Reference · Glossary

Merchant services glossary: payments terms, explained in plain English

A working dictionary of the jargon used across card processing, agent programs, and merchant portals. Each entry is one or two sentences — enough to understand the term in context without needing a second search.

How to use this glossary

Merchant services has accumulated a dense layer of jargon over forty years. Part of it comes from the card networks (interchange category names, acronyms like APF and NABU), part from regulatory frameworks (PCI DSS, Durbin, HIPAA's BAA), part from the accounting side of the industry (residuals, effective rate, attrition), and part from the hardware and software vendors layered on top (POS, ISV, tokenization). Reading a merchant statement or an agent agreement fluently requires some minimum command of this vocabulary.

This glossary is built as a reference rather than a tutorial. If you're reading an article on this site and encounter a term you don't recognize, the expectation is that you jump here, read the one-paragraph definition, and jump back. Most entries cross-reference the longer explainer where the term gets fuller treatment — interchange links to the payments primer, chargeback links to the merchant portal chargebacks section, and so on.

Below is the full alphabetical list of terms we cover. Use the letter jumps on the left to skip around, or search the page directly with your browser's find function (Ctrl+F / Cmd+F).

Where these terms come from

The terms included here are the ones that appear most often in reader correspondence with our editorial team, in merchant statements we review for readers, and in agent agreements we've helped readers parse. We've deliberately kept the list focused on U.S. merchant services terminology rather than attempting to cover global payments vocabulary exhaustively. Regional variations (European SEPA terms, U.K. card scheme vocabulary, Asia-Pacific payment network specifics) would each fill a glossary of comparable size; they're not included here because our readership is predominantly U.S.-based and our editorial capacity is focused on U.S. industry coverage.

A

ACH (Automated Clearing House)

The U.S. electronic bank-to-bank network used for merchant funding, recurring billing, and settlement. Slower than card networks (T+1 to T+3) but far cheaper — often pennies per transaction versus card interchange.

Acquirer

The bank that maintains a merchant's account and sponsors them with the card networks. The acquirer is on the merchant side of the transaction, in contrast to the issuer on the cardholder side.

APF (Acquirer Processing Fee)

A small flat assessment Visa charges on each acquirer-originated transaction. Pass-through, non-negotiable, typically a fraction of a cent. Appears on merchant statements.

Assessments

Pass-through fees charged by the card networks (Visa, Mastercard, Discover, American Express) on top of interchange. Includes APF, NABU, Visa/Mastercard assessments, and various scheme-specific charges.

AVS (Address Verification System)

A fraud-control check that compares the numeric portion of the cardholder's billing address and ZIP code with what the issuer has on file. Especially important for card-not-present transactions.

Authorization

The initial approval from the issuing bank that the card has available credit or funds and is not flagged. Authorization reserves the amount but does not transfer money; settlement does that.

B

BAA (Business Associate Agreement)

A HIPAA-required contract between a covered entity (typically a healthcare provider) and any vendor that handles protected health information. Required if payment integrations touch patient data.

Batch

The end-of-day closeout that transmits a merchant's card-present transactions to the processor for settlement. Typically runs automatically overnight or manually at end of shift.

BIN (Bank Identification Number)

The first six (now eight, as of 2022) digits of a card number that identifies the issuing bank and card product. Used for routing and for category-based interchange lookup.

C

Card-Present

Transactions where the physical card is read (tapped, dipped, or swiped) at a terminal. Lower interchange than card-not-present because of lower fraud risk.

Card-Not-Present (CNP)

E-commerce and manually keyed transactions where the card is not physically read. Higher interchange, more fraud risk, and tools like AVS and 3DS2 exist specifically for CNP.

Chargeback

A formal dispute filed by a cardholder through their issuing bank. The merchant receives a response window (typically 30 days) to submit evidence. See the merchant portal guide for the workflow.

Clearing

The post-authorization phase where the merchant's batch is transmitted through the card network and matched against issuer records, generating the settlement instructions.

