MERCHANT GLOSSARY

Payment processing glossary

Plain-English definitions of the fees, acronyms, and contract terms Canadian merchants see on statements and agreements. Bookmark it, link to it, and never sign a processing contract you can't decode.

3-D Secure

An authentication protocol for online payments — branded as Visa Secure and Mastercard Identity Check — that lets the issuer verify the cardholder during checkout, often invisibly using risk data. When a transaction is authenticated with 3-D Secure, liability for fraud chargebacks generally shifts from the merchant to the issuer. Version 2 largely replaced clunky password pop-ups with frictionless background checks.

Acquirer

The financial institution or payment company that maintains your merchant account, accepts card transactions on your behalf, and settles the funds to your business bank account. In Canada, companies like Moneris and Nuvei act as acquirers. The acquirer sits on your side of the transaction, opposite the issuer, which represents the cardholder.

Assessment fees

Fees charged by the card networks themselves (Visa, Mastercard) on top of interchange, usually calculated as a small percentage of volume. Like interchange, assessments are non-negotiable and identical across processors — they pay for operating the network. On a transparent interchange-plus statement they appear as their own line items rather than being blended into a single rate.

Related terms:Interchange · Processor markup

AVS (address verification service)

A fraud-prevention check that compares the billing address a customer enters against the address on file with their card issuer. Used mainly for card-not-present transactions, an AVS mismatch is a signal to review or decline the order. Using AVS can also help online transactions qualify for better interchange categories.

Related terms:CVV / CVC · 3-D Secure · Card-present vs card-not-present

Batch

The group of authorized transactions a terminal or gateway submits together for settlement, usually once per day at close of business. Until a batch is closed, transactions are only authorizations — the money has not started moving. Terminals can batch out automatically at a set time or manually; forgetting to batch delays your deposits.

Related terms:Settlement · Terminal

Card-present vs card-not-present

Card-present (CP) transactions happen with the physical card at a terminal — tap or chip. Card-not-present (CNP) transactions happen online, over the phone, or by mail, where the card cannot be verified physically. CNP transactions carry higher interchange and higher fraud and chargeback risk, which is why online rates are almost always higher than in-store rates.

Chargeback

A forced reversal of a card transaction initiated by the cardholder through their issuing bank, usually claiming fraud, non-delivery, or a billing error. The disputed amount is pulled from your account while the case is reviewed, and processors add a chargeback fee per case regardless of outcome. High chargeback ratios can put a merchant account into monitoring programs or lead to termination.

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CVV / CVC

The three-digit security code printed on the back of a card (four digits on the front for Amex), used to prove the buyer physically holds the card during online or phone orders. PCI DSS prohibits storing the CVV after authorization, even in encrypted form. Requiring it at checkout is a basic but effective defence against stolen-card-number fraud.

Early termination fee (ETF)

A penalty for closing your merchant account before the contract term ends. Some agreements charge a flat amount; others use "liquidated damages" clauses that estimate the processor's lost revenue for the remaining term, which can be far more expensive. Under the Code of Conduct for the payment card industry in Canada, merchants gain certain rights to exit without penalty when fees are increased or new fees introduced.

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Related terms:Monthly minimum · Statement fee

EMV

The global chip-card standard (named for Europay, Mastercard, and Visa) that replaced magnetic-stripe transactions with cryptographically secured chip transactions. Canada completed its EMV migration years ago, so chip-and-PIN is the norm at the counter. Merchants without EMV-capable equipment bear liability for counterfeit-card fraud that the chip would have prevented.

Factor rate

The multiplier used to price a merchant cash advance, expressed as a decimal (for example, 1.2 means you repay $1.20 for every $1.00 advanced). Unlike an interest rate, a factor rate is fixed at the start and does not decrease as you repay, so the effective annualized cost depends heavily on how fast you repay. Always convert a factor rate into total dollars repaid before comparing offers.

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Related terms:Merchant cash advance (MCA) · Holdback

Flat-rate pricing

A pricing model where every transaction is charged the same blended percentage regardless of the card used. It is simple to understand, which is why many entry-level providers offer it, but the single rate is set high enough to cover the most expensive card types. Merchants with meaningful volume — especially those accepting lots of debit or basic consumer cards — usually overpay compared with interchange-plus.

