So that’s where I’m at. As a newcomer to the geek world, I’m doing my best to grasp terms that I wouldn’t have been caught dead using only a few days ago.

I’m curious what others go through if understanding these terms is difficult for someone who has worked in the fintech field for a while.

So, whether you’re a startup enthusiast, a small business owner, or simply an inquisitive Lannister who likes to learn new things, here’s a quick primer on payments and some of the industry’s most commonly used words. I hope they’re useful to you!

Let’s look at simple payment terms:

TDR/MDR/Bank Charges

As we’ve seen thus far, a successful online transaction involves a large number of procedures and entities. All of these entities are entitled to a nominal fee because they provide a service to the user, as indicated below:

The amount that the acquiring bank charges for offering card payment services is known as bank charges. This rate is following the central bank’s guidance. The ‘Interchange,’ which is a fee paid by the acquiring bank to the issuing bank for card transactions, is one of the components involved.

Processing Fees: Your payment aggregator may be required to pay certain fees to other parties in the loop, such as online wallets or banks, to process certain types of payments. This would be factored into the amount you’d be charged for each successful transaction.

TDR – Transaction Discount Rate: This is the fee charged by the payment gateway to the merchant when money is transferred to their account. This is determined by the gateway and includes the fees mentioned above. The term is interchangeably used with MDR in everyday discourse (Merchant Discount Rate).

To summarise, TDR = Bank Charges + Processing Charges + Taxes

Payment aggregators also provide extra services and solutions for managing your payments and may charge an additional service component on a case-by-case basis.

Settlement

The payment gateway, PayStudio, must settle the amount with the merchant once the transaction has been ‘recorded.’ It’s worth noting that the funds have yet to be transferred to the merchant’s account. This is because, while authorisation, authentication, and capture occur in real-time (in most situations), the financial transfer occurs in a different cycle.

Banks must first send the funds to PayStudio’s nodal account, which might take up to two days. After that, PayStudio pays it to the merchant account, which takes about 2-3 days after the transaction is completed. This is referred to as a settlement.

Authentication

When dealing with large sums of money daily, fraud and risk must be kept to a minimum. Payment gateways use the authentication procedure to ensure that you are who you say you are and to avoid fraudulent transactions.

Payment details verification: This allows the payment gateway to identify whose bank your card belongs to, allowing them to process your payment more quickly.

User verification or authorization: The OTP/PIN/CVV is used to accomplish this. When you type these correctly, you’re telling the bank (and the payment gateway) that you’re the one who’s utilising the payment mode and who’s made the payment request.

Merchant Accounts /Nodal

A nodal account is an account created particularly to accept digital payments by e-commerce, payment gateway, wallets, and aggregators. A merchant account is a virtual account that a company sets up with a payment processor.

PayStudio, for example, has a nodal account that allows it to receive and process payments. When a merchant registers up to use PayStudio’s services, we set up dedicated merchant accounts for them that serve as temporary payment vaults.

Every payment made by a user is sent to the PayStudio nodal account, which is then managed by the merchant account.

The merchant is allowed to do whatever they want with the monies once they’ve been deposited into their account. As a result, they can send the entire amount to any of their company’s current accounts, or utilise it to pay their vendors and other associates utilising a service like the payment gateway Route.

The majority of banks allow you to open a current account. You can even hire a professional service provider to build one for you.

Now, I get what you’re wondering, and here’s the answer: a merchant account and a business’ current account are two distinct things.

You can only utilise the merchant account provided by your payment processor to receive digital payments from your consumers and disburse them to your vendors. Your current account, on the other hand, is where you deposit funds from both cash and card transactions and where you pay your salary and bills.

Chargeback

APIs and code aren’t the only things that make up the world of online payments. Now and then, it can read like a good mystery. Consider the case of a consumer who alleges he was charged for transactions on his credit card that he did not make. Is it possible that you have amnesia? Is it sour grapes or a failed shopping trip? Or is it a deliberate attempt to defraud? Whoa!

When a consumer disputes a charge on their card, the issuing bank issues a ‘chargeback’ right away.

While PayStudio is not directly involved in chargebacks or refunds as a payment gateway, we are a part of the digital infrastructure and do our best to handle such situations as swiftly as possible.

A firm would prefer to avoid chargebacks since they result in the loss of inventory (if a sale was made) as well as money.

In the event of a chargeback, any charges charged on a digital transaction are likewise levied.

Refunds

Refund is exactly what it says it is. Let’s face it, we’ve all done it at some point in our lives!

A refund is essentially a reversal of a user’s transaction. If a user is dissatisfied with the goods or services they have purchased, or if they have paid for purchase but have not received anything, they can request a refund.

Although refunds and chargebacks may appear to be the same thing, they are not. The seller initiates a refund (with or without the user’s request) because they failed to deliver the goods/services promised. A chargeback occurs when a client requests that the issuing bank take money from the merchant account even though the charges levied by the merchant are invalid.

Capture

Let’s look at the anatomy of the transaction I did at a merchant previously to properly grasp this phrase.

The procedure began when I decided to make an internet purchase. I choose my preferred method of payment, supplied the necessary information, and verified the transaction.

Voila! The funds have been deducted from my bank account and credited to PayStudio’s nodal account, as I can see. It must now reach the merchant’s account, and for this to happen, the merchant must ‘capture’ the payment so that PayStudio knows where to send it – almost like a virtual Thank You and proof that the money is theirs.

Purchasing/Issuing Bank

An issuing bank, often known as an issuer, is a bank or financial institution that provides payment cards to customers on behalf of card networks like Visa, MasterCard, and American Express. Typically, these are significant commercial banks. An acquiring bank is a financial institution that processes transactions through its gateway. When a customer makes a transaction, the issuing bank is the one they utilise.

Aggregator/Gateway

A payment gateway is a piece of software that enables businesses to receive online payments from clients. Payment channels include PayPal, WorldPay, and MIGS, to name a few.

Customers can now choose their preferred form of payment. If I wanted to buy something, I’d use NetBanking, whereas someone else might use a wallet or APM.

A payment aggregator combines all of these different payment methods into a single interface, giving the user more options.

Conclusion

The payments sector is continually expanding, and payment gateways have become critical for all organisations, whether they operate online or in a physical location. Hopefully, these terminologies have improved your understanding of our world! To know more call us at (+44) 0 (800) 887 0291 or you can write to us at sales@paystudio.vip