Welcome to our Payment Glossary

In order to be able to offer credit card payments, an online store needs an acquirer. This is a bank that settles the relevant purchase amount via the credit card that consumers have received from their card-issuing bank (the issuer). For this service, the acquirer charges a commission based on sales.

Before an online store can offer credit card payment, the acquirer checks whether the store meets the high security standards of PCI/DSS certification. Those who do not wish to undergo this check can instead work with a payment service provider that is already certified accordingly.

API is the abbreviation for “Application Programming Interface”. It is understood to mean all commands, functions and protocols with the help of which software developers can adapt existing software so that it can interact with a foreign, external system.

The advantage of APIs lies primarily in their cost-effectiveness: they provide standardized commands so that the required codes do not have to be completely rewritten. In this way, the desired data exchange between different systems is significantly accelerated and simplified.

An authorization is the approval of a cashless transaction. In this process, the transaction is checked by the relevant credit institution or a payment service provider and, if positive, released.

The payment provider asks the buyer’s bank whether it is allowed to make the payment at all and whether its bank account can be debited accordingly. If the bank grants authorization, the amount is reserved in the account, released for payment, and deducted from the account during the next booking transaction.

Authorizations thus speed up cashless payments, as they can be carried out in just a few seconds and neither buyers nor merchants have to wait for the bank’s next booking process (e.g. overnight) to complete a purchase.

A banking license is the permission to operate a credit institution or a bank-like company. This permission is granted by the national supervisory authority. At the European level, this is the European Central Bank (ECB). Basically, there are four types of licenses:

• Traditional banking licenses are for corporations that, among other things, also maintain bank branches.
• FinTech licenses are for purely virtual banks that offer their services only online.
• Extended banking licenses allow the use of a parent corporation’s banking license.
• E-money licenses allow companies to offer certain financial services such as money transfers, but not to conduct any other banking business (e.g., deposit management).

A blacklist is a database containing names, bank details and other information about shoppers who have attracted negative attention in the context of previous payment obligations. They are listed there as bad customers and blocked from future payment transactions. A distinction is made between internal and external blacklists:

• Internal blacklists are maintained by online stores themselves and contain the data of specific existing customers.
• External blacklists are provided by payment service providers, for example, so that online stores can access them. These lists are much more comprehensive, as they also contain customers who have already attracted attention in other online stores.

„Buy now, pay later” is a short-term financing method in which consumers pay for purchases they have already made at a later date. In essence, purchase by open invoice, instalments and also certain types of credit card, electronic direct debit or digital wallet offers can be regarded as BNPL payment methods.

At present, the term “buy now, pay later” is most likely to be understood internationally as payment by instalments, and in Germany primarily as the historical special feature of payment transactions, i.e., purchase by open invoice.

Checkout is the final step in the entire ordering process, where the shopping cart is bindingly ordered. Studies show: It is in the checkout that there is the greatest risk that the ordering process will be aborted after all. Optimizing the checkout is therefore of central importance for online stores.

The reasons for purchase aborts range from a poor user experience to suddenly appearing additional costs to non-functioning coupon codes. Another major cause is an unfavorable mix of payment methods from which shoppers cannot select their preferred payment method.

In the case of a direct debit purchase, the payee instructs the payer’s bank to debit a certain amount from the payer’s account and to credit it to the payee’s account.

Unlike a bank transfer, where the payment is initiated by the debtor, the booking process for a direct debit is initiated by the beneficiary.

Disagio literally means “surcharge”. This is the fee that payment providers charge for processing a transaction. Many payment providers charge a fixed amount plus a percentage of the invoice amount.

The exact calculation of the discount depends on many factors in each individual case: for example, the payment methods offered, the total sales of the online store, and other contractual modalities.

E-payment includes all types of payment processing that take place via the Internet. E-payment is therefore of central importance for online stores.

On the one hand, online stores should offer e-payment methods with a high level of acceptance (in the DACH region, for example, purchase by open invoice) so that there are no abandoned purchases.

