Online payments glossary

Account-to-Account (A2A) payments are digital payments made directly from one bank to another, bypassing payment processing services such as card networks. The direct nature of A2A payments means they typically charge lower transaction fees compared to traditional card-based businesses, and settle faster. Pay by bank is an example of an A2A payment.

The Bank Account Verification Service (BAVS) allows a person to verify the ownership of a particular bank account without requiring them to connect to the account.

BAVS is useful when you already have a person’s bank account details, but require confirmation. For example, this might be used to ensure there are no mistakes on an invoice before paying or to perform KYC.

Batch payment processing (also known as batch payments) describes an instance in which multiple payments are sent to different recipients, all through the same transaction. Commonly used for payroll or vendor payments, batch payments can be much more efficient than paying each person individually.

Batch processing can also be used to settle a large number of transactions all at once. For example, a payment gateway might use batch payments to process all verified transactions at the end of the day. Some payment processors offer lower fees for batch processing, so settling transactions in this way can save money.

A card not present (CNP) transaction is a payment that takes place with neither the card nor the cardholder present. For example, this might take place when a customer makes a purchase online, over the phone or using card details stored on file. The opposite of CNP is card present transactions, in which customers physically present their card in-person to make a purchase.

CNP transactions are typically associated with a higher risk of fraud, as the lack of a physical card makes it more difficult to verify the cardholder’s identity. To mitigate this, additional verification methods such as CVV numbers or two-factor authentication are often used.

A clearing house is a financial institution that facilitates the exchange of payments and other transactions (such as stocks or derivatives). The clearing house stands between the two parties in a transaction and acts as a counterparty to both, reducing the risk of financial loss.

Clearing houses carry out a number of crucial functions such as confirming the details of a transaction (trade matching), ensuring transfer (settlement) and risk management.

A debit is a charge on a person or business’s account, resulting in a decrease in their balance. For example, when a person pays with a debit card, the agreed amount is charged directly to their bank account. Similarly, a debit order is a recurring charge on a person’s account, often for a subscription or membership.

A digital wallet is a software-based wallet that can securely store a user’s payment information such as debit or credit card details, and can be used to make digital purchases. Using a digital wallet allows users to carry out transactions conveniently through digital devices such as smartphones or smart watches.

Digital wallets have seen enormous growth in popularity in recent years, due in part to the rise of smartphone-based contactless payment methods such as Apple Pay, Google Pay and Samsung Pay.

Embedded payments refers to the practice of inserting payment processing capabilities directly into other existing services, removing the need to redirect potential customers to third-party websites or re-enter payment details every time. This creates a more seamless customer experience and improves satisfaction and conversion rates.

For example, many ride hailing and food delivery services enable users to save their card details within the app, automatically charging them once an order has been placed and confirmed. Or, apps and sites offering Stitch Pay by bank can choose to offer one-click payments for returning customers making a repeat purchase or deposit. The low-friction process makes customers more likely to purchase.

An insufficient funds error indicates that the bank account a customer is attempting to pay from does not have enough money to complete an agreed transaction. When an account with insufficient funds attempts a payment, the transaction is either rejected or enters an overdraft to be repaid later.

Manual EFT (also known as direct deposit or manual transfer) is a payment made from an online banking portal or app to a business bank account. This differs from a Pay by bank payment, as it requires that the customer leave the website/app to open their online banking portal and enter recipient details manually, to initiate the payment.

Typically, manual EFTs take 1-3 days to clear.

A network token is a unique digital identifier used to add extra security to a digital payment. Network tokens are created by payment networks and can be used as a proxy for the customer’s account number during a transaction.

When a transaction is initiated, the card number is substituted for a network token specific to that transaction, merchant or device. This is used to verify the transaction without transmitting card details, enabling fast transactions while ensuring privacy and security.

Payment authorisation might also refer to the process through which an agreed payment amount is authorised to be debited from a customer’s bank account.

In the context of card payments, this also refers to the point at which a card issuer verifies a transaction, confirming that the payer has sufficient funds, and receives approval from the customer’s bank, placing a hold on the amount so that the transaction can be completed.

Payment gateway technology allows companies to accept digital payments securely through platforms such as websites or mobile apps. A payment gateway can be thought of as the front-end of a transaction, and it is the main party that the customer interacts with while making a purchase online.

Payment orchestration is the process by which companies integrate, manage and monitor multiple payment methods, providers, banks and more - often across markets.

Increasingly, companies choose to do this through a Payments Orchestration Platform, which sits between the payment gateways, payment processors and the rest of the payment ecosystem, coordinating the different players on behalf of the company. Orchestration platforms allow businesses to set rules re: which payment methods are displayed to which customers at which time, and access streamlined reporting.

Robust payment orchestration makes it easier for companies to integrate new payment methods and optimise their performance.

Payment reconciliation is the process by which a company matches its bank statements with its accounting records, verifying bank balances and transaction records are accurate and up to date.

Companies are required to complete payment reconciliation in line with the relevant accounting standards. Many choose to work with specialised reconciliation tools or accounting software to automate parts of the process, reducing the work required and improving overall accuracy.

PCI DSS stands for Payment Card Industry Data Security Standard. It refers to the security standards all companies that accept, process, transmit or store card information must adhere to in order to protect cardholders information and mitigate the risk of fraud and misuse of funds.

PCI DSS compliance requires that companies adhere to rules around data, consumer protection, Know Your Customer (KYC), Anti Money Laundering (AML) and more. It is a global standard, though frameworks do vary in different geographies.

PCI DSS has four levels of requirements companies must meet based on the number of transactions they process annually. Level 4 is the lowest level, applying to companies that process the lowest number of transactions each year, while Level 1 is the highest level and applies to those that process millions of transactions annually.

RTC stands for “Real-Time Clearing”, and refers to the immediate (or near-immediate) processing of payments or transactions.

Unlike batch payments, which are settled in bulk in set intervals, Real-Time Clearing payments immediately transfer funds between bank accounts.

Settlement is the point at which the transfer of funds in a transaction takes place, moving them from one bank account to another. This can happen at the same time as the transaction is initiated, as with Real-Time Clearing (RTC), or at set intervals, as with batch payments.

A split payment refers to a transaction where a payer uses more than one payment method to settle a single transaction. For example, diners at a restaurant may choose to pay part of their bill on card and settle the rest in cash.

A split payment may refer to a single person using more than one payment method for a transaction or a number of people each using different payment methods to settle a single amount, as in the restaurant example.

Split payments can present a more complicated picture for merchants when it comes to reconciliation and record keeping, but it also offers greater flexibility to customers and can lead to higher conversion and spending rates.