Payment Technology Fundamentals
Expert-defined terms from the Certificate Programme in Payment Technology Integration course at London School of International Business. Free to read, free to share, paired with a globally recognised certification pathway.
**ACH (Automated Clearing House)** #
A network for processing electronic financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches, including direct deposit, payroll, and vendor payments.
**Acquiring Bank** #
A financial institution that processes credit or debit card transactions on behalf of merchants. Acquiring banks facilitate the movement of funds between customers, merchants, and issuing banks by providing point-of-sale (POS) terminals, payment gateways, and other payment processing services.
**Card Association** #
A network that facilitates the authorization, clearing, and settlement of credit and debit card transactions. Examples include Visa, Mastercard, and American Express. Card associations establish rules, security protocols, and interchange fees for their networks.
**Cardholder** #
A person who holds a credit, debit, or prepaid card issued by a financial institution or card association. Cardholders can use their cards to make purchases or withdraw cash at ATMs.
**Chargeback** #
A dispute initiated by a cardholder or issuing bank when a transaction is fraudulent, unauthorized, or otherwise disputed. Chargebacks result in the reversal of a transaction and the return of funds to the cardholder. Merchants are typically charged a fee for chargebacks and may face penalties if they have a high chargeback rate.
**CP (Compounded Interest)** #
Interest calculated on the initial principal and any accumulated interest from previous periods. CP is commonly used in savings accounts, loans, and other financial instruments.
**Credit Card** #
A payment card that allows cardholders to borrow funds from a financial institution or card association, usually with a specified credit limit. Credit cards often come with rewards programs, interest-free promotional periods, and annual fees.
**Cryptocurrency** #
A digital or virtual currency that uses cryptography for secure financial transactions. Cryptocurrencies, such as Bitcoin and Ethereum, operate independently of central banks and offer the potential for faster, cheaper, and more secure cross-border transactions.
**DAI (Digital Asset Integration)** #
The process of integrating digital assets, such as cryptocurrencies, into traditional financial systems and payment infrastructures. DAI allows financial institutions and merchants to accept and process digital asset transactions using familiar payment technologies and processes.
**DAO (Decentralized Autonomous Organization)** #
A decentralized organization governed by smart contracts and run by a community of stakeholders. DAOs operate without a central authority, and decisions are made collectively through consensus-based mechanisms.
**Debit Card** #
A payment card linked to a checking account that allows cardholders to withdraw funds or make purchases up to their account balance. Debit cards typically do not allow cardholders to borrow funds and may come with fees for various transactions, such as ATM withdrawals or foreign transactions.
**DCC (Dynamic Currency Conversion)** #
A service that allows merchants to offer customers the option to complete a transaction in their home currency when making a purchase abroad. DCC transactions typically include a currency conversion fee.
**Distributed Ledger Technology (DLT)** #
A decentralized database managed by multiple participants, or nodes, in a network. DLT allows for secure, transparent, and tamper-proof record-keeping without a central authority. Blockchain is a type of DLT.
**EFT (Electronic Funds Transfer)** #
The electronic transfer of funds between bank accounts, often facilitated by ACH or other payment networks. EFT includes various payment methods, such as direct deposit, wire transfers, and mobile payments.
**EMV (Europay, Mastercard, and Visa)** #
A global standard for secure credit and debit card transactions using chip technology. EMV cards offer enhanced security features, such as encryption and tokenization, to reduce the risk of fraud and counterfeiting.
**Fiat Currency** #
Government-issued currency, such as the US dollar or Euro, that is not backed by a physical commodity, such as gold or silver. Fiat currencies derive their value from the government's backing and the public's trust.
**Fintech (Financial Technology)** #
The application of technology to improve and automate financial services, including payment processing, lending, investments, and personal finance management. Fintech companies often disrupt traditional financial services by offering innovative, user-friendly, and cost-effective solutions.
**Gateway, Payment** #
A technology that connects merchants to payment processors, enabling them to accept and process various payment methods, such as credit cards, debit cards, and digital wallets. Payment gateways facilitate the authorization, authentication, and settlement of transactions.
**ICA (Interchange #
**ICA (Interchange
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Fee) #
A fee paid by acquiring banks to issuing banks for the use of their card networks and associated services. Interchange fees are typically a percentage of the transaction value and vary based on the card type, transaction type, and other factors.
**Issuing Bank** #
A financial institution that issues credit, debit, or prepaid cards to cardholders, often in partnership with a card association. Issuing banks facilitate the authorization, authentication, and settlement of transactions, manage cardholder accounts, and handle disputes and chargebacks.
**KYC (Know Your Customer)** #
A regulatory requirement for financial institutions to verify the identity of their customers and assess their risk levels. KYC procedures typically involve collecting and verifying personal information, such as name, address, and government-issued identification.
**LoD (Level of Detail)** #
A term used to describe the granularity or specificity of financial data or reporting. LoD can range from high-level summaries to detailed transaction-level data.
**MFA (Multi #
Factor Authentication)**: A security measure that requires users to provide multiple forms of identification to access their accounts or complete transactions. MFA typically combines something the user knows (such as a password), something the user has (such as a mobile device), and something the user is (such as a fingerprint or facial recognition).
**Mobile Payment** #
A payment method that uses mobile devices, such as smartphones or smartwatches, to initiate and complete financial transactions. Mobile payments can be made using various technologies, such as NFC (Near Field Communication), QR codes, or mobile wallets.
**NFC (Near Field Communication)** #
A short-range wireless technology that enables communication between devices when they are in close proximity, typically a few centimeters. NFC is often used for contactless payments, such as Apple Pay and Google Wallet.
**Open Banking** #
A financial services model that enables customers to share their financial data with third-party providers, such as fintech companies, through secure application programming interfaces (APIs). Open banking allows for innovative financial products and services, enhances competition, and improves customer choice and control.
**PCI DSS (Payment Card Industry Data Security Standard)** #
A set of security standards established by the major credit card brands to ensure the safe handling and storage of sensitive payment data. PCI DSS compliance is mandatory for organizations that store, process, or transmit payment card information.
**P2P (Peer #
to-Peer) Payment**: A payment method that allows individuals to send and receive money directly between their bank accounts or digital wallets, often using mobile apps or online platforms. P2P payments eliminate the need for intermediaries, such as banks or payment processors, and can be faster and cheaper than traditional payment methods.
**PoS (Point of Sale)** #
The location or moment at which a retail transaction occurs, often involving the exchange of goods or services for payment. PoS systems typically include hardware, such as card readers and cash registers, and software, such as payment processing applications and inventory management tools.
**Prepaid Card** #
A payment card that is preloaded with a specific amount of funds, often used as an alternative to credit or debit cards. Prepaid cards can be reloaded with additional funds and are often used for budgeting, travel, or as gifts.
**QR (Quick Response) Code** #
A machine-readable code consisting of black and white squares, often used for mobile payments and marketing campaigns. QR codes can be scanned using smartphone cameras, and the information encoded within the code can be used to initiate a payment or access a website.
**RBA (Recurring Billing Agreement)** #
A payment arrangement between a merchant and a customer for recurring or subscription-based services. RBAs automatically charge the customer's payment method at regular intervals, such as monthly or annually, without the need for manual intervention.
**Remittance** #
A cross-border payment, often made by migrant workers to their families or dependents in another country. Remittances can be sent using various methods, such as banks, money transfer operators, or mobile apps, and are often subject to fees and exchange rate markups.
**ROI (Return on Investment)** #
A performance metric used to evaluate the efficiency and profitability of an investment. ROI is calculated as the net profit from an investment divided by the cost of the investment, expressed as a percentage.