On the other hand, certain e-payment methods are also associated with a certain risk of fraud and non-payment (likewise purchase by open invoice), so it is often better to outsource these payment methods to a payment provider or payment service provider.

“Factoring” comes from the Latin word “factura”, which literally translates as “invoice”. In today’s payment world, it means that a company sells its outstanding receivables, such as outstanding invoices, to a factoring company.

The factoring company then settles the outstanding amount and collects the invoice amount from the customer. For this service, factoring companies charge a fee of up to 1.5% of the invoice amount.

Factoring allows companies to quickly regain liquidity and also conveniently outsource the risk of non-payment.

“FinTech” is the abbreviation for “Financial Technology”. It refers to companies that offer and process financial services on the basis of newly developed technologies.

Due to the often high technological level (e.g. through the use of artificial intelligence), FinTechs offer services that clearly differ from traditional services of many banks in terms of user-friendliness, security and speed.

However, FinTechs are not fundamentally in competition with these traditional institutions. In many cases, they also complement and expand existing portfolios of financial services. Depending on the business model, FinTechs may (but do not have to) have a banking license.

Three types of fraud are currently most prevalent in e-commerce:

Identity fraud: Fraudsters use the data of real people to place online orders and then intercept the delivery – for example, via a packing station or at the doorstep of the real recipient.

Friendly fraud: After receiving the goods, the fraudsters complain that they have received either nothing at all, only a partial delivery, or damaged goods. They then instruct their bank to reverse the transaction or simply do not pay the invoice.

Account Takeover: In this case, real customer accounts are taken over by hackers and the payment methods stored are used by the fraudsters for transactions.

Read one of our Journal articles to learn how you can best defend yourself against online order fraud.

With instalment purchases, consumers and retailers agree that the entire purchase amount is not due for payment immediately, but is paid in several instalments. In many cases, interest is still charged for this type of payment, but there are also offers for zero-percent financing. The usual terms are usually between six and 60 monthly instalments.

Instalments are particularly useful for online stores that offer higher-priced goods. However, younger customers who do not yet have sufficient liquidity for more expensive purchases also benefit from instalment purchases.

Since payment by instalments is associated with an increased risk of default and fraud, online stores often outsource this payment method to a payment provider or payment service provider.

The issuer is the bank that issues credit cards to its customers. When shoppers pay with their credit cards, there is interaction between the issuer (the shoppers’ bank), the acquirer (the bank of the online store) and, if necessary, the payment service provider, which is interposed, for example, if the online store does not have PCI/DSS certification, which is mandatory for credit card payments.

Macro payments are payment transactions involving amounts between five and ten euros. As with micro payments, macro payments also focus on the problem of cost-effectiveness: the fixed costs incurred for transactions are relatively high for certain payment methods, such as credit cards.

On the consumer side, however, the familiar payment methods such as purchase by open invoice, direct debit or credit card are desired in the macro payment sector. Online merchants therefore need to find a payment service provider with a particularly attractive cost structure to make macro payment worthwhile.

Micro payment refers to payment processes in which the amount to be paid is a maximum of five euros. While in retail, for example, the purchase of a newspaper falls under micro payment, there are also many providers of products on the Internet for very small amounts. Most of these are digital content such as music, apps or videos.

Payment methods such as direct debit or credit card are not attractive for many merchants in the micro payment sector because the transaction fees are too high and can quickly exceed the value of the goods.

However, customers in the micro payment sector expect classic payment methods such as credit card purchases. The challenge for merchants is therefore to find a micro payment focused service provider that offers the right value chain.

M-payment is the abbreviation for mobile payment – that is, payment by smartphone. It is possible both between private individuals and in (online) commerce. In Germany, m-payment is particularly widespread among younger people. The amounts paid via m-payment tend to be in the range of up to ten euros. From a purely technical point of view, however, m-payment can be used to pay amounts of any size.

Technologically, m-payment is primarily handled using NFC (near field communication). As far as security is concerned, NFC is significantly better, especially in combination with a smartphone, than when using NFC-enabled cards alone. While these can be read relatively easily by fraudsters, smartphones require fingerprint confirmation for every payment process, for example.

