The short-range radio technology behind tap payments, used by contactless cards and mobile wallets. NFC transactions generate the same one-time cryptograms as chip insertion, so a tap is as secure as a dip and considerably faster at the lane.

• Omnichannel payments

  Running in-person, online and remote payments through one provider so catalogue, customers and settlement reporting stay unified. The practical payoff is one reconciliation instead of several, and customer payment methods that work across every channel the business sells through.

• Payfac (Payment Facilitator)

  A platform that aggregates many sub-merchants under its own master merchant account, onboarding them in minutes instead of days. Payfacs like marketplaces and SaaS platforms control the payment experience but absorb underwriting risk for every sub-merchant they carry.

• Payment link

  A URL that opens a secure hosted payment page for a specific amount or product, sent by text, email or QR code. Payment links need no website or integration, which makes them the fastest way to collect remotely for invoices, deposits and one-off sales.

• Payment orchestration

  Routing transactions across multiple processors or acquirers by rules: cost, currency, success rate or failover. Larger platforms orchestrate to lift authorization rates and avoid single-provider dependence; the interoperability layer underneath decides how portable the terminals and tokens are.

• Payments Canada

  The organization that owns and operates Canada's core payment clearing and settlement systems, including the systems behind EFT and the Real-Time Rail. Its rules govern how money moves between Canadian financial institutions.

• Payout / funding schedule

  When settled card funds actually reach the merchant's bank: next business day, two days, or same-day where offered. The schedule, cut-off times and any faster-funding fee shape cash flow more than most pricing lines, especially for businesses that buy inventory daily.

• PCI DSS

  The Payment Card Industry Data Security Standard, the security rules any business handling card data must meet. Scope depends on how card data flows: hosted fields and validated terminals can reduce a merchant's obligation to a short self-assessment questionnaire, while storing card numbers directly demands far more.

• PIN pad

  The device or on-screen surface where a cardholder enters their PIN for debit and chip transactions. PIN entry is validated by the issuer, and PCI rules govern the hardware's tamper resistance, which is why terminals are certified devices rather than generic tablets.

• POS system

  The software and hardware that runs the sale itself: catalogue, orders, tips, staff and inventory, with payment acceptance attached. Whether the POS bundles processing or lets it be priced separately determines whether the processing rate can ever be benchmarked against the market.

• Pre-authorization

  An authorization placed before the final amount is known, later captured for the actual total. Bars use it for tabs, hotels for incidentals and rental businesses for damage deposits. The initial hold and final capture can differ within network rules.

• QR payment

  A payment initiated by scanning a code that opens a checkout or payment link. QR codes move an in-person moment to an online payment flow, useful for table-side ordering, invoices on job sites, donation stands and anywhere hardware is impractical.

• Real-Time Rail (RTR)

  Canada's instant account-to-account payment system operated by Payments Canada, enabling funds to move between bank accounts in seconds with immediate finality, around the clock. For businesses it opens pay-by-bank checkout and instant supplier payments outside card networks.

• Recurring billing

  Charging a stored payment credential on a schedule: subscriptions, memberships, instalments. Reliable recurring billing depends on tokenized card storage, automatic retry logic for soft declines, and an account updater so reissued cards do not silently break the schedule.

• Recurring decline recovery

  The retry strategy applied when a scheduled charge fails: classifying soft versus hard declines, retrying at smarter times, updating credentials through an account updater and notifying the customer before cancelling. Recovery quality decides how much involuntary churn a subscription business eats.

• Refund vs void

  A void cancels a transaction before the batch settles, so the charge never posts and usually costs nothing. A refund reverses a settled transaction, moving money back to the cardholder over a few business days; interchange on the original sale is generally not returned. Void when you can, refund when you must.

• Representment

  The merchant's formal response to a chargeback, re-presenting the transaction to the issuer with evidence: receipts, delivery confirmation, communication history, refund records. Deadlines are short and strict, so dispute tooling that assembles evidence quickly wins cases that manual processes lose.

