Payments glossary
Plain-English definitions of the payment processing terms you’ll meet when comparing providers: interchange, chargebacks, ACH, PCI, and rolling reserves.
Payment terms explained
The terms that come up most often when you compare providers, in plain English and in the order they matter.
Key takeaways
- A gateway captures the payment, a processor moves the money. Most providers now do both.
- A merchant account holds funds between authorization and settlement.
- Payment links let you take payment without building a checkout at all.
What a payment gateway and a payment processor each do
These two terms are used interchangeably more often than any other pair in payments, but they name different jobs.
A payment gateway securely captures and encrypts the payment information a customer submits, whether they're shopping online or paying through a mobile device. A payment processor then communicates with banks and card networks to authorize, route, and settle the transaction.
Both are needed to complete a payment. Businesses selling online typically require both, and many modern platforms bundle the two into a single product, which is why the distinction blurs in marketing copy.
Deciding which you actually need is a different question from what each one is. Our payment gateway vs payment processor comparison works through that decision channel by channel.
What is a merchant account?
Many business owners ask what is a merchant account before selecting a payment processor. A merchant account is a special type of bank account that temporarily holds customer card payments before funds are transferred to your business bank account.
Merchant accounts play an important role in credit card processing because they allow businesses to securely accept electronic payments while financial institutions verify and settle transactions.
Today, many payment providers include merchant account functionality within their payment platforms, allowing businesses to begin accepting payments without opening a separate account. For a fuller definition, see merchant account.
What are payment links?
Payment links allow businesses to collect payments by sharing a secure URL with customers through email, SMS, social media, messaging apps, or invoices. Instead of building a complete ecommerce website, customers simply open the payment page, enter their payment details, and complete the purchase securely.
Payment links are commonly used by freelancers, consultants, healthcare providers, nonprofits, contractors, service businesses, and small retailers that want a fast and simple way to accept online payments.
Many payment processors also allow businesses to customize payment links, track payment status, automate receipts, and integrate payment requests with accounting software and customer management systems. Compare processors with payment links.
PayPal alternatives
While PayPal remains one of the most recognized payment platforms, many businesses compare PayPal alternatives based on transaction fees, supported payment methods, international availability, ecommerce integrations, and business features.
Some alternatives focus on lower processing costs, while others provide stronger subscription billing, marketplace payments, POS systems, or international payment capabilities. The best solution depends on your business model, customer preferences, and expected transaction volume.
Before switching providers, compare payment processing fees, settlement times, reporting tools, fraud protection, customer support, and integration options to determine which platform offers the greatest long-term value. Browse the current PayPal alternatives.
Common payment terms every business should know
Understanding payment terminology makes it easier to compare providers and choose the right payment solution for your business.
Some of the most common payment terms include:
- Merchant account: holds card payments before settlement.
- Payment gateway: securely captures payment information.
- Payment processor: routes transactions between banks and card networks.
- Payment link: a shareable URL used to collect payments online.
- Chargeback: a payment dispute initiated by the customer.
- Settlement: the transfer of approved funds into the merchant's bank account.
- Authorization: the process of verifying that funds are available before completing a transaction.
Learning these terms helps businesses better understand payment processing, compare providers confidently, and make informed purchasing decisions.
3
- 3D Secure
- An extra authentication step that verifies the shopper and can shift fraud liability.
A
- ACH
- A US network for low-cost bank-to-bank transfers, cheaper than cards for large payments.
- Acquiring bank
- The bank that holds the merchant's account and receives card payments on their behalf.
- Assessment fee
- A small fee paid directly to the card network, such as Visa or Mastercard, on each transaction.
- Authorization
- The issuing bank's approval that holds funds for a pending transaction.
- AVS
- A fraud check that matches the billing address entered against the card issuer's records.
B
- Batch
- A group of captured transactions submitted together for settlement, usually daily.
- Buy now, pay later
- Letting customers split a purchase into instalments while the merchant is paid up front.
C
- Capture
- The step that turns an authorization into an actual charge to be settled.
