Payment Glossary for Commerce
Commerce is all about buying and selling goods. But, with the recent advancements in technology, commerce has evolved into something bigger, where businesses can now trade anywhere with ease. As a result, before a business can enter the eCommerce space, there is some payment terminology to be familiar with.
This is a service that lets merchants update the stored card details of their customers automatically, especially for recurring payments. It provides information to the acquirer on stolen and lost cards, closed card accounts, and non-activated cards.
An acquiring bank is a financial institute or bank that gets funds for its merchant from a customer. Before it can accept payments, an acquirer needs to be licensed by the corresponding card network or partners with a payment processor.
ARN (Acquirer Reference Number)
This is a unique number assigned to a transaction after it moves from the acquiring bank via the card scheme at the issuer or cardholder’s bank. The ARN is used to track all payments or refunds.
Bank Identification Number
The Bank Identification Number is also known as the Issuer Identification Number, which is the first six to eight digits of the card number. These numbers are used to determine the card networks quickly.
Capture or Clearing & Settlement
Once payment is already authorized by the payment processor, it must be captured to be completed. This can also be classified as moving funds from the shopper to the merchant.
Cardholder Verification Method
A cardholder is a customer that uses a card issued by a bank to complete cashless transactions. A CVM or cardholder verification method is used to confirm any payment instrument like credit cards.
Card networks or card schemes are payment networks that provide infrastructure and set rules to issue cards and process payments with the cards. For a payment to be completed, both the issuer and an acquiring bank must be a part of the same network as the card.
Card Security Code
These are three to four-digit codes printed on a card in addition to the existing card number. This code is used in certain transactions to verify the cardholder’s identity.
In the case of a dispute where the merchant is refusing a refund, a customer can ask their issuer to make a chargeback. Then, the chargeback process begins until it is resolved, with either the customer getting their money back or staying with the merchant.
Digital Customer Recognition
Digital Customer recognition or DCR is used to identify shoppers that have purchased goods previously with the merchant across channels. This can help tailor loyalty programs.
Dynamic Currency Conversion
DCC or Cardholder Preferred Currency (CPC) allows customers to convert the transaction amount to their default card’s currency anytime they make a purchase abroad. As long as the terminal has been configured to enable DCC, the customer is presented with the option to convert the transaction amount to the default currency configured on the card.
This is the maximum cash value a terminal will allow for a transaction when processed offline. In addition, an inclusive limit is configured, and it applies to every individual transaction.
In-app or mobile payments are electronic payments shoppers make through mobile apps. This type of payment is made using cards or any local payment options. It usually utilizes native mobile APIs or optimized web pages.
An interchange fee is a fee that is paid to the issuing bank by the acquiring bank for every payment transaction made through a card network. The corresponding card network determines the fee amount and the scheme fee.
This is simply a bank that issues a card for shoppers to make cashless transactions through eCommerce websites, physical stores, or a mobile app. To issue a card, the issuer must be part of the numerous card networks. Or they must subscribe to one of the card services.
Basic E-Commerce Payments Terms
Having an idea of payment gateway terminology and the different payment terms and abbreviations is vital to running a successful e-commerce business.
Payment Terms and Abbreviations
Anti-Money Laundering – AML
AML or Anti-money laundering is a term used mainly in the financial and legal industries to explain a set of rules, procedures, legal controls, or regulations built to prevent, detect, and report the practice of generating a source of income using illegal activities such as money laundering.
Alternative Payment Method – APM
An alternative payment method or APM relates to an electronic payment not made through a debit or credit card. This method includes e-vouchers, digital wallets, prepaid cards, P2P solutions, cryptocurrencies, and mobile payments.
Bank Identifier Code – BIC
Bank Identifier Code or BIC is also referred to as a SWIFT address or SWIFT code since SWIFT owns and operates the BIC system.
Continuous Linked Settlement – CLS
CLS or Continuous Linked Settlement is run by the CLS international bank. This is a financial institution that is dedicated to settling foreign exchange trades. CLS administers a multi-currency system for settlement to mitigate the risk associated with Forex transactions via the provision of its payment against a payment settlement service. This directly links to the Real-Time Gross Settlement systems of each 18 currencies it handles.
Card Not Present – CNP
What we mean by Card Not Present is when a remote purchase is made where the payment card and cardholder are not present physically for visual examination at the POS. This is classified under purchases made over the phone, by mail, on the merchant’s website, fax, or even mail-order.
Electronic Funds Transfer – EFT
Electronic Funds Transfer or EFT is any transfer of funds that is started electronically, such as ATM withdrawals, card payments, debit transfers, and others without the help of bank staff. These transactions occur in the same organization or between accounts spread across one or more financial institutes in the same banking network.
Foreign Exchange – FX/Forex
Forex or Foreign Exchange, or FX is converting or exchanging a particular currency to another. It is also a global trading market where currencies are exchanged 24/7, with its largest trading centers in London, Tokyo, New York, and Singapore.
International Bank Account Number – IBAN
IBAN is an account number written in a standardized internationally recognized format used to identify a particular individual’s account. With that, it is faster and easier to process cross-border transactions all over Europe. A typical IBAN comes with codes that identify the country and bank the account belongs to and the account number.
Knowledge-Based Authentication – KBA
KBA is a security measure, which seeks to provide proof to identify the user attempting to access an online service by asking them to give answers to one or more secret questions. KBA is mainly used as a part of multifactor authentication and password retrieval.
Know Your Customer – KYC
Know Your Customer or KYC is a mandatory regulation in banking designed to protect the integrity of the banking system. To prevent risks, financial institutions perform KYC checks by getting sufficient information that is useful in developing a comprehensive profile of customers.
Payment Card Industry – PCI
PCI consists of all the organizations that store, transmit, and process cardholder data, which includes ATMs, point of sale (POS), credit, prepaid, debit, and electronic money cards, and terminals. PCI is regulated by the PCI Security Standards Council
Payment Card Industry Data Security Standard – PCI DSS
The Payment Card Industry Data Security Standard or PCI DSS is an infosec standard used by organizations to handle payment cards. This standard is regulated and operated by the PCI SSS, and it exists to increase the controls around cardholder data to reduce credit card fraud. Compliance is also validated annually through a qualified security assessor or self-assessment questionnaire, based on the volume of transactions each organization makes.
Real-Time Gross Settlement Systems – RTGS
Real-Time Gross Settlement Systems or RTGS are fund transfer systems created to move high value and multiple wholesale payments from one bank to another instantly. RTGS is often controlled by the central bank of the country. When payments are made through an RTGS, they are settled once the processing is complete. Once this happens, the payments are final and irreversible. Since these payments are high value, there is no need to be bundled or netted. As a result, each transaction is settled on a one-on-one basis in real-time.
Society for Worldwide Interbank Financial Telecommunication – SWIFT
SWIFT is a cooperative utility with the goal of developing a standardized messaging and processing of transaction services for global financial institutions, enabling cross-border transfers. SWIFT payments are a kind of international transfer sent using the SWIFT network, but SWIFT does not control funds transfer.