Related terms:Interchange-plus pricing · Tiered pricing · Interchange

Holdback

The fixed percentage of daily card sales withheld to repay a merchant cash advance. If your holdback is 10%, ten cents of every card dollar goes toward repayment until the advance plus its fee is paid off. Because it scales with sales, the holdback protects cash flow during slow periods — but a high holdback on thin margins can still squeeze operations.

Interac debit

Canada's domestic debit network, used for the vast majority of in-store debit purchases. Interac transactions are typically charged as a flat fee per transaction rather than a percentage, making debit dramatically cheaper to accept than credit for most merchants. Encouraging debit at the counter is a simple way to lower average processing costs.

Related terms:Tap / contactless · Interchange · Terminal

Interchange

The fee a merchant's acquirer pays to the cardholder's issuing bank on every card transaction, set by the card networks (Visa, Mastercard) rather than your processor. Interchange varies by card type, industry, and how the transaction is processed, and it makes up the largest share of most Canadian merchants' processing costs. Because rates are published by the networks, interchange itself is the same no matter which processor you use — what differs is the markup added on top.

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Interchange downgrade

When a transaction fails to meet the requirements for its best-possible interchange category and gets billed at a higher rate — for example, a manually keyed transaction, a late batch, or missing AVS data. Downgrades are invisible on flat-rate and tiered statements but show up clearly under interchange-plus. Fixing the operational causes (batching daily, using AVS, avoiding keyed entry) is one of the cheapest ways to lower processing costs.

Interchange-plus pricing

A pricing model where you pay the actual interchange and network assessment fees at cost, plus a fixed, disclosed processor markup. It is widely considered the most transparent model for Canadian merchants because every fee on your statement can be traced back to a published rate. Compare with flat-rate and tiered pricing, where the true cost of each transaction is hidden inside a blended rate.

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Related terms:Interchange · Flat-rate pricing · Tiered pricing · Processor markup

ISO (independent sales organization)

A company authorized to sell merchant services on behalf of an acquirer or processor. ISOs handle sales, onboarding, and often ongoing support, while the acquirer holds the actual banking relationship. Working with a good ISO can mean better pricing and more responsive service than going direct — but merchants should always confirm which acquirer stands behind the account.

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Related terms:Acquirer · Processor markup

Issuer

The bank or financial institution that issued the customer's credit or debit card — in Canada, typically one of the major banks or a credit union. The issuer approves or declines each authorization, collects interchange, and represents the cardholder in disputes such as chargebacks. Issuer decisions, not your processor's, determine whether a given card is accepted at the moment of sale.

Related terms:Acquirer · Interchange · Chargeback

Merchant cash advance (MCA)

Business funding repaid automatically as a percentage of your daily card sales rather than on a fixed monthly schedule. Because approval is based on processing volume instead of collateral or extensive credit review, MCAs fund faster than bank loans and flex with revenue — you repay less on slow days. The cost is set by a factor rate, and the repayment percentage is called the holdback.

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Related terms:Factor rate · Holdback

MEV (Quebec sales recording module)

The sales recording module mandated by Revenu Québec for restaurants and bars, which certifies bills and reports sales data to fight tax evasion. Establishments covered by the program must produce customer bills through an MEV or the newer cloud-based MEV-WEB solution. If you run a food-service business in Quebec, your POS and payment setup must integrate with this requirement.

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Related terms:POS (point of sale) · Terminal

MID (merchant ID)

The unique account number an acquirer assigns to your business when your merchant account is approved. Every transaction you process carries your MID, and it is how the networks, issuer, and processor identify you for settlement, fees, and dispute handling. Businesses with multiple locations or sales channels often hold several MIDs under one relationship.

Related terms:Acquirer · Settlement

Monthly minimum

A clause requiring your account to generate a minimum amount of processing fees each month; if your actual fees fall short, the processor bills the difference. Monthly minimums penalize seasonal and low-volume businesses in slow months. Check for this clause before signing, especially if your sales fluctuate through the year.

Related terms:Statement fee · Early termination fee (ETF)

Payment gateway

The technology that securely transmits online transaction data from your website or app to the processor and card networks. Think of it as the e-commerce equivalent of a physical terminal. Gateways typically add their own per-transaction or monthly fee, so merchants selling online should account for gateway costs alongside processing rates.

PCI DSS

The Payment Card Industry Data Security Standard — a set of security requirements every business that stores, processes, or transmits card data must follow. Most Canadian small businesses satisfy it by completing an annual self-assessment questionnaire (SAQ) and, where applicable, network scans. Falling out of compliance commonly triggers monthly PCI non-compliance fees from the processor.

