Payment terms, explained simply

A plain-English A–Z glossary of payment processing vocabulary — from ACH to webhooks — so you always know what a term means.

Payment processing has its own language. This glossary defines the most common terms in plain English so you can follow conversations with developers, processors, and accountants without getting lost.

Quick summary

Use this page as a reference. If you encounter a term in your Stripe dashboard, a developer's message, or an invoice, look it up here. Terms are listed alphabetically.

A

ACH (Automated Clearing House) The US bank transfer network used for direct bank-to-bank transfers. ACH transfers typically take one to three business days. Stripe and PayPal use ACH to send payouts to your bank account.

Authorization The first step in a card payment. The processor asks the customer's bank to reserve (hold) funds. The money has not moved yet — it is just locked against the card's available balance. See also: Capture.

AVS (Address Verification System) A fraud-checking tool that compares the billing address the customer entered with the address on file at their bank. A mismatch can flag a transaction for review or cause a decline.

B

Billing descriptor The name that appears on a customer's card or bank statement when you charge them. If the descriptor is unclear or unfamiliar, customers may file a dispute. You can customize your billing descriptor in your Stripe dashboard.

C

Capture The step that actually moves money after an authorization. Most online stores authorize and capture at the same moment. Some businesses (e.g. those that ship later) separate the two steps.

Card network The organizations that operate the payment infrastructure and set the rules: Visa, Mastercard, American Express, Discover. They route transactions between your processor and the customer's bank.

Chargeback A reversal of a payment initiated by the customer's bank, usually because the customer disputed the charge. Different from a refund (which you initiate). Chargebacks come with a fee regardless of outcome. See Chargebacks & disputes explained.

CVV / CVC The three-digit (or four-digit on Amex) security code on the back of a card. Required for most online transactions to verify the customer physically has the card.

D

Decline When the customer's bank refuses a charge. Reasons include: insufficient funds, suspected fraud, incorrect card details, or a spending limit. A decline is not a processor error — it comes from the issuing bank.

Dispute See Chargeback. Also used to describe PayPal's internal dispute resolution process, which is separate from a card-network chargeback.

Dunning The process of following up on failed or overdue payments. In subscriptions, dunning emails are automated reminders sent to customers asking them to update an expired or failed payment method.

E

Economic nexus A legal connection between your business and a state created by reaching a certain sales volume or number of transactions there — even without a physical presence. Relevant for sales tax obligations. See Sales tax basics for online sellers.

F

Fraud Unauthorized use of a card. Can be "true fraud" (a stolen card) or "friendly fraud" (a customer disputing a legitimate charge to get a refund). Payment processors use machine learning to detect and block fraud.

G

Gateway The secure connection that transmits card data from your website to the payment processor. With modern all-in-one processors, the gateway is built in.

I

Interchange The fee that goes to the card-issuing bank for every transaction. It is included in the per-transaction fee you pay to your processor, so you generally never see it separately.

Issuing bank The bank that issued the card to the customer (their bank). The issuing bank approves or declines transactions.

M

Merchant account A special bank account that holds your funds during settlement before they are transferred to your regular business bank. With all-in-one processors like Stripe, a managed merchant account is included automatically.

N

Nexus A legal connection between your business and a taxing jurisdiction (such as a state) that creates an obligation to collect and remit sales tax. See Sales tax basics for online sellers.

P

PCI DSS (Payment Card Industry Data Security Standard) A security standard that all businesses accepting card payments must comply with. Using a hosted processor like Stripe reduces your compliance scope significantly. See Payment security & PCI compliance.

Payout The transfer of your settled funds from your payment processor to your bank account. Stripe pays out on a rolling schedule; PayPal holds funds until you initiate a transfer.

Payment processor The company that authorizes, routes, and settles your card transactions. Examples: Stripe, PayPal, Square. See Payment processors explained.

Pending balance Funds that have been captured from customers but have not yet settled. They are in transit through the banking system and will be available for payout shortly.

R

Recurring billing Automatic charges on a schedule — monthly, annual, etc. Used for subscriptions and retainers. See Recurring payments & subscriptions.

Refund A reversal of a payment that you initiate. The money is returned to the customer's original payment method. Different from a chargeback. See Refunds: best practices.

Retry logic When a recurring charge fails, processors like Stripe automatically retry at intervals. Stripe calls its version Smart Retries.

S

Settlement The final movement of funds through the banking system after a transaction is captured. Settlement is when your processor moves the money from the card network into your merchant account.

Smart Retries Stripe's system for retrying failed subscription charges at optimal times, increasing the chance of success.

Surcharging Adding a fee to a transaction to cover processing costs. Subject to card network rules and state laws — not universally allowed.

T

Token / Tokenization A process where Stripe replaces a customer's real card number with a unique, meaningless string (the token). Your website only ever stores the token, not the actual card number, which protects customers if your systems are ever breached.

Transaction fee The fee charged on each successful payment. Usually expressed as a percentage plus a flat amount (e.g. 2.9% + $0.30). See Payment fees explained.

V

VAT (Value Added Tax) A tax used in many countries outside the US, including the EU and UK. If you sell internationally, VAT obligations may apply. Consult a tax professional.

W

Webhook An automated notification that Stripe (or another processor) sends to your website when something happens — a payment succeeds, a subscription renews, a chargeback is filed. Webhooks are how your website knows to confirm an order or update a subscription status. Your developer configures these.

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