CVV / CVC

The three- or four-digit security code printed on a card used to verify card possession during card-not-present transactions. Cannot be stored by merchants under PCI rules.

D

DDA (Demand Deposit Account)

The merchant's bank account of record for funding — the account where net settlement deposits arrive. Changing DDA requires a formal request to the processor with bank verification.

Dispute

Synonym for chargeback in most contexts. A cardholder-initiated challenge to a transaction that the merchant must respond to or accept as a loss.

E

EMV

The global chip-card standard (named after Europay, Mastercard, Visa). EMV-compliant terminals reduce counterfeit-card fraud and shift liability for counterfeit losses from merchant to issuer.

Effective Rate

Total card-processing fees divided by gross card volume, expressed as a percentage. The single most useful number on a merchant statement for comparison shopping.

I

Interchange

The fee the acquirer pays the issuer for each card transaction. Set by the card networks in published schedules, varying by card type, transaction type, MCC, and ticket size. Largest component of total processing cost.

Interchange-Plus Pricing

A pricing model where the merchant pays interchange pass-through + a clearly stated markup (e.g., "+0.25% + $0.10"). Most transparent pricing structure; see the payments guide.

Issuer

The bank that issued the card to the cardholder. Earns interchange on each transaction. Approves or declines authorizations and handles chargebacks.

ISO (Independent Sales Organization)

A company registered with the card brands (via a sponsor bank) that resells merchant services on behalf of a processor. Most U.S. merchants are boarded through ISOs rather than directly with a processor.

ISV (Integrated Software Vendor)

A software company that embeds payment acceptance into its product (e.g., a practice management platform that handles billing). ISV programs are a major growth area for processors.

M

MCC (Merchant Category Code)

A four-digit code assigned to every merchant that categorizes the business (restaurant, retailer, healthcare, etc.). MCC drives interchange rate selection for many categories.

MID (Merchant ID)

A unique identifier the processor assigns to each merchant account. Used internally for routing, reporting, and fraud scoring. Usually visible in the merchant portal and on statements.

N

NABU (Network Access and Brand Usage)

A Mastercard per-transaction assessment — Mastercard's equivalent of Visa's APF. Pass-through, fixed dollar amount, appears on every Mastercard-accepted transaction.

P

PCI DSS

The Payment Card Industry Data Security Standard — the mandatory security framework all card-accepting merchants must attest to annually. See the small business guide.

POS (Point of Sale)

The hardware, software, or combination used to accept payment from a customer. Ranges from a standalone terminal to a full integrated retail platform. See the POS guide.

R

Residual

The monthly revenue share paid to an agent or ISO from the net margin on each boarded merchant's processing. The core compensation in the industry. See the commission guide.

RTP (Real-Time Payments)

A U.S. near-instant interbank payment rail operated by The Clearing House, launched 2017. Alternative to ACH for time-sensitive transfers. FedNow is the Federal Reserve's competitor rail.

S

Settlement

The actual money movement following a cleared transaction — funds flow from issuer through network to acquirer to merchant DDA. Usually T+1 or T+2 business days.

SAQ (Self-Assessment Questionnaire)

The PCI compliance attestation form merchants complete annually. Different SAQs apply depending on acceptance method (SAQ A, A-EP, B, C, D, etc.).

Sub-ISO

An organization that operates under a Registered ISO's card-brand registration, with its own brand and agent channel but no direct card-brand relationship. Most ISOs people interact with day-to-day are sub-ISOs.

T

Tiered Pricing

A pricing model where transactions are placed into "qualified," "mid-qualified," or "non-qualified" buckets by the processor, each with its own rate. Less transparent than interchange-plus.

Tokenization

Replacing a card number with a non-sensitive token that can be safely stored and used for recurring billing or card-on-file without PCI-sensitive data exposure.

W

W-9 / W-8

IRS forms collected from U.S. (W-9) and non-U.S. (W-8) agents and vendors for tax reporting. Required before any residual payment can be made to an agent.