Breaking down important vocabulary in payment processing industry

As we often mention in our articles and Telegram channel, being well-versed in professional terminology and using it skilfully is a must-have for merchants and especially for payment system employees. If you regularly read our content, you likely already know most of the key terms in the industry. But if you've only recently joined us or want to refresh your knowledge, this guide is for you. We intentionally use simple, clear language and popular examples to help you truly understand the nature of these terms, not get more confused.

This set of payment processing terms is published by our readers request, and today we'll break down a number of important concepts in payment processing and their meanings. If you missed the previous issue on this topic, you can find it via the link. You can read the publications in any order, as they are independent of each other and contain separate materials.

Today, we'll cover:

1. Netting is the process of offsetting payments due against accounts receivable, which reduces net payments and saves on fees. Essentially, it's a payment exchange without actual money transfers. In practice, when two companies constantly make payments to each other — providing services or for other reasons — some of these payments are settled through netting, and there's no need to actually make them. After netting, only the remaining balance is paid by the respective party.
   
   In payment processing, this term can refer to the absence of settlements to a merchant in favor of conducting other transactions on their behalf. For example, if an iGaming operator accepts payments as deposits and pays out winnings, they can accumulate funds from acquiring and then send part of these funds to another balance for payouts. To minimize transactions and fees in this process, these incoming payments can be used to offset outgoing obligations without any balance shifts.
    
2. Overdraft is the ability to use funds in your account even when there's no money left. It might sound irrational, but in practice, it's quite simple: banks or financial institutions provide a kind of “loan” for the required amount, and the customer's balance goes negative. Without overdraft, when the money runs out, the balance becomes zero, and no payments can be made from such an account.
   
   With an overdraft, you can make payments even when your balance is below zero, later replenishing the account with required amount, which will automatically be deducted to cover the debt to the financial institution. The terms of overdraft service may vary from bank to bank, so it's important to always study them before using it. For businesses, this is an extremely convenient feature that allows them not to depend on operational expenses and lack of funds. If your client hasn't yet settled for a service, but you yourself need to make payments to partners, having “additional” funds can be very helpful and support processes. Importantly, an overdraft is fundamentally not a loan; its terms are simpler, and it is more convenient to use.
    
3. OCT (Original Card Transaction) is a direct deposit of funds onto a card (e.g., Visa or Mastercard) for a purpose other than a refund. It is a way to send money directly to a cardholder's account, essentially a payout that can be either local or cross-border. Payout vs. Settlement are often confused, so we decided to clarify these concepts further. A payout is a payment, usually to an individual or legal entity, for services or other reasons, but not related to business relations with of acquirer-merchant type. It can be income from freelancing, lottery winnings, or a gift. Settlement, on the other hand, refers specifically to a payment to a business from a payment provider that held funds belonging to that business.
    
4. Settlement is always payment from a payment system to a merchant that temporarily held funds accumulated from payment processing services. That is, payment system that processes transactions for the merchant accumulates their funds and regularly “returns” them, holding own fees, thereby compensating the merchant for funds that already belong to them. A payout, on the other hand, is not directly related to acquiring or compensating funds belonging to the recipient. It could be payment for services or other income.
    
5. P2P (Peer-to-Peer) — commonly used term today that fundamentally means payments between equal individuals. In simple terms, it's just a transfer from one person to another, unrelated to business transactions. Typically, through such transfers, users can gift money to each other, lend money, or split a restaurant bill. These are all payments between individuals, but one is not buying goods from the other; the nature of their relationship is different. In fintech, such transfers mean the exchange of funds between individuals.
    
6. MOTO (Mail Order Telephone Order) — type of online order that involves communicating with a sales manager by phone, without filling out a cart on the website. In this case, the customer provides the merchant with payment information (e.g., card details) over the phone, by mail, or fax (less commonly), rather than directly through an online form or in person.
   Such types of purchases were very popular in the past, but today they are rare and relate only to certain industries.
    
7. Virtual Terminal is an online service that allows you to accept payments without a physical POS terminal but similarly to it. To process a transaction, merchant logs into a secure web page or payment provider's app and manually enters customer's card details (card number, expiration date, CVV) and payment amount. After entering the information and confirming transaction, the system sends a request to the acquiring bank, which processes payment and approves or declines it.
   
   It's important to note that many fraudsters still use this method to deceive their victims and constantly look for payment providers that can process payments via Virtual Terminal. This payment method is considered very poor in security, and most fintech are moving away from it in favor of modern, safe systems. Sharing your card details with a third party is undesirable, regardless of the level of trust, and can lead to negative consequences. Once payment systems reached a more technological level and it became clear that such processing only gave the green light to scammers, they began to actively abandon it.
    
8. Subscriptions (Regular Billing) is a type of payments scheduled for the future charges done regularly. Essentially, it's a subscription or tariff plan with regular payments for a specific service. This type of payment is often used by services provided over a long period of time. For example, video streaming, online training plans, or music services. The user needs to make a one-time payment, giving consent to future regular charges, usually on the same date each month. If a one-time purchase needs to be made manually each time, often going through the steps of entering card details and 3DS, subscription is more convenient because it happens automatically, without the cardholder's manual intervention.
    
9. ACS System (Access Control System) is a security component in the 3D Secure (3DS) protocol designed to verify the identity of cardholders during online transactions. It acts as an intermediary, ensuring that only authorized users can make transactions, thereby reducing the risk of fraud. This is the webpage where you enter the 3DS code; you may have seen it when making personal transactions in everyday life. Essentially, this functionality provides a high level of protection for online card payments.

That's the selection for today. If you have any questions or would like to delve deeper into any payment processing topic, be sure to contact us to schedule an individual consultation.