Your glossary for all the important payment terms and abbrevations

To be able to offer credit card payments, an online store needs an acquirer. An acquirer 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 payments, 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’s 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 don’t 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’s 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 shoppers 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). At the German level it is the Federal Financial Supervisory Authority (BaFin). 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 don’t allow them to conduct any other banking business (e.g., deposit management).

A blacklist is a database that contains names, bank details, and other information about shoppers who have previously attracted negative attention due to unpaid or problematic payment obligations. They are classified as high-risk or “bad” customers and are blocked from future payment transactions. There are two main types of blacklists: - Internal blacklists are maintained by merchants and include data on specific customers who have caused issues with that merchant. - External blacklists are provided by payment service providers or third-party sources. These lists are much more comprehensive, as they also include customers flagged by other online stores or platforms.

“Buy now, pay later” is a short-term financing method in which consumers pay for purchases they have already made later. In essence, purchases by open invoice, installments, and certain types of credit card, electronic direct debit, or digital wallet offers can be considered as BNPL payment methods. Today, the term “buy now, pay later” is most likely to be understood internationally as payment by installments. In Germany, however, it’s primarily seen as the historical special feature of payment transactions, i.e., purchase by open invoice.

The checkout is the final step in the entire ordering process, during which the shopping cart is bindingly ordered. Studies show that the greatest risk of the ordering process being abandoned occurs during checkout. Therefore, optimizing this step is key for every online shop. 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 can‘t select their preferred payment method.

When purchasing by direct debit, the payee instructs the payer's bank to deduct a certain amount from the payer's account and credit it to the payee's account. Unlike a bank transfer, where the payment is initiated by the debtor, the transaction is initiated by the payee in the case of a direct debit.

Disagio literally means “surcharge”. It refers to the fee that payment providers charge for processing a transaction. Many payment providers charge a fixed amount plus a percentage of the invoice amount. In each case, the exact discount depends on several factors, such as the payment methods offered, the total sales of the online store, and other contractual terms.

E-payment includes all types of payment processing that take place via the Internet. It’s therefore indispensable 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) to minimize abandoned purchases. On the other hand, certain e-payment methods are associated with a degree of fraud and default risk (likewise purchase by open invoice), so it’s often advisable to outsource them to a payment service provider.

“Factoring” stems from the Latin word “factura”, which translates to “invoice”. In the world of payments today, factoring means that a company sells its outstanding receivables, such as unpaid invoices, to a factoring company. The factoring company then settles these outstanding amounts and collects the invoice amount from the customer. Factoring companies usually charge a fee of up to 1.5% of the invoice amount for this service. Factoring enables companies to quickly regain liquidity while conveniently outsourcing the default risk.

“FinTech” is short for “financial technology.” The term refers to companies that offer and process financial services based on newly developed technologies. Due to their high level of technological sophistication (e.g., by using artificial intelligence), FinTechs offer services that differ significantly from the traditional services of many banks in terms of user-friendliness, security, and speed. However, FinTechs aren’t necessarily in competition with these traditional institutions. In many cases, they complement and expand existing portfolios of financial services. Depending on their business model, FinTechs may have a banking license (but aren’t required to).

Three types of fraud are currently most common 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 parcel station or at the doorstep of the actual 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 don’t pay the invoice. - Account takeover: In this case, real customer accounts are hacked, and the payment methods stored are used for transactions.

Installment purchasing is a payment method where consumers and merchants agree that the total purchase amount is not due immediately but is paid in multiple installments over a defined period. Many offers include interest charges, although zero-percent financing options are becoming more common. Typical terms range from six to 60 monthly installments, depending on the offer. Installments are particularly useful for online shops selling higher-priced goods. Additionally, they are attractive to younger customers who may lack the financial means to make larger purchases. Since installments carry a higher risk of default and fraud, online shops often outsource this payment method to a payment service provider (PSP) for risk management and operational handling.

The issuer is the bank that issues credit cards to its customers. When shoppers pay with their credit card, there is interaction between the issuer (the shopper's bank), the acquirer (the online shop's bank), and, potentially, the payment service provider, which is involved, for example, if the online shop does not have PCI/DSS certification, as this is mandatory for credit card payments.

Macro payments are transactions involving amounts between five and ten euros. As with micro payments, they 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 payments worthwhile.

