Whiteboard Wednesday #16: Payment dictionary - payment terms you should know | Clearhaus Learning
If you’re new to e-Commerce, you’ve probably stumbled upon some new payment terms - and you might not be completely sure what all of them mean.
We’ve made this small video dictionary to help you understand each of them.
We’ll explain some of the most common payment terms in everyday words - so you’ll know exactly what it means when your payment provider talks about authorisation and authentication.
Hi there! Welcome to Whiteboard Wednesday again. This time, payments is complicated enough, and you’ll hear loads of acronyms and terminology. I’m just trying to explain and simplify some of the terms you’ll probably hear that might confuse you. So in no particular order, we’ll talk about some of the terminology.
So, four-party scheme, you might have heard of. All that means is the different parts of the jigsaw we’ve spoke before. Typically there’s the cardholder or the consumer, there’s the merchant, that’s number two. There’s the acquirer, number three, and then there’s the issuer, number four. That’s what it means. There are, however, other parts of the jigsaw. The gateway, there’s fraud, and there’s the card schemes as well, so some people explain it as a six or seven party scheme.
Terminology, payment, payment transaction - all that means is when your cashier pops up for the consumer to buy the goods and services, that consumer is facilitating a transaction or a payment. That’s all it means.
Processing and clearing. This is literally the whole board. So, when you hear a phrase of processing or clearing, it’s from the start of the transaction all the way through your merchant ecosystem. The cashier and the acquirer. So, when people say about payment processing or payment clearing that’s what that means.
Breaking it down into parts now, you’ll hear about authorisation. All an authorisation is is when the consumer comes on to your store for say, a hundred euros, he’s buying something to that value. You need to make sure that the consumer has got the amount of money on his bank account or card, so, you send the transaction on this part to the issuer for an authorisation and that merely confirms that he’s got enough money in the account of the time of the transaction.
Settlement. Settlement is the part where the acquirer, once he’s received the money back from the issuer, they settle to the merchant bank account,
Authentication. You’ll hear about card transaction going through a process of fraud screening and also 3-D Secure transaction or Verified by Visa or Mastercard SecureCode. All that means is that the card is having additional authentication processes to make sure it’s not fraudulent or potential chargeback transaction.
Capture. Capture is when the acquirer, once you’ve sent the transaction to the acquirer, the acquirer passes it the up to the issuer, and they take the money off of the cardholder’s bank account or credit card. So, they actually take the transaction and the money and the money then comes down and it’s captured off the card, debited off the card
A refund is merely what it says. The consumer has received his goods and services and has rung you up or contacted you and says I don’t want these goods or services now. So as long as he returns those goods and services to you, you facilitate a refund of that transaction back to his card.
Void is slightly different. It may be that he consumer has asked for goods and services from the website, and at the moment, you haven’t captured the money. You haven’t taken the money and asked your acquirer to take the money. So, all you can do in your messaging through the gateway, is to void the transaction as though it didn’t even happen, so the consumer is never debited and the bank isn’t debited over here. So, it deletes the transaction from the system.
Chargebacks we spoke about where the consumer, if he’s not happy with the goods and services, that have been sold or received from your website or transaction services, digital he has the right to query the transaction with his bank or his issuer and charge the transaction back, and that’s typically known as a chargeback. Then you guys have the right to defend yourselves against chargebacks, which we spoke about in an earlier whiteboard session.
Another term, rolling reserve or security. What’s that? Literally when you enter a relationship with a bank, or an acquirer, or a gateway, these guys will negotiate with you on the amount of time it takes them to settle the money to your bank account. So, typically that can be three, seven, or even thirty days. That’s for you at a separate negotiation to negotiate when you’re talking about this in the payment ecosystem.
And then finally another terminology, interchanging scheme fees. You’re here on this part when you get into a merchant contract with an acquirer or a gateway that they will charge you a transaction fee. And that transaction fee is made up of costs on this side of the board. The issuer, the card schemes, and the acquirer, they all have costs in processing your transaction, and those costs are made up of the background of scheme fees and interchange.
So, that’s a quick summary of terminology and I hope it’s helped. It’s very confusing but I hope that’s had some clarity to it. Thank you.