Payment Glossary
✨General
Payment Rail: Payment rails are networks or payment infrastructures to allow digital transfer of funds between payer and payee.
Clearing: Clearing refers to the process of verification and reconciliation of funds before settlement.
Settlement: Settlement refers to the transfer of funds between financial institutions.
💳 Cards
Card Network: A card network (or card scheme) is a system that facilitates payment transactions between the merchant and acquirer. The 4 major card networks in the US are Visa, Mastercard, American Express and Discover.
Issuer: A card issuer is a financial institution, bank, credit union or company that issues plastic cards (e.g., credit cards, debit cards) to the cardholders (or end users). Issuers are also known as the issuing bank.
Acquirer: A merchant acquirer (simply known as acquirer) is the merchant bank that processes and settles the merchant’s card transactions, and in turn settles funds with the issuer.
Card Authorization: Process whereby the customer’s card and transaction information are sent to the issuer (cardholder’s bank) to confirm the card details, the customer’s account details and available credit. The issuer then communicates the transaction authorization to the merchant via the card network.
Card Settlement: Process by which funds are moved or “settled” between the issuer and acquirer.
Point-of-Sale (POS) Terminal: Device used to read and capture card payments at physical retail locations. POS terminals have software to read the magnetic strips and chips on cards, as well as capture data from other payment types (e.g., digital wallets).
Payment Processors: Intermediaries emerged to provide these card processing services, and they became known as payment processors.
Payment Gateways: Companies that provide customer- and merchant-facing technologies to securely collect, capture and encrypt card information for card-not-present scenarios (i.e, scenarios where a person is not physically handing over a card for payments) and to route the information to the payment processors.
Payment Service Providers (PSPs): Companies that allow merchants and businesses to accept a variety of electronic payments, often offering a variety of services such as seamlessly integrated POS terminals and payment gateways. PSPs connect merchants to payment processors and the broader financial system.
Payment Facilitators (PayFacs): Companies that allow merchants and businesses to accept a variety of electronic payments leveraging the PayFacs’ infrastructure. PayFacs will have a master account at the acquirer, and onboard merchants they work with as sub-merchants under this master account.
Card-not-present (CNP): Refers to payment scenarios where any card (debit or credit) is process without the card being physically present. Typically used in relation to online or ecommerce transactions.
Closed-loop cards: Closed-loop cards are payment cards that can only be used at specified locations, either locations from a single organization or approved locations.
Open-loop cards: Open-loop card is a general-purpose card that can be used at any locations that the card network brand is accepted.