• Rolling reserve

  A percentage of each settlement an acquirer holds back for a period, commonly to offset chargeback risk for higher-risk merchants. The reserve releases on a rolling schedule. Any reserve terms belong in the merchant agreement and should be read before signing, not discovered on the first short deposit.

• RTP (Real-Time Payments)

  The Clearing House's US real-time credit network: a 24/7 account-to-account push with immediate finality. FedNow is the Federal Reserve's counterpart. Neither is ACH (which batches) and neither is a card authorization. Canada's equivalent is Real-Time Rail.

• Sandbox (payments)

  An isolated test environment with simulated cards, declines and settlement events, used to build and verify an integration before real money moves. Good sandboxes reproduce error codes and webhook timing faithfully, so production behaves the way the tests did.

• SAQ (Self-Assessment Questionnaire)

  The PCI DSS form a merchant completes annually to attest compliance. Which SAQ applies depends on how card data is handled: fully hosted payment flows qualify for the short SAQ A, while systems that touch card data face longer questionnaires and more controls.

• Settlement

  The movement of cleared funds from the card networks through the acquirer into the merchant's bank account, typically one to two business days after batch close. Settlement reports reconcile gross sales, fees, refunds and chargebacks against the deposit that actually lands.

• Smart terminal

  An Android-based payment terminal that runs point-of-sale apps alongside payment acceptance: catalogue, tips, receipts and inventory on the same device that reads cards. Smart terminals can replace a register, card reader and loyalty tablet with one piece of hardware.

• Split payment

  Dividing one bill across several payment methods or payers: two cards on one restaurant cheque, deposit now and balance later, or platform fees carved from a marketplace sale before the seller is paid. Each split settles and reports as its own transaction.

• Standing pre-authorized debit (PAD)

  A signed agreement letting a business debit a customer's Canadian bank account on a schedule, governed by Payments Canada rules on authorization and notice. PAD suits rent, dues and B2B retainers where card fees on large recurring amounts are hard to justify.

• Surcharging

  Adding a fee to credit-card transactions to recover processing costs. Permitted in most of Canada since 2022 within network caps and disclosure rules, but prohibited in Quebec by consumer protection law, and never permitted on Interac debit. Signage and receipt disclosure requirements apply.

• Tap to Pay

  Accepting contactless payments directly on a phone with no separate card reader, using the device's NFC. Certified apps turn an ordinary smartphone into a terminal for taps from cards and wallets, suited to mobile trades, deliveries, markets and queue-busting.

• Tiered pricing

  A pricing model that groups transactions into qualified, mid-qualified and non-qualified tiers, each at a blended rate. Which tier a transaction lands in is at the processor's discretion, and the tiers hide true interchange, which makes tiered statements the hardest to audit and compare.

• Tokenization

  Replacing a card number with a substitute token that is useless outside the system that created it. Stored tokens let merchants run repeat and recurring charges without holding card numbers, cutting both breach impact and PCI scope. Vaulted tokens survive reissues when paired with an account updater.

• Underwriting

  The acquirer's risk assessment of a merchant before and during the account relationship: industry, volume, average ticket, chargeback history and financial standing. Underwriting determines approval, pricing, reserves and processing limits, and unusual activity can trigger a re-review at any time.

• Virtual terminal

  A secure web page where staff key in card details to take payment without the physical card: phone orders, invoices, deposits and mail orders. Transactions are card-not-present, so AVS and CVV checks apply, and pricing reflects the higher CNP interchange.

• Void

  Cancelling an authorized transaction before the batch settles, so it never posts to the cardholder's statement and no funds move. Same-day mistakes should be voided rather than refunded: the customer sees the hold drop away, and the merchant avoids refund processing on a settled charge.

• Webhook

  An automated notification a payment platform sends to a merchant's system when something happens: payment approved, refund completed, chargeback opened. Signed webhooks with idempotent processing keep order systems, accounting and fulfilment in sync without polling.