Payment Processing Glossary for Canadian Merchants

A

Acquirer / Acquiring Bank

The financial institution that processes credit and debit card payments on behalf of a merchant. The acquirer settles funds into the merchant's bank account. In Canada, major acquirers include Moneris, Helcim, and the banks behind Square and Stripe. Also called a "merchant bank."

Address Verification Service (AVS)

A fraud prevention tool that compares the billing address provided by the cardholder against the address on file with the card-issuing bank. Available for Visa and Mastercard transactions. Mismatches trigger alerts.

Authorization

The process of verifying that a cardholder's account has sufficient funds or credit for a transaction. Authorization does not capture funds — it only checks availability. A separate capture step moves money.

Authorization Hold

A temporary hold placed on a cardholder's account during authorization. Common in hotels and gas stations. In Canada, credit card holds typically expire within 7 days if not captured.

B

Batch Processing

The process of settling multiple transactions at once, typically at end of business day. Most modern processors settle continuously (real-time), but some older systems still batch transactions daily.

Business Number (BN)

Canada-specific: A 9-digit number assigned by the Canada Revenue Agency (CRA) to identify Canadian businesses. Required when applying for a merchant account in Canada. Replaces the US concept of EIN/TIN for Canadian businesses.

C

Card-Not-Present (CNP)

A transaction type where the physical card is not presented — online payments, phone orders, mail orders. CNP transactions have higher fraud rates and therefore higher interchange rates than card-present transactions. Most e-commerce is CNP.

Card-Present

Transactions where the physical card is presented at a POS terminal — tap, chip, or swipe. Lower fraud risk means lower interchange rates than card-not-present.

Capture

The process of actually collecting funds from an authorized transaction. In a two-step auth/capture flow, authorization reserves funds and capture moves them. Most retail POS systems combine these into one step.

Chargeback

When a cardholder disputes a charge with their bank, resulting in the merchant having the transaction amount reversed. The merchant also pays a chargeback fee ($15–$25). Chargebacks are a major cost and risk for merchants. Note: Interac debit transactions are irrevocable — no chargebacks possible.

Contactless Payment

A payment made by tapping a card or device near a terminal — using NFC (Near Field Communication) technology. Also called "tap-to-pay." In Canada, the standard is Interac Flash for debit and PayPass/payWave for Visa/Mastercard credit.

CVV / CVC / CVV2

The 3 or 4 digit security code on the back (or front for Amex) of a payment card. Required for card-not-present transactions to verify the cardholder physically possesses the card. Processors are prohibited from storing CVV after authorization.

D

Dunning

The process of communicating with customers about overdue or failed payments. In subscription businesses, dunning refers to automated retry sequences and emails sent when a recurring payment fails. Good dunning can recover 20–40% of initially failed subscription payments.

Dynamic Currency Conversion (DCC)

When a foreign cardholder is offered the option to pay in their home currency at the point of sale. The conversion rate used is typically unfavorable for the cardholder. Most financial experts advise paying in local currency (CAD) to avoid DCC.

E

EFT (Electronic Funds Transfer)

The movement of money between bank accounts electronically. In Canada, this includes Interac e-Transfer, direct deposit payroll, and pre-authorized debits (PADs). Different from card payments.

EMV

The global standard for chip card payments (named after Europay, Mastercard, and Visa). All Canadian cards are EMV-chip enabled. Chip-and-PIN and tap-to-pay are both EMV implementations.

F

Flat-Rate Pricing

A pricing model where merchants pay one fixed percentage (and sometimes a flat fee) for every transaction, regardless of card type. Example: Square charges 2.6% for all in-person transactions. Simple but can be expensive compared to interchange-plus at volume.

Fraud

Unauthorized use of a payment card or account. In Canada, card-not-present (online) fraud is significantly more common than card-present fraud due to chip-and-PIN security. Merchants bear the cost of CNP fraud unless they use fraud tools like 3DS2 or Address Verification.

G

GST/HST (Goods and Services Tax / Harmonized Sales Tax)

Canada-specific: Federal sales taxes applied to most goods and services. GST is 5% federally; HST combines federal and provincial taxes (13–15% in HST provinces). Businesses must charge GST/HST once they exceed $30,000 in annual revenue. Payment processing fees themselves are subject to GST/HST.

Gateway

The technology that securely transmits payment data between a merchant's system and the payment network. The gateway encrypts card data and routes authorization requests to the card networks. Examples: Stripe, Helcim, Moneris eSelect Plus.