Micro payments refers to transactions with a maximum amount of five euros. In retail, for example, the purchase of a newspaper is considered a micro payment. Online, this payment model is widely used for low-cost digital content such as music, apps, or videos. Traditional payment methods like direct debit or credit card are often unattractive for merchants in the micro-payment sector, as transaction fees can easily exceed the value of the goods. Despite this, customers expect familiar payment options such as credit card purchases. Hence, the challenge for merchants is to find a service provider specialized in micro payments that offers a cost-efficient value chain tailored to small-value transactions.

M-payment refers to “mobile payment”, meaning payment transactions carried out via smartphone. It can be used both for peer-to-peer transfers and in e-commerce. In Germany, m-payment is particularly popular among younger people. Payments typically range up to ten euros, although technically, any amount can be processed using this method. From a technological perspective, m-payment is primarily enabled by NFC (near field communication). In terms of security, NFC combined with a smartphone offers significantly better protection than NFC-enabled cards alone. While cards can be read relatively easily by fraudsters, smartphones usually require biometric confirmation, such as a fingerprint, for each transaction. Overall, m-payment is considered very secure. The main disadvantages occur in cases of identity theft or if the smartphone is lost or defective.

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, purchase by open invoice is favored by most shoppers. Alongside installments, it’s 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. 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.

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 process of online shops. FinTechs have become specialists in processing online payments. One of the advantages of these providers is that they can perform quick credit checks or reliably identify potential fraud cases with the help of artificial intelligence. However, payment providers also take over the entire risk management, dunning, and debt collection for their customers. Usually, the fees they charge for these services are worthwhile for many online shops, as they can completely outsource many risks and resources related to the payment process.

A payment service provider bundles a variety of payment methods from different payment providers under one roof—for example, open invoice, SEPA direct debit, installments, or credit card payments. This way, online shops can offer a customized mix of payment methods that suits their business model. Another advantage of PSPs is that online shops only need to undergo a one-time technical integration process to connect to the PSP's interface. The PSP can then easily activate the shop for all desired payment methods. This allows online shops to benefit from a single contractual relationship (with the PSP) and have a central point of contact for all payment methods. In addition, PSPs often bundle transactions so that cash flow remains transparent for 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, as an in-house solution, open invoice involves the greatest labor costs and financial risk for online retailers. Not only does it tie up more resources than automated payment methods, but potential payment defaults can quickly lead to liquidity problems. It is therefore crucial to work with a payment provider or payment service provider (PSP) that offers payment by invoice. This enables retailers to reduce the default risk to zero while achieving high conversion rates.

SEPA is short for “Single Euro Payments Area”. The main aim of SEPA direct debits and SEPA credit transfers is to ensure uniform, secure, and fast payment transactions within Europe. Since all SEPA transactions are subject to the same requirements, the European banking industry is becoming more efficient and cost-effective. Consequently, citizens and businesses can conduct their payments across Europe, regardless of their place of residence or location.

Subscriptions are widespread in e-commerce to gain access to certain content and services, such as music or video streaming, online games, and software. Payment service providers (PSPs) help manage subscription plans, ensure timely payments, deactivate expired subscriptions, and even process cancellations. Additionally, they provide risk management and protection against online fraud. For online retailers who use subscription models, it's a good idea to use a payment service provider to handle payments. That's because PSPs usually employ technologies that online shops could never replicate in an in-house solution.

A white label payment method is offered and processed by a third-party provider during checkout but remains invisible to shoppers. The payment option does not display the provider’s logo, nor does it redirect customers to an external page or e-wallet. This creates the impression that the payment method is provided directly by the online shop. With white label solutions, customers stay fully within the brand environment of the online store before, during, and after the purchase. Studies show that white label payment methods – and in Germany, particularly white label purchases by open invoice – are among the most popular payment options.

ZAG is short for „Zahlungsdiensteaufsichtsgesetz“ (Payment Services Supervision Act). It regulates all services that facilitate transactions within Europe. These services include deposit and withdrawal operations, payment transactions with or without credit, and financial transfer services. Companies may only conduct such financial transactions if they have obtained authorization from BaFin (Federal Financial Supervisory Authority) in accordance with Section 10 (1) ZAG.