Payment Processing Terminology: A Glossary for Merchants

Payment processors love jargon. Your merchant statement alone can feel like a foreign language. This glossary covers the key terms you'll encounter — so you can read your statement, evaluate providers, and make informed decisions.

A

Acquirer — The financial institution that processes card payments on behalf of merchants. GoPayhawk's processing is powered by Elavon, a U.S. Bank subsidiary and one of the largest acquirers in North America.

Address Verification Service (AVS) — A fraud prevention tool that checks whether the billing address provided by the customer matches the address on file with the card issuer. Mismatches flag potential fraud.

Approval Code — A code returned by the issuing bank confirming a transaction has been authorized.

Authorization — The process of verifying that a card is valid and has sufficient funds or credit for a transaction. Authorization does not move money — it reserves it.

Authorization Hold — A temporary reserve placed on a customer's available balance while a transaction is pending settlement. Common in hotels, gas stations, and rental businesses.

Automated Clearing House (ACH) — An electronic network for bank-to-bank transfers. Used for direct deposit, bill pay, and B2B payments. ACH is typically lower-cost than card processing.

Average Ticket Size — The average dollar value of transactions processed through your account in a given period. Affects your interchange rate category.

B

Bank Identification Number (BIN) — The first 6 digits of a card number, identifying the issuing bank. Used in fraud detection and interchange rate assignment.

Batch Processing — The process of submitting all authorized transactions from a given period as a group for settlement. Most merchants batch once daily.

C

Chargeback Ratio — The percentage of your monthly transactions that result in chargebacks. Above 1% triggers processor warnings; above 2% risks account termination and MATCH list placement. See: How to Reduce Chargebacks.

Chargeback — A transaction reversal initiated by the cardholder's bank. When a customer disputes a charge, their bank reverses the transaction and the merchant loses both the sale and the chargeback fee ($20–$100). See How to Reduce Chargebacks.

Card-Not-Present (CNP) — Any transaction where the physical card is not present at the point of sale — online orders, phone orders. CNP transactions carry higher interchange rates and fraud risk.

CVV / CVC — The 3- or 4-digit security code on a card. Required for CNP transactions to verify physical card possession.

D

Discount Rate — The percentage fee charged by your processor on each transaction. On interchange-plus pricing, this is your processor's margin. On flat-rate pricing, it includes interchange bundled in. See: How to Read Your Merchant Statement.

Decline — When an issuing bank refuses to authorize a transaction due to insufficient funds, fraud flags, or an expired card.

E

Effective Rate — Your total processing fees divided by your total volume, expressed as a percentage. This is the single most important number on your statement. A healthy effective rate for most retailers is 1.8%–2.3%. See: How to Read Your Merchant Statement.

EMV — Europay, Mastercard, Visa — the global standard for chip card payments. EMV chips generate a unique transaction code for each purchase, making counterfeiting significantly harder. See 15 Reasons to Accept EMV Cards.

Encryption — The process of encoding card data so it can only be read by authorized systems. End-to-end encryption (E2EE) means data is encrypted from the moment the card is swiped.

G

Payment Gateway — Technology that transmits card data from your website or terminal to the payment processor. Gateways are the bridge between your checkout and the banking network. See How to Choose a Payment Gateway.

I

Interchange Fee — A fee paid to the card-issuing bank for every transaction. Set by Visa, Mastercard, Amex, and Discover — not by your processor. Interchange rates vary by card type, industry, and transaction method. Interchange-plus pricing passes these costs to you transparently.

ISO (Independent Sales Organization) — A company authorized by card networks to resell payment processing on behalf of acquiring banks. GoPayhawk is an ISO. ISOs typically offer more flexibility and personalized service than dealing directly with a bank.

Issuing Bank — The bank that issued the customer's card (e.g., Chase, Bank of America). The issuing bank approves or declines transactions and pays the merchant's acquirer.

M

MID (Merchant ID) — A unique identifier assigned to your merchant account by your acquirer. Used to route transactions and identify your business in the payment network.

Merchant Account — A specialized commercial bank account that allows businesses to accept card payments. Funds are deposited here before being transferred to your business bank account. See What Is a Merchant Account?

Merchant Category Code (MCC) — A 4-digit code assigned to your business by card networks, classifying your industry. Your MCC affects interchange rates and which card types you can accept.

P

PCI DSS — Payment Card Industry Data Security Standard. Twelve security requirements that any business accepting card payments must comply with. Non-compliance can result in fines up to $100,000/month. See What Is PCI Compliance?

Payment Processor — The company that handles the technical routing of transactions between your terminal, the card networks, and the banks. GoPayhawk is your processor.

S

SAQ (Self-Assessment Questionnaire) — The annual PCI DSS compliance questionnaire merchants complete to verify their security controls. Different types (A, B, D) apply depending on how you accept payments. Skipping it triggers a non-compliance fee of $20–$50/mo. See: What Is PCI Compliance?

Settlement — When funds from authorized transactions are transferred from the customer's bank through the card network into your merchant account. Typically happens within 24–48 hours of batching.

T

Tokenization — Replacing sensitive card data with a non-sensitive token that cannot be reverse-engineered. Even if your system is breached, tokens are worthless without the token vault.

Retrieval Request — A request from a cardholder's bank asking a merchant to provide transaction documentation. Often precedes a chargeback. Responding promptly with receipts and delivery confirmation can prevent escalation.

Rolling Reserve — A percentage of transaction volume (typically 5–10%) held in escrow by the acquirer as a security buffer — common for high-risk merchants. Funds are released after 90–180 days. See: High-Risk Merchant Accounts.

Transaction Fee — A flat per-transaction charge (e.g., $0.10 per transaction) in addition to the percentage rate. On interchange-plus pricing, this appears as a separate line item.

V

Virtual Terminal — A browser-based application allowing you to manually enter card details for phone or mail orders. Useful for businesses without a physical POS.

Void — Cancelling a transaction before it settles. Once settled, a refund must be issued instead.