Conviction of India's four-way payment platform: key terms for online payments

Online payments are an integral part of e-commerce, and choosing the right payment partner for your business is crucial and can be challenging. In previous articles, we've highlighted the factors to consider when choosing the right payment partner for your business. Here are some of the key terms that often come up in payments industry communications:

Acquirer/acquiring bank/merchant bank

Acquiring banks are financial institutions that allow merchants to process debit and credit card transactions. They authorise card transactions and pass them on to the appropriate issuing bank. In addition, the acquirer assumes the risk liability and clears and settles the transaction.

accreditation

Authentication is the process of verifying the cardholder. It is equivalent to a wet signature check at the point of sale in the real world. In India, two-factor authentication (2FA) is followed, in which two of the following three methods are used:

What you have.

You know the information.

Your Identity

authorisation

The process of ensuring that a cardholder has sufficient funds to complete an online transaction. Depending on the issuer's approval/denial response to the acquirer, the transaction either continues or is terminated.

Average transaction amount

The average amount of your portal transactions. This is used to understand the volume of business merchants expect and to assess risk limits.

Card issuer/issuing bank

The card-issuing bank is the financial institution that authorises or issues the card to the consumer on its own and assumes responsibility for the use of the card.

cardless transaction

A cardless transaction is any card transaction that is conducted without presenting a physical card to the merchant. An example of a CNP is an online payment transaction where only the card details are provided to process the transaction. The customer never presents their card at the time of payment.

card network

VISA, MasterCard, American Express or other network that acts as an intermediary between the acquirer and the issuer for authorising card transactions.

Card Verification Value (CVV)

CVV is a 3-digit code on VISA/MasterCard and a 4-digit code on American Express. Providing a CVV number to an online merchant means you have a physical card, which helps reduce fraud.

chargeback

The process by which a cardholder or issuing bank disputes a transaction and sends it to the acquirer for resolution. Chargebacks are designed to protect consumers from unauthorised transactions and situations where consumers are not satisfied with a product/service.

brokerage

This is a fee paid by the acquirer to the issuer to compensate for transaction processing costs, fraud and risk liability. Card networks like VISA/MasterCard set interchange rates.

Merchant Discount Rate/Transaction Discount Rate/Merchant Service Fee

This is a fee that the merchant pays to the acquirer each time the card is used to make a payment on the portal. It is usually expressed as a percentage of the transaction amount. Rates are determined based on factors such as transaction volume, average transaction amount, risk and industry.

Payment Gateway

A payment gateway is a service provider that authorises and facilitates payments for online businesses. It transmits transaction information to the acquirer and transmits the response from the issuer back. It is the equivalent of a physical point-of-sale terminal in a retail shop.

PCI DSS Compliance

The Payment Card Industry Data Security Standard (PCIDSS) is a set of security guidelines to ensure that businesses that accept, process, store or transmit sensitive card information maintain a highly secure environment.

close an account

Settlement is the process by which a merchant receives funds paid by a customer for a specific product/service. Multiple entities are involved in the settlement process.

tokenisation

Tokenisation encrypts sensitive payment data (e.g. card numbers and expiry dates) into virtual alternative credentials, also known as tokens. Passed through the transaction chain are tokens that are only decrypted in a secure PCIDSS environment.

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