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Related terms:PCI non-compliance fee · Tokenization

PCI non-compliance fee

A monthly penalty processors charge when a merchant has not completed their annual PCI DSS validation, such as the self-assessment questionnaire. It is one of the most commonly overlooked charges on Canadian merchant statements because many merchants do not realize the validation exists or lapses annually. Completing the SAQ — usually a short online process — removes the fee.

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Related terms:PCI DSS · Statement fee

POS (point of sale)

The system where a sale happens — from a simple countertop terminal to a full software platform handling inventory, staff, tips, and reporting alongside payments. Modern Canadian POS systems like Clover combine the register and the payment terminal in one device. The right POS choice depends on your industry: restaurants, retail, and service businesses have very different needs.

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Related terms:Terminal · Batch

Processor markup

The portion of your processing cost that goes to the processor or ISO, over and above interchange and network assessments. This is the only truly negotiable part of your rate, and the part worth comparing when shopping processors. Under interchange-plus it is disclosed as a fixed "plus"; under flat-rate or tiered pricing it is hidden inside the blended rate.

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Related terms:Interchange-plus pricing · Interchange · Assessment fees

Qualified / non-qualified rates

The tier labels used in tiered pricing: "qualified" is the advertised low rate for basic cards processed under ideal conditions, while "mid-qualified" and "non-qualified" carry progressively higher rates for rewards cards, keyed entries, and card-not-present sales. The processor controls the classification rules, and in practice a large share of Canadian transactions land outside the qualified tier. The teaser rate on a tiered quote rarely reflects what you actually pay.

Retrieval request

A formal request from a cardholder's issuing bank for a copy of the transaction record — often the first step before a chargeback. Responding promptly with a clear receipt and supporting details can stop a dispute from escalating. Ignoring a retrieval request typically results in an automatic chargeback you cannot contest.

Related terms:Chargeback · Issuer

Rolling reserve

A risk-management practice where the acquirer withholds a percentage of each settlement for a set period before releasing it, creating a buffer against chargebacks and refunds. Reserves are common for new merchants, high-risk industries, and businesses with future-delivery models like travel or subscriptions. The terms — percentage held and release schedule — should be spelled out in your merchant agreement.

Related terms:Settlement · Chargeback · Holdback

Settlement

The process of moving funds from completed card transactions into your business bank account. Settlement timing in Canada is typically expressed in business days after the batch closes, and it varies by processor and account risk profile. Faster settlement improves cash flow, which is why funding speed is worth asking about when comparing providers.

Related terms:Batch · Acquirer · Rolling reserve

Statement fee

A recurring monthly charge for producing your merchant statement, whether paper or electronic. It is a pure administrative fee that varies widely between processors and is often negotiable — or absent entirely with transparent providers. Review it alongside other fixed monthly fees when comparing total cost of processing.

Related terms:Monthly minimum · PCI non-compliance fee

Tap / contactless

Payment made by holding a card, phone, or watch near the terminal, using NFC technology. Canada is one of the world's heaviest tap-adoption markets, and contactless transactions above the networks' tap limit may prompt a PIN. Mobile wallets like Apple Pay and Google Pay ride on the same rails and are tokenized, adding a layer of security.

Related terms:Terminal · EMV · Tokenization · Interac debit

Terminal

The physical device that reads cards and communicates with the processor to authorize payments — via chip insert, tap, or (rarely now) swipe. In Canada, common devices include the Clover Flex, Moneris Go, and Nuvei-supported terminals. Terminals can be purchased, rented monthly, or bundled into a processing agreement, and the ownership terms matter when you switch providers.

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Related terms:POS (point of sale) · EMV · Tap / contactless

Tiered pricing

A pricing model where the processor sorts transactions into buckets — typically "qualified," "mid-qualified," and "non-qualified" — and charges a different rate for each. The processor decides which transactions fall into which tier, and the criteria are rarely disclosed, so premium and card-not-present transactions often get pushed into the most expensive bucket. This is the model most associated with surprise fees on Canadian merchant statements.

Tokenization

Replacing a card number with a unique, meaningless token so the real number never sits in your systems. If a tokenized database is breached, the tokens are useless to attackers. Tokenization dramatically reduces PCI DSS scope for merchants who store cards for recurring billing or one-click checkout.

Related terms:PCI DSS · Payment gateway

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