The FinTech Lexicon

3D Secure

3D Secure is an XML-based protocol developed to add an extra layer of security for online credit and debit card transactions. Visa was the first card provider to implement the protocol, with the intention of improving online-payment security. 3D Secure is now offered to customers under the name "Verified by Visa." MasterCard SecureCode is another implementation of 3D Secure.

In broad terms, 3D Secure is a fraud and AML prevention scheme that adds an authentication step for online payments. 3D Secure offers companies liability cover for transactions, providing much-needed protection against fraud and money-laundering schemes.

Acquiring Bank

The acquiring bank, also referred to as an acquirer or merchant bank, is a financial institution that creates and manages bank accounts for merchants. The acquiring bank is a licensed member of a card network, such as Mastercard, Visa, and American Express.

When someone uses a debit or credit card to complete a purchase, the acquiring bank has the option to either decline or approve the transaction, based on the cardholder data available from the issuing bank and the card network.

AML

Anti Money Laundering (AML) is a set of laws, regulations, and procedures designed to stop and prevent the practice of generating income illegally. Anti-money-laundering laws target activities such as tax evasion, corruption of public funds, market manipulation, trade of illegal goods, as well as all activities aimed at concealing these deeds.

AML regulations require financial institutions, including FinTechs, to complete due-diligence procedures, aimed at ensuring they and their clients are not aiding in money laundering activities. The responsibility to perform these procedures belongs to the financial institutions, not to the government.

API

The Application Programming Interface (API) is a set of programming standards and instructions which allows two systems or pieces of software to interact seamlessly, making it easy to exchange data. The secure use of APIs is an essential element of the Payment Services Directive (PSD2), which makes APIs profoundly important for the FinTech sector.

More precisely, in computer programming, an API is a collection of subroutine definitions, tools, and protocols for building application software. In broad terms, it is a set of clearly defined methods of communication between various software components.

Blockchain

Blockchain is an emerging technology which registers transactions as a continuously growing list of records, named blocks, which are interlinked and highly secured using cryptography. Blockchain data is stored on a decentralized peer-to-peer network, with no central authority.

Each peer maintains a synchronized append-only ledger, meeting the standards of a consensus protocol. This protocol makes the blockchain virtually impossible to alter, and, at any given moment, allows access to the same version of the truth. The blockchain technology is best known for cryptocurrency transactions, although its potential extends to every single aspect of our digital interactions.

Chargeback

A chargeback is the reimbursement of funds to a consumer, initiated by the issuing bank. Chargebacks are a form of protection against fraud or other mishappenings either on the merchant’s side or due to third-party intervention. Simply put, chargebacks are transaction reversals, triggered by card-issuing banks to reimburse consumers in case of fraudulent or disputed transactions.

One common misconception is to equate chargebacks with refunds. The main difference between the two is WHO initiates the transaction reversal. In the case of chargebacks, the trigger is pulled by the issuing bank, at the card holder's request. In the case of refunds, the merchant directly settles the reimbursement of funds to the client. In calculating the risk associated with individual merchants, payment service providers take chargeback ratios into account, so keeping a good relationship with customers and settling all disputed transactions yourself, will bring you better processing rates and additional benefits from your payment service provider.

Credit Card

Credit cards are small plastic cards issued by financial institutions providing card holders with the option to borrow funds instantly, usually at the point of sale (POS). As credit cards normally charge large interest rates beyond the „grace period”, they are primarily used for short-term financing.

By accepting credit cards, merchants provide customers with the ability to easily purchase goods and services on credit, yet the merchants do not have to support that credit themselves. Since credit card companies are taking on the risks in granting the credit, they expect merchants and FinTech institutions to help them cut their losses, by complying with their standards and local regulations.

Debit Card

The debit card is linked to a checking account, and it empowers cardholders to complete purchases directly from that account. It is a compelling alternative to using cash and, even more so, checks. You can use debit cards online, in person and at ATMs to withdraw cash from linked accounts.

As one of the most straightforward types of bank cards, debit cards have seen worldwide proliferation, today being used by millions of people across the planet.

E-Money

In broad terms, electronic money (e-money) is a secure way to store monetary value on hardware devices, such as computers and smartphones. E-money is used to make and accept payments to and from persons and organizations other than the e-money issuers.

Make no mistake: e-money is money! However, e-money is money that only exists in the computer systems of financial institutions. Only a small fraction of the money in circulation around the world is in physical form. Additionally, the actual e-money-bearing devices act as prepaid digital financial instruments that do not necessarily involve bank accounts in transactions.

E-Wallet

An e-wallet, A.K.A online wallet and digital wallet, is a software application which allows users to store e-money, check balances, complete transactions and receive payments through a digital device. The e-wallet is typically linked to a bank account thus providing an alternative to credit and debit cards.

Online wallets are replacing credit and debit bank cards at a rapid pace. Applications like GlobalGate are innovating in this sector, helping users receive money, complete purchases, and pay most of their bills through e-wallets and storing money at minimal to no cost.

FinTech

FinTech (Financial Technology) is an industry sector dedicated to the use of software technologies in the delivery and support of banking and financial services, including personal finance, capital markets, and payment services. Globally, FinTech is one of the fastest-growing sectors, revolutionizing the way we all interact with financial institutions and, ultimately, with money.

The term "FinTech" is alternatively used to describe a company, usually a start-up, providing financial services via digital channels. Consequently, GlobalGate is a FinTech, a financial-technology company.

GDPR

The General Data Protection Regulation (GDPR) is a European Union policy designed to strengthen and unify data protection for individuals within the EU and govern the export of personal data outside of the EU. The GDPR aims primarily to give EU citizens and residents control over their private data and to streamline the European regulatory environment for international business by bringing together the regulation within the EU.