I

Interchange

The fee paid by a merchant's bank (acquirer) to the cardholder's bank (issuer) for each transaction. Set by Visa and Mastercard, not by payment processors. The largest component of credit card processing costs. Canadian interchange rates average 1.4–1.8% for consumer cards.

Interchange-Plus Pricing

A pricing model where the merchant pays the actual interchange rate plus a fixed markup from the processor. Example: Helcim charges interchange + 0.15% + $0.06 for in-person transactions. More transparent and typically cheaper than flat-rate for businesses processing $5,000+/month.

Interac

Canada-specific: Canada's national debit payment network, owned by Canada's major financial institutions. Interac Debit (in-person), Interac e-Transfer (bank-to-bank), and Interac Online (e-commerce) are all part of the Interac ecosystem. The dominant payment network for debit in Canada.

Interac Flash

Canada-specific: The contactless (tap) payment standard for Interac debit cards. Transactions under $250 do not require PIN entry. Uses NFC technology, similar to Visa payWave and Mastercard PayPass.

Issuer / Issuing Bank

The bank that issued a cardholder's credit or debit card. When a customer pays with their RBC Visa card, RBC is the issuer. The issuer receives interchange fees and is responsible for fraud claims.

M

Merchant Account

A type of bank account that enables businesses to accept card payments. The acquiring bank holds funds temporarily before they're transferred to the merchant's regular business bank account. Modern processors (Stripe, Square) include a merchant account as part of their service.

MCC (Merchant Category Code)

A 4-digit code that classifies merchants by the type of business they operate. Your MCC affects interchange rates (some categories pay more), affects cardholder rewards points, and is used by banks for fraud detection. Examples: 5812 (restaurants), 5411 (grocery stores), 7372 (software).

N

NFC (Near Field Communication)

The short-range wireless technology that powers tap-to-pay. Works within ~4cm. Used by all contactless payment methods in Canada including Interac Flash, Apple Pay, Google Pay, and contactless credit cards.

P

PAD (Pre-Authorized Debit)

Canada-specific: An arrangement where a business has permission to debit a customer's bank account on a scheduled basis. Used for recurring payments like utility bills, rent, and subscription services. Governed by Payments Canada Rule H1. Note: PAD has a dispute window (unlike Interac Direct).

PCI DSS

Payment Card Industry Data Security Standard. A set of security requirements for any business that stores, processes, or transmits cardholder data. Compliance is mandatory for all card-accepting merchants in Canada. Levels range from Level 4 (small merchants) to Level 1 (over 6 million transactions/year).

P2PE (Point-to-Point Encryption)

Encryption of card data from the moment it's captured at the card reader until it reaches the processor's secure environment. P2PE-certified hardware means cardholder data never exists unencrypted on your devices, dramatically reducing PCI compliance scope.

PSP (Payment Service Provider)

A company that provides payment processing services to merchants — essentially another term for a payment processor. Stripe, Square, Helcim, and Moneris are all PSPs.

R

Refund

A return of funds to a cardholder, initiated by the merchant. Unlike chargebacks, refunds are initiated by the merchant and don't carry a dispute fee. Most processors don't refund the percentage-based processing fee, only the flat per-transaction fee.

Reserve

Money held by a payment processor as security against potential chargebacks, fraud, or refunds. Common for high-risk businesses or new merchants. Processors may hold 5–10% of processing volume for a rolling period.

S

Settlement

The process of transferring funds from processed transactions to a merchant's bank account. Typically happens within 1–3 business days. Helcim and Stripe settle next business day for most Canadian merchants.

Soft Descriptor

The name that appears on a cardholder's bank statement for a transaction. Important for reducing chargebacks — if customers don't recognize the name on their statement, they may dispute the charge.

T

Terminal

A hardware device used to accept card payments in person. Ranges from simple Bluetooth readers (Square, Helcim) to full countertop terminals with built-in printers. All modern Canadian terminals must support Interac Flash.

Tokenization

The replacement of sensitive card data with a randomly generated token. The actual card number is stored by the processor, not the merchant. Tokenization dramatically reduces PCI compliance burden and prevents data breaches from exposing usable card data.

3D Secure / 3DS2

An additional authentication layer for online card transactions. Cardholders may be prompted to approve the transaction in their bank's app. 3DS2 (version 2) is frictionless for low-risk transactions and reduces fraud liability for merchants. Available through Stripe (Stripe Radar) and Helcim.

V

Virtual Terminal

A web-based interface that allows merchants to manually enter card details to process transactions — typically for phone orders or mail orders. Most processors offer a free virtual terminal. Helcim includes one at no cost.