Ever have a “say what?” moment as you’re getting better acquainted with the payments industry? You’re not alone, which is why we’ve compiled this list of common definitions for quick, electronic reference. It’s all the juicy terminology with none of the calories to beef up your brain. Enjoy!
Acquirer: The acquirer holds the contract with the merchant and manages the funding of transactions, processing credit or debit card payments on behalf of a merchant.
Assessment Fees: A percentage fee charged by the card brands that is applied to all transactions.
Back-End Processor: Known as a host processor, a data processing company that contracts with acquirers to provide communication and processing systems that connect with interchange systems for clearing and settlement services on behalf of those acquirers. In some cases, the acquirer may act as its own back-end processor.
Card Brands: The most common brands include Visa®, MasterCard®, Discover® and American Express®.
Clearing & Settlement: The acquirer sends batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction.
Front-End Processor: A company and/or vendor that provides communication and data processing services for card payment authorization and the transfer of data between merchants’ point-of-sale equipment to the back-end clearing and settlement processor.
Funding: The acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus the fees the merchant pays the acquirer for processing the transactions.
Independent Sales Organization (ISO): A sales organization whose primary purpose is to sell card processing services to merchants. ISOs contract with acquiring banks or other ISOs to resell their services. ISOs can be a two-man shop or a very large organization.
Independent Software Vendor (ISV): These organizations specialize in creating business solution software for mass market or niche resale. Each software solution, which may or may not include a payments solution (e.g., Micros, Oracle), runs on one or more pieces of computer hardware and/or operating systems. It can be distributed and serviced through a direct sales force by VARs or remotely if it’s cloud-based. ISV’s focus tends to be on POS solutions for payments-intensive industries (e.g., retail, restaurants) seeking to integrate payments functionality into its solution.
Interchange: The wholesale fees paid to the card brands for the acceptance of card-based transactions. These fees are set by the card brands and are not negotiable. The acquirer can add additional fees to the pricing structure that can be negotiated through the sales process, but interchange is consistent, no matter the acquirer.
Issuing Bank: A bank that offers card association branded payment cards directly to consumers. The name is derived from the fact that it issues accounts/cards to customers (the purchaser in the transaction).
Processor: A company, often a third party, appointed by a merchant to handle transactions from credit and debit cards for merchant acquiring banks. They are usually broken down into two types: front-end and back-end.
Sponsor Bank: A bank that has obtained Visa or MasterCard membership, allowing the acquirer access to the Visa and MasterCard networks so the transaction can be processed. Only a bank may join Visa or MasterCard, and many processors make deals with a sponsoring bank to gain access to the Visa and MasterCard networks. The sponsoring agreements usually function as partnerships, resulting in a somewhat blurred line between sponsoring bank and processor—sometimes the partnership is referred to by the bank name and other times it’s referred to by the processor name.
System Integration (SI): The process of bringing together component subsystems into one system and ensuring the subsystems function together as one.
Transaction: An act between a seller and a cardholder that results in a paper or electronic representation of the cardholder’s promise to pay for goods or services received from the act.
Value-Added Reseller (VAR): A company that builds a software package with features and services that meet specific needs of businesses in defined verticals. PaymentSpring integrates payment processing solutions seamlessly into VAR products. The VAR will sell the solution (usually to end-users) as an integrated product that acts as a single, turnkey solution.
Now that you have some of the lingo down, dive into the payments industry a little more. And remember, you can pop into the sandbox via a free test account any time to play around with the payments process.