Designed to replace the data protection directive of 1995, the GDPR was adopted on 27 April 2016. It becomes enforceable from 25 May 2018 after a two-year transition period and, unlike a directive, it does not require national governments to pass any further enabling legislation, and is thus directly mandatory and applicable.

High-Risk Merchant

In broad terms, the "high-risk" label has nothing to do with a company’s risk of failure. This particular brand of risk analysis looks mostly into fraud and chargeback potential. So, merchants are most likely to get labeled as high-risk if they do business in industries that are notoriously plagued by high chargeback ratios.

Payment processors usually apply a rolling reserve on every high-risk merchant account. This reserve can be used by the acquiring bank to offset chargebacks. The reserve grants an additional layer of protection against unexpected behaviors on the merchant’s website.

KYC

KYC (Know Your Customer) is a list of checks which must be made by financial service providers to confirm the identities of their clients. KYC is typically used during onboarding: it helps check for anti-money laundering (AML) and combat the financing of terrorism (CFT). KYC is mandatory in most parts of the world.

The digitalization of KYC is leading to a boom in FinTech and RegTech solutions, since digital KYC compliance makes possible a faster and frictionless onboarding. Constantly shifting legislation is an increasingly difficult challenge for financial institutions, so the ability to quickly adapt and iron out the onboarding process can make or break a financial institution.

Low-Risk Merchant

In broad terms, the "low-risk" label has nothing to do with a company’s risk of failure. This particular brand of risk analysis looks mostly into fraud and chargeback potential. So, merchants are most likely to get labeled as low-risk if they do business in industries that aren't notoriously plagued by high chargeback ratios.

Payment processors usually don't apply a rolling reserve on every low-risk merchant account or set a minimal rolling reserve. This reserve can be used by the acquiring bank to offset chargebacks.

Payment Gateway

Payment gateways are software solutions provided to e-commerce merchants by a payment service provider (PSP). The payment gateway enables customers to complete online payments for goods and services using bank cards. There are a lot of misconceptions surrounding this notion, but, simply put, the payment gateway links the buyer, the merchant and the acquiring bank.

Payment gateways play a crucial role in reassuring website visitors of the merchant’s trustworthiness. In essence, payment gateways are the first line of defense against fraudulent activities, both on the merchant’s and the visitor’s side.

PCI DSS

The Payment Card Industry Data Security Standard is a collection of security criteria aimed at protecting card information throughout and beyond financial transactions. Every card brand is required to comply to the industry standards, and, although they are not always explicitly required to do so, most FinTech companies adopt PCI compliance to assure a superior level of security to their users.

PCI DSS ensures that every company that accepts, processes, stores or transmits card information maintains a highly secure environment. The PCI DSS is managed by the Payment Card Industry Security Standards Council (PCI SSC), an independent association that was created by the major payment card brands (Visa, MasterCard, American Express, Discover, and JCB.). Please note that the payment brands and acquirers are the ones responsible for enforcing compliance, not the PCI council.

PSD2

PSD2 is an EU policy aimed at standardizing and making card, mobile and internet payments interoperable. PSD2 is expected to reduce barriers for third-party providers by allowing transactions to and from the customer’s bank account via an API.

PSD2 allows FinTech applications such as GlobalGate to offer services on top of bank’s data and infrastructure, increasing competition and offering user-centric approaches to the financial sector at a much higher pace than ever before.

PSP

A Payment Service Provider (PSP) is a financial institution that empowers merchants to accept a range of payment methods through a payment gateway. The PSP works in close relationship with acquiring banks (payment processors) to manage the transaction from the user's click to the merchant's payout. The PSP oversees every process from the moment the clients input their credit card data, to the moment the funds are transferes to the merchant’s bank account.

An end-to-end PSP should offer this minimum set of basic services:

1. Support for multiple currencies and payment methods,
2. Extensive risk management and PCI DSS compliance,
3. Access to merchant accounts or aggregated accounts at the acquiring bank.

Refund

A refund is the repayment of funds, typically to an unsatisfied client. Refunds are a regular part of e-business, offering compensation to customers for accidental over-invoicing and returned products. Issuing refunds in due time and keeping communication channels open for customers are paramount to successful e-business and brings benefits to merchants beyond reputation and customer satisfaction.

Refunds are not to be equated with chargebacks. The main difference is WHO initiates the transaction reversal. Chargebacks are initiated by card-issuing banks and constitute the result of fraud suspicions or disputed transactions. High chargeback ratios usually entail the labeling of merchants as high-risk, when working with payment service providers. High refund ratios are not even taken into consideration by payment processors and acquiring banks. As long as you settle all disputes directly with your customers, everybody is happy.

Rolling Reserve

Through the rolling reserve, the acquiring bank collects an agreed percentage of every transaction. The money remains within the merchant account at all times, but the bank releases the accumulated funds to the merchant at a scheduled date.

The rolling reserve is part of the acquiring bank's risk management strategy, and it ensures the availability of sufficient liquidity in the eventuality of high chargeback ratios. Simply put, the rolling reserve is a buffer for chargebacks.

SWIFT Transfer

The SWIFT transfer is a type of international money transfer accomplished via the SWIFT international payment network. SWIFT transfers usually take between one and three working days to complete, however they can take even longer due to time-zone differences between the sending and receiving countries.

Founded in Brussels in 1973, the Society for the Worldwide Interbank Financial Telecommunication (SWIFT) is a co-operative organization dedicated to the promotion and development of standardized global interactivity for financial transactions.