- Card-not-present
- A remote transaction, online, phone, or mail, where the card isn't physically read.
- Card-present
- An in-person transaction where the physical card is dipped, tapped, or swiped.
- Chargeback
- A forced reversal of a card payment initiated by the customer's bank after a dispute.
- Chargeback ratio
- Chargebacks as a share of transactions, a key risk metric for processors.
- CVV
- The 3-4 digit code that proves the shopper physically has the card.
D
- Digital wallet
- A stored-card app like Apple Pay or Google Pay that speeds up secure checkout.
- Dispute
- A customer's formal challenge to a charge, which may escalate into a chargeback.
- Dunning
- Automated retries and reminders that recover failed recurring payments.
E
- Effective rate
- Your true cost of processing: total fees divided by total sales volume.
- EMV
- The global chip-card standard that reduces counterfeit fraud for in-person payments.
F
- Flat-rate pricing
- One blended percentage, plus a fixed fee, on every sale, regardless of card type.
G
- Gateway fee
- A separate charge for the software that transmits transactions to the processor.
H
- High-risk merchant
- A business in an industry with elevated chargeback, fraud, or regulatory risk.
- Hosted checkout
- A prebuilt payment page hosted by the processor, reducing your PCI burden.
I
- Interchange
- The fee set by the card networks and paid to the customer's issuing bank on every card sale.
- Interchange-plus
- A transparent pricing model: true interchange cost plus a fixed processor markup.
- Issuing bank
- The customer's bank that issued their card and approves or declines the payment.
K
- KYC
- Identity checks a processor must run to comply with anti-money-laundering rules.
M
- Markup
- The processor's own margin added on top of interchange and network fees.
- Merchant account
- A bank account type that lets a business accept and hold card payments.
- Monthly minimum
- A floor on monthly fees: you pay the difference if processing fees fall short.
- MOTO
- Taking card payments by phone or mail, keyed into a virtual terminal.
- Multi-currency
- Accepting payment in customers' currencies and settling in yours.
N
- NFC
- The short-range wireless tech behind tap-to-pay cards and mobile wallets.
P
- Payment gateway
- The software layer that securely passes card data from checkout to the processor.
- Payment link
- A shareable link that lets a customer pay on a hosted page, no website required.
- Payment processor
- The company that moves a card payment between the customer's bank and yours.
- Payout time
- How long after a sale the money actually lands in your bank account.
- PCI DSS
- The security standard every business handling card data must follow.
R
- Recurring billing
- Automatically charging a saved payment method on a repeating schedule.
- Refund
- Returning funds to a customer for a transaction that has already settled.
- Rolling reserve
- A portion of your sales held back for months to cover potential chargebacks.
S
- SEPA
- The euro-area scheme for low-cost bank transfers and direct debits.
- Settlement
- The batch process that moves captured funds from the issuer to the merchant's account.
- Surcharge
- A fee added to a card payment to pass processing costs to the customer.
T
- Tap to Pay
- Accepting contactless payments directly on a phone, with no separate card reader.
- Tiered pricing
- Transactions are bucketed into 'qualified', 'mid-qualified', and 'non-qualified' rates.
- Tokenization
- Replacing card numbers with a meaningless token so you never store real card data.
U
- Underwriting
- The risk review a processor runs before approving a merchant to accept payments.
V
- Virtual terminal
- A web page in your dashboard for keying in card payments without hardware.
- Void
- Cancelling an authorized transaction before it's captured or settled.
Frequently asked questions
- What does a payment gateway do?
- It captures and encrypts the customer's payment details at checkout, then hands them to a processor. For a side-by-side of the two roles, see our compare page.
- What is a merchant account?
- A bank account that holds card payments temporarily before the funds are transferred to your business bank account. Many providers now include one inside their platform.
- What are payment links?
- A secure URL you share by email, SMS, or social media so a customer can pay without you building a checkout. Common for freelancers, clinics, nonprofits, and service businesses.
- What is a chargeback?
- A payment dispute raised by the customer with their bank, which reverses the transaction and usually adds a fee for the merchant.