The Complete Glossary of Payment Processing & Merchant Services Terms

Merchant
A business that accepts electronic payments from customers, including credit cards, debit cards, and ACH transfers.

Merchant Services
A broad term covering payment processing, hardware, software, gateways, risk tools, reporting, and support that enable a business to accept payments.

Card Network
The networks (such as Visa or Mastercard) that set interchange rules and facilitate communication between issuing and acquiring banks.

Batching
The process of grouping approved transactions together for settlement, usually at the end of the business day.

Merchant Account
A specialized account that allows a business to accept card payments. Funds are temporarily held here before being deposited into the business’s bank account. Funds deposited to the merchant account are unsecured microloans from the acquiring bank—funds are then received from the customer’s bank in a number of business days

Payment Processor/ Acquirer (Acquiring Bank)
The company that handles transaction routing, authorization, and settlement between the merchant, banks, and card networks.

Authorization
The step where a customer’s bank verifies available funds and approves or declines a transaction.

Settlement
The movement of funds from the issuing bank, through the card network, to the merchant account.

Interchange Fee
The base fee set by card networks and paid to the issuing bank. This fee varies based on card type, transaction method, and risk factors.

Markup
The portion of processing cost set by the payment processor, above interchange and assessments.

Interchange-Plus Pricing
A transparent pricing model where interchange is passed through at cost, plus a clearly defined processor markup.

Effective Rate
The total processing cost divided by total card volume—useful for evaluating what you’re actually paying overall.

Assessment Fee
A small percentage fee charged by card networks on top of interchange.

Flat-Rate Pricing
A pricing model where all transactions are charged the same rate, regardless of card type, transaction method or interchange cost.

Tiered Pricing
A model that groups transactions into “qualified” tiers or buckets, often making it harder to see true costs.

ACH (Automated Clearing House)
A bank-to-bank payment method commonly used for direct debits, payroll, and recurring payments.

Card-Present
Transactions where the physical card is used in person, typically at a terminal or POS system.

MOTO (Mail Order / Telephone Order)
A card-not-present transaction where payment details are provided by mail or phone.

Terminal
A physical device used to process card-present transactions.

Virtual Terminal
A web-based interface that allows merchants to manually enter card details for payment.

Card-Not-Present
Transactions where the card isn’t physically present, such as online or keyed-in payments.

POS (Point of Sale)
Hardware and software used to accept payments and manage sales in physical locations.

Payment Gateway
The technology that securely transmits transaction data from the merchant to the processor for authorization.

PCI DSS Compliance
A set of security standards designed to protect cardholder data. Required for any business that handles payment information.

EMV
Chip-based card technology that reduces fraud in card-present transactions.

CVV
The security code on a card used to verify card-not-present transactions.

Retrieval Request
A request from a bank for transaction documentation, often preceding a chargeback.

Tokenization
A security method that replaces sensitive card data with a non-sensitive token for storage and future use.

AVS (Address Verification Service)
A fraud-prevention tool that verifies valid billing address details during authorization.

Chargeback
A transaction reversal initiated by a customer’s bank, often due to disputes or fraud.

Rolling Reserve
A percentage of funds held temporarily by the acquiring bank to protect against chargebacks or risk exposure.