Glossary: Payment card industry


Entity that enables merchants to accept payments by credit or debit card, by providing merchants with access to one or more payment card networks for the transmission or processing of payments. Sometimes called a payments processor.

Assessment fee

Fee that some payment card networks charge to acquirers for each transaction transmitted through the network. Some acquirers may in turn charge this fee to merchants.

Card not present

Refers to transactions other than point-of-sale where the payment card is not physically present, such as transactions completed online or over the telephone. Generally subject to higher merchant discount rates than transactions where the card is physically present, because there is a higher risk of fraud.

Contactless payment

A payment card-based and/or mobile device-enabled payment transaction that is initiated at the payment terminal at a point of sale and that does not require contact with the payment terminal at the point of sale.

Credit rate

See Merchant discount rate.

Effective merchant discount rate

Calculated as the total fees paid by the merchant to an acquirer, related to the processing of a specific type of payment card from a payment card network, divided by the total sales volume for that type of payment card.

Four-party payment card model

In addition to the payment card network, consists of:

Independent sales organization (ISO)

Organization that offers payment processing and related services to merchants but does not have direct access to the payment card networks (that is, it is not an acquirer). Frequently ISOs offer packages that combine services from multiple service providers, which may include contracts with different terms and conditions for the various providers. ISOs may provide some of the services themselves or act as sales agents for a specific acquirer that provides all services.


The fee set by the payment card network that is paid by acquirers to the financial institution who issued the card to the purchaser. The interchange fee typically makes up a significant portion of the fees that merchants pay to their acquirer. Note: Interchange does not apply to Interac or American Express transactions, as these networks have different operating models.


Financial institution that provides the payment card to the cardholder. Approves or declines transactions submitted by merchants, collects payments from cardholders, and pays the total amount of their cardholders’ transactions as part of the settlement process. Collects an interchange fee from the acquirer for each transaction (except in card networks with a three-party model where the same organization plays the roles of both card issuer and payment processor).

Liquidated damages

One of the ways that charges to a merchant may be calculated if the merchant cancels a payment processing contract in circumstances other than the “penalty-free” scenarios specified in the Code of Conduct. Generally speaking, the amount of liquidated damages is related to an estimate of the processor’s anticipated future revenue from the merchant under the contract. Different payment service providers may use different formulae for calculating liquidated damages, and some apply a flat cancellation fee instead. If applicable, the merchant agreement will provide details of cancellation fees and if based on liquidated damages, how they are calculated. Also referred to as penalty fees or early termination damages.

Merchant discount rate

Percentage and/or transaction fee applied to credit card transactions and paid by the merchant to the acquirer. May differ from the effective merchant discount rate, as it may not include all applicable fees charged by the acquirer for that type of card. Merchant discount rates may vary by merchant category, card payment volume, category of card and the type of transaction (for example, in-person versus over the internet). Sometimes called the credit rate.

Mobile device

A portable electronic device that may be used by a consumer to facilitate the storage and/or transmission of data electronically for enabling a contactless payment.

Mobile wallet

A graphic user interface (software application) that presents one or more payment applets to a consumer for the purposes of enabling a contactless payment.

Near Field Communication (NFC)

Technology that enables contactless payment card transactions by waving or tapping the card close to the payment terminal in a point-of-sale environment. Data from the chip on the card is transmitted to the payment terminal to verify cardholder’s approval. Swiping or inserting the card is not required. A maximum value for NFC transactions is generally set by the payment card network.

Network access fee

Portion of transaction value that some payment card networks charge the card issuer and/or the acquirer.

Non-qualified rate

An effective merchant discount rate that payment processors may charge a merchant for transactions that do not meet the criteria for the lower qualified rate. Factors that determine whether a transaction is subject to the non-qualified rate vary to some extent between payment processors. Generally speaking, remote transactions for which the card is not physically present (for example, online or telephone transactions) are likely to be considered non-qualified. (Note that some processors may offer an in-between rate for transactions meeting their definition of “mid-qualified rate.”) See also: qualified rate.

Payment applet

A software application on a mobile device, or within a mobile wallet, that enables a contactless payment by linking a single payment credential (e.g. credit or debit) through a specific payment card network.

Payment card network

A network that enables acceptance of credit and/or debit cards bearing the network’s brand by providing connections between merchants, acquirers and financial institutions that issue payment cards. In Canada, there are currently six payment card networks:  American Express Canada, Discover, The Exchange, Interac, Mastercard Canada and Visa Canada.

Payment credential

The data that is required to complete a contactless payment (e.g. identifying information for the specific payment network, issuer, and cardholder) that is stored securely and accessed by a payment applet or token associated with a payment applet.

Payment processor

A company (often a third party) used by a merchant to access a payment card network. Also see Acquirer.


Refers to transactions made when the cardholder is present in person and presents the card for the transaction. The card is inserted in a payment terminal, swiped or, in the case of contactless payment, held near the payment terminal.

Qualified rate

Rate charged for transactions that are eligible for the lowest merchant discount rate for that category of card, under the terms of the merchant’s contract. Generally these are point-of-sale transactions involving a PIN to verify the cardholder’s approval of the transaction.  Premium cards generally attract higher rates than the qualified rate.

Remote transactions

Refers to transactions other than in a point-of-sale environment, such as purchases made over the Internet or by phone. Also referred to as card not present transactions.

Reserve account

Funds that an acquirer requires a merchant to maintain in an account to support the payment card services and manage risk—for example, in the event that the merchant ceased business operations.  Minimum balance for the reserve account will depend on such factors as volume of transactions and category of business.


Process of adjusting merchants’ accounts to reflect the funds due to them for card transactions. Most acquirers settle the gross amount and collect fees periodically. Settlement can occur on the date of the transactions or up to several days afterwards, depending on the acquirer and the merchant’s financial institution.

Three-party payment card model

Consists of a cardholder (the customer), a merchant and a financial institution operating a payment card network. Since the same financial institution issues cards to cardholders and acts as the payment processor, there is no need for an interchange fee.

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