Reference
Payments, tax, subscriptions, and compliance carry a lot of jargon. Here are the terms a software seller actually runs into going global, defined in plain language and kept honest.
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terms defined
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The bank that holds the merchant account and receives card payments on the seller's behalf. The acquirer connects to the card networks, takes on settlement risk, and routes funds to the merchant after fees.
Anti-money laundering: the controls and reporting a regulated business must run to detect and prevent the movement of illicit funds. AML programs include identity checks, transaction monitoring, and sanctions screening.
Alternative payment method: any way to pay that is not a traditional card, such as a digital wallet, a bank transfer, or a buy-now-pay-later plan. APMs often dominate checkout in specific markets.
The real-time check that confirms a card is valid and has funds, placing a temporary hold on the amount. Authorization happens before the money actually moves, which is the separate capture step.
A point-of-sale financing option that lets a buyer split a purchase into installments, usually interest-free over a few weeks. The provider pays the seller up front and collects from the buyer over time.
The step that converts an authorization hold into an actual transfer of funds. A sale can be authorized first and captured later, for example once goods ship or a trial converts.
A forced reversal of a card payment initiated by the buyer's bank, usually after a dispute or a fraud claim. The seller loses the funds plus a fee unless they win the dispute with evidence.
The share of a seller's transactions that end in a chargeback, watched closely by card networks. Cross a network threshold and you face monitoring programs, higher fees, or loss of card acceptance.
The rate at which subscribers cancel over a period. Gross churn counts lost revenue, while net churn nets it against expansion from existing customers and can be negative when accounts grow.
The share of shoppers who complete a purchase out of those who started checkout. Localized pricing, familiar payment methods, and fewer form fields all tend to lift it.
Changing an amount from one currency to another, using a rate plus a margin. Charging buyers in their home currency raises conversion, but introduces foreign-exchange exposure that someone has to manage.
An app or service that stores payment credentials so a buyer can pay without re-entering card details, such as Apple Pay, Google Pay, or Alipay. Wallets speed up checkout and reduce fraud through device authentication.
A buyer's formal challenge to a charge, raised through their bank or the payment provider. Disputes that are not resolved escalate into chargebacks, so fast, evidence-backed responses matter.
The automated retry and reminder process that recovers a failed subscription payment, for example when a card expires. Smart dunning retries at the right time and prompts the customer to update their card.
Assessing the risk of each order in real time using signals like device, location, velocity, and history, then approving, reviewing, or blocking it. The goal is to stop fraud without rejecting good buyers.
Foreign exchange: the conversion of value between currencies and the market that prices it. For a cross-border seller, FX shows up as conversion margins on buyer payments and on the payout you receive.
Goods and services tax: a value-added consumption tax used in countries such as Australia, India, and Canada. Like VAT, it applies at each stage and is ultimately borne by the end buyer.
A payment page hosted by the provider rather than built and secured by the seller. Because card data never touches the seller's servers, hosted checkout sharply reduces PCI scope and time to launch.
A unique value attached to an API request so that retrying it never creates a duplicate, for example a second charge after a timeout. The server returns the original result for any repeat with the same key.
The fee the acquiring bank pays the card issuer on each transaction, set by the card networks and folded into a seller's processing cost. Rates vary by card type, region, and how the payment is made.
Subscription losses caused by failed payments rather than a deliberate cancellation, usually from expired or declined cards. Good dunning recovers a large share of it before the customer ever notices.
The bank that gives a cardholder their card and decides whether to approve each authorization. The issuer also fronts disputes and chargebacks on behalf of its customer.
Know your customer: verifying the identity of a business or person before onboarding them, as required by financial regulation. KYC underpins anti-money-laundering controls and sanctions compliance.
A way to pay that is popular or default within a specific market, such as iDEAL in the Netherlands, Pix in Brazil, or SEPA Direct Debit across the euro area. Offering them is often the difference between a sale and an abandoned cart.
Adapting checkout to a market's language, currency, tax display, and preferred payment methods. Done well it feels native to the buyer and measurably lifts conversion.
The legal seller in a transaction, responsible for collecting payment, remitting tax, and handling disputes and compliance. When a provider acts as merchant of record, those obligations sit with the provider rather than the software vendor.
