Payment 101: Must-Know Payment Terms
If you are planning to work in fintech or the payment industry, understanding payment industry lingo is non-negotiable.
💳 Payments 101: How Money Moves
Transaction
A transaction is any movement of money from one party to another.
📌 Example: You buy a coffee at Starbucks using your physical card — that’s a transaction.
Card
A physical or virtual payment instrument issued by a bank or fintech for making payments.
📌 Example: Your Apple Pay or Google Pay wallet stores virtual versions of your debit and credit cards.
Money Movement
The process of transferring funds between accounts, banks, or financial institutions.
📌 Example: When you Revolut or Wise transfer money to a friend for last night’s dinner, that’s money movement.
Authorization
The first step in a card transaction is where the cardholder’s bank or payment provider approves or declines the payment.
📌 Example: You tap your card at a café in Paris, and your bank approves the payment within seconds. That’s a successful authorization!
Settlement
The actual movement of funds from your bank to the merchant after a transaction is approved.
📌 Example: When you book a hotel, the payment might be authorized immediately, but the money is only settled when you check in.
Refund
Reversing a transaction and returning money to the customer.
📌 Example: You buy a gadget on Amazon but return it. Amazon initiates a refund, and the amount is credited back to your account.
Chargeback
A forced refund is when a customer disputes a transaction and the bank reverses the payment.
📌 Example: You notice an unauthorized Netflix subscription charge on your credit card and dispute it. Your bank investigates and issues a chargeback.
Dispute
Any formal challenge against a transaction, including chargebacks.
📌 Example: You order food delivery, but it never arrives. You file a dispute with your bank.
Tokenization
Replacing sensitive payment details (like card numbers) with a secure, unique token for security.
📌 Example: When you pay with Apple Pay or Google Pay, your actual card number is never shared — only a token is used for the transaction.
🏦 Who’s Who in the Payments Ecosystem?
Card Schemes (Networks)
Organizations like Visa, Mastercard, and Amex run the global payment infrastructure.
📌 Example: When you swipe your Visa card at a café, Visa processes the payment behind the scenes.
Merchant
A business that accepts payments for goods or services.
📌 Example: Your local grocery store or an online shop like ASOS.
Acquirer (Merchant Bank)
The financial institution that processes card transactions for merchants.
📌 Example: Shopify uses Stripe as its acquirer to process payments for merchants.
Issuer (Card Issuer)
The bank or fintech that provides payment cards to customers.
📌 Example: If you have a Chase credit card, Chase is the issuer.
Fintech
A company that uses technology to improve financial services.
📌 Example: Revolut, Cash App, Stripe, Klarna, and PayPal are all fintechs.
Bank
A regulated financial institution that provides traditional banking services.
📌 Example: JP Morgan, HSBC, and Citi are global banks, while fintechs like Monzo and N26 are digital-only banks.
🌍 Cross-Border & FX: When Money Travels
Multicurrency Transactions
Payments involving multiple currencies, requiring conversion.
📌 Example: You buy a gadget from a UK website using USD, but the merchant only accepts GBP.
Currency of Authorization (Auth Currency)
The currency in which a transaction is initiated.
📌 Example: You use your US-issued card in France. The authorization happens in Euros, but your card operates in USD.
Currency of Settlement
The currency in which the transaction is finally settled between banks.
📌 Example: Even though your hotel charged you in Euros, your US bank settles the payment in USD after conversion.
FX Rates (Foreign Exchange Rates)
The rate at which one currency is exchanged for another.
📌 Example: You see different USD-to-EUR rates at Wise, PayPal, and your bank — each applies its own FX markup.
📊 Financial & Accounting Jargon
Revenue
Total income from transactions and services.
📌 Example: A buy-now-pay-later fintech earns revenue from merchant fees and interest payments.
Deferred Revenue
Money received but not yet earned.
📌 Example: When Netflix charges you upfront for a year, but recognizes revenue monthly.
PnL (Profit & Loss Statement)
A report showing total revenue minus expenses.
📌 Example: Stripe’s PnL statement shows how much profit it made after paying for operations, fraud losses, and marketing.
Clearing
The step where payment details are checked and confirmed before the money is transferred.
📌 Example: When you pay with your card at a store, the payment network (like Visa or Mastercard) processes and verifies the transaction before the merchant actually gets the money.
Reconciliation
Matching transactions across financial records to ensure accuracy.
📌 Example: Banks reconcile every deposit, withdrawal, and transfer daily to prevent accounting errors.
🖥️ Payment Infrastructure & Processing
POS (Point of Sale)
A system used by merchants to accept in-store payments.
📌 Example: The card machine at Starbucks or a Square reader at a food truck.
Payment Gateway
A service that securely processes online payments between customers, merchants, and banks.
📌 Example: When you shop on Zalando and enter your card details, a payment gateway like Adyen or Stripe encrypts your information and processes the payment securely.
E-commerce Transactions
Online payments are processed via payment gateways.
📌 Example: Buying sneakers from Nike.com using PayPal or a credit card.
ATM Transactions
Cash withdrawals, deposits, and balance inquiries at an ATM.
📌 Example: Withdrawing cash from an ATM in a different country (and getting hit with foreign transaction fees).
Non-Card Transactions
Payments made via bank transfers, direct debits, or wallets instead of cards.
📌 Example: Paying your electricity bill via ACH transfer instead of a credit card.
Non-Scheme Transactions
Payments outside of Visa/Mastercard networks, like ACH, UPI, or SEPA transfers.
📌 Example: A small business accepting payments via PayPal instead of a traditional card network.
Issuer Processor
A company that manages card issuance, authorization, and transaction processing for banks and fintechs.
📌 Example: Thredd powers virtual card issuance for fintech
If you have just started or are planning to work in fintech or payment industry, knowing these terms is as important as knowing your Netflix password. Understanding how money moves, who the players are, and the regulations involved will help you navigate the industry like a pro.
Comment in chat if I have missed any terminologies :)
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