M-payment is basically very secure. Disadvantages only arise in the event of identity theft or if the smartphone is defective or lost.

In global e-commerce, there are many different payment methods that have become established depending on the country and region. In Europe and especially in the DACH region, for example, purchase by open invoice is favored by most shoppers. Alongside instalments, it is one of the so-called “buy now, pay later” payment methods. Other common payment methods include SEPA direct debit and various e-wallets from different payment providers.

In principle, offering the right payment mix in the checkout is one of the most important factors for success in e-commerce. Studies show that shoppers often abandon a purchase during checkout if their preferred payment method is not offered.

Here you will find an overview of all Ratepay payment methods.

Payment providers handle cashless payment transactions for their customers. In e-commerce, they make it as easy as possible to integrate payment methods into the checkout of online stores. FinTechs in particular have become specialists in payment processing on the Internet. The advantage of these providers is, for example, that they can carry out rapid credit checks or reliably identify potential cases of fraud using artificial intelligence.

However, payment providers also take over the complete risk management, dunning and debt collection for their customers. The fees they charge for these services are usually worthwhile for many online stores, as they can completely outsource many risks and resources related to the payment process.

A payment service provider bundles a wide variety of payment methods from completely different payment providers under one roof – for example, purchase by open invoice, SEPA direct debit, instalments, or credit card payment. With the help of a PSP, online stores can offer an individual mix of payment methods that exactly matches their business model.

Other advantages of a PSP are that online stores only have to go through a one-time technical integration, during which they are connected to the PSP’s interface. The PSP can then activate the store for all desired payment types.

In this way, online stores benefit from a single contractual relationship (with the PSP) and have a central point of contact for all payment types. PSPs often also bundle the transactions clearly so that the cash flow remains transparent for the merchants.

“Payment solution” is usually synonymous with “payment method“.

In Germany, purchase by open invoice is currently the most popular payment method for online shopping. However, for online stores in particular, purchase on account involves the greatest personnel effort and the highest financial risk if it is processed as an in-house solution. Not only does it tie up more resources than automated payment methods. Above all, the potential payment defaults can quickly lead to liquidity problems.

This is why it is so important, especially in German-speaking e-commerce, to work with a payment provider or payment service provider that offers payment by open invoice. In this way, merchants can reduce the risk of default to zero and at the same time achieve a high conversion rate, since they offer the most important payment method with the purchase by open invoice.

SEPA is the abbreviation for “Single Euro Payments Area”. The aim of the SEPA direct debit and the SEPA credit transfer is above all to ensure uniform, secure and fast payment transactions within Europe. Since all SEPA transactions have the same requirements, the European credit industry becomes more efficient and less expensive. This means that citizens and companies can process their payments throughout Europe, regardless of their place of residence or location.

Subscriptions are common in e-commerce today to access certain content and services – such as music or video streaming, online games and software.

Payment service providers (PSPs) help manage these rates, ensure timely payments, deactivate expired subscriptions, or even handle cancellations. In this context, PSPs also offer risk management or protection against online fraud.

Online stores that use subscription models should definitely use a payment service provider to process payments. This is because the payment service provider usually has technologies that online stores would never be able to map in an in-house solution.

A white label payment method is one that is offered and processed by a third-party provider in the checkout, but this is not apparent to shoppers because the payment method is not listed under the logo of this third-party provider and there is no redirection to a third-party page or e-wallet during the order process. The payment method thus gives the impression that it is offered directly by the online store.

With white label, customers remain completely within the brand world of the online store before, during and after the purchase. Studies show that white label payment methods and, in Germany in particular, white label purchases by open invoice are one of the most popular payment methods.

Ratepay, by the way, is Europe’s leading provider of white label payment methods.

ZAG is the abbreviation for „Zahlungsdiensteaufsichtsgesetz“. All services that serve to process payment transactions in Europe are regulated by the ZAG. Such payment processing services include, for example, deposit and withdrawal business, payment business without and with the granting of credit, or financial transfer business. A company may only conduct financial transactions of this type if it has received permission from BaFin to do so in accordance with Section 10 (1) ZAG.