Monthly recurring revenue: the normalized, predictable subscription revenue a business earns each month. Annual plans are divided down to a monthly figure so trends compare cleanly.
The revenue kept from an existing cohort over a year, including upgrades and downgrades but excluding new customers. Above 100 percent means the base is growing on its own; it is a core health metric for subscription businesses.
A framework, formalized in the EU by PSD2, that lets authorized providers access bank-account data and initiate payments with the account holder's consent. It powers account-to-account payments and richer financial products.
The transfer of settled funds from the provider to the seller, net of fees, tax, and reserves. Sellers usually choose the schedule and the currency in which they are paid.
The Payment Card Industry Data Security Standard: the security rules every party that touches cardholder data must follow. Using hosted fields or a hosted checkout keeps most of the burden off the seller.
The European Union's second Payment Services Directive, which opened banking data to licensed third parties and mandated strong customer authentication for many online payments. It reshaped how cards are verified across Europe.
Matching what was charged, settled, refunded, and taxed against your own records so the books balance. Across many vendors and currencies it is slow; a single merchant of record collapses it into one statement.
Returning all or part of a payment to the buyer through the original method, usually within a set window. A refund is initiated by the seller, unlike a chargeback, which the buyer's bank forces.
The process of contesting a chargeback by submitting evidence that the charge was valid, such as delivery records or login activity. Winning representment returns the disputed funds to the seller.
A party that buys a product in order to sell it on to end customers under its own commercial terms. A merchant-of-record provider acts as a reseller of your software, which is what lets it be the legal seller.
A portion of settled funds held back temporarily to cover potential refunds and chargebacks. Reserves are common for new or higher-risk accounts and are released on an agreed schedule.
An interface that exposes resources, such as orders and customers, over HTTP using predictable verbs like GET and POST. It is the common way software integrates with a payments platform.
A VAT mechanism that shifts the duty to account for tax from the seller to a business buyer in another country. It lets cross-border B2B sales settle without the seller registering in the buyer's market.
Checking customers and transactions against government watchlists to avoid dealing with prohibited people, entities, or countries. It is a required part of any anti-money-laundering program.
An isolated test environment that mirrors the live API but moves no real money. Developers use it to build and verify an integration with test cards and simulated events before going live.
Strong customer authentication: a PSD2 requirement that many online payments be verified with two independent factors, such as a password and a phone prompt. It cuts fraud but can add checkout friction if applied poorly.
Fees charged by the card networks themselves, separate from interchange, for using their rails and services. Together with interchange and a processor margin they make up the cost of accepting a card.
The Single Euro Payments Area, which standardizes euro bank transfers and direct debits across participating European countries. SEPA Direct Debit is a low-cost recurring-payment method for euro markets.
The movement of funds from the buyer's bank through the networks to the seller, net of fees. Settlement is the difference between a payment being approved and the money actually arriving.
The currency in which a seller is paid, which may differ from the currencies buyers paid in. Choosing it well limits how much foreign-exchange risk lands on your own balance sheet.
Charging a customer on a recurring schedule for ongoing access, with logic for trials, proration, upgrades, and renewals. It is the engine behind recurring revenue and the metrics built on it.
An authentication protocol, branded as Visa Secure or Mastercard Identity Check, that verifies a cardholder during an online payment. It can shift fraud liability to the issuer and helps satisfy strong customer authentication.
Paying collected consumption tax to the relevant authority on time, with the required filings. A merchant of record registers, collects, and remits in each market so the seller does not have to.
Replacing sensitive card data with a non-sensitive token that can be stored and reused safely. It keeps real card numbers out of a seller's systems and is central to recurring billing and one-click checkout.
Value-added tax: a consumption tax charged at each stage of supply and ultimately paid by the end buyer, used across the EU, the UK, and many other markets. Rates and rules differ by country and product type.
An automated HTTP callback the platform sends when an event occurs, such as a payment succeeding or a subscription canceling. Webhooks let your systems react in real time without polling the API.
Missing a term, or want one explained? Ask our team
From terms to revenue
The fastest way to understand a merchant of record is to map it onto your own product. Tell us what you sell and we will walk it through.