An Automated Clearing House (ACH) is a network capable of handling and processing electronic payments in significant volume. Most countries have at least one ACH which provides a fully automated way of collecting and settling payments; effectively, the ACH provides a secure electronic network to allow banks and financial institutions exchange to information.
An AISP grants third-parties access to financial account information, which it has compiled securely with the account holder’s permission, to provide faster decisions on loans, show credit cards for which customers are likely to be approved, or help customers with budgeting. AISPs have no access to funds in customer accounts.
Anti-money laundering (AML) is a term mainly used in the legal and financial industries to describe a set of procedures, regulations, or legal controls designed to detect, prevent, and report the practice of generating a source of income through illegal actions (money laundering).
APIs are software intermediaries that allow the back ends of software and services to connect, communicate and share data in real-time. In banking, APIs allow users to connect to accounts they hold with other banks to pull their financial data into their main banking app.
Payment methods other than cash or major card schemes (Visa, MasterCard, American Express). This includes prepaid cards, mobile payments, e-wallets, bank transfers, and ‘buy now, pay later’ instant financing.
Banking as a Services (BaaS) allows any business to embed financial services into its offering, by connecting directly with banks’ systems via APIs. Through BaaS, businesses can utilise banking solutions from multiple banks within the financial ecosystem, building a suite of solutions that suits their customers’ specific requirements.
Bacs is the oldest electronic payment system in operation in the UK and has changed very little since it was formed in 1968. BACS is a UK domestic file-based payment method available in GBP only, payments take three working days to clear. Banking Circle accepts inbound BACS payments only.
BIC stands for Bank Identifier Code. This is often referred to as a SWIFT code or SWIFT address as SWIFT owns and administers the BIC system.
A payment method offered at online point of sale, Buy Now Pay Later (BNPL) allows consumer or business customers to pay a merchant for goods or services in instalments rather than an up-front lump sum. The solution can be offered by the merchant directly or via a third party BNPL provider.
CBDC stands for Central Bank Digital Currency, a type of currency usually structured as e-money issued by central banks where the managed digital ledger may or may not run on blockchain.
CBDCs are, in most cases, testing the ability to provide many of the advantages of crypto, such as faster digital transactions with richer data, but also offer much lower value volatility since they are digital versions of national currencies backed by government commitment. As digital assets are programmable money, the privacy concerns of a Central Bank having access to significantly more citizen behaviour data is still an important, ongoing discussion.
CFT is a set of laws, regulations and other practices intended to prevent terrorist groups from laundering money through the banking system. CFT requires banks to collect identifying information on their clients, as well as the origins of significant funds, to help identify and stop the funding of terrorism.
CHAPS is a sterling same-day system that is used to settle high-value wholesale payments as well as time-critical, lower-value payments like buying or paying a deposit on a property.
A Credit Institution (CI) is a Financial Institution that is legally authorised to receive deposits or other repayable funds from the public and to grant credit, or to issue payments in the form of electronic money.
Continuous Linked Settlement (CLS) is a settlement system run by CLS Bank International; a financial institution dedicated to settling foreign exchange trades. CLS operates a multi currency settlement system that mitigates risk for FX transactions through the provision of its payment versus payment settlement service, which has direct links to the Real Time Gross Settlement (RTGS) systems of the 18 currencies it settles.
A card not present transaction (CNP) is a remote purchase whereby the payment card and cardholder are not physically present for visual examination at the merchant’s point of sale, for example purchases which are made over the internet, telephone, or by mail, fax, or mail-order. CNP transactions can be a major route for card fraud, as it is difficult for a merchant to verify whether or not the cardholder is actually authorising a payment (compared to a card present transaction, whereby the payment card and cardholder are both present so the PIN and/or customer signature can be verified).
Decentralised Finance, also referred to as DeFi, is a term used to describe the infrastructure, processes, and technologies involved in enabling peer-to-peer financial transactions without a controlling central entity such as a bank. It is a financial ecosystem based on blockchain technology.
Electronic Funds Transfer (EFT) refers to any transfer of funds initiated electronically, including card payments, ATM withdrawals, point-of-sale (POS) and debit transfers without requiring the intervention of bank staff. These transactions can take place within the same organisation, or across accounts spread between one or more financial institutions in the banking network.
Electronic money (e-money) is currency that is digitised to be stored on, and used via, mobile phones , prepaid cards, or online accounts. The E-Money Directive is a set of regulations that exist to benefit businesses, customers, and the wider economy. The E-Money Directive aims to enable secure e-money services, provide market access to new organisations, and foster healthy competition between all participants.
A business issuing electronic money (for example, prepaid cards and e-wallets) must be registered or authorised as an Electronic Money Institution (EMI), by the FCA, in accordance with the Electronic Money Regulations 2011 (EMRs). Businesses can apply to be Small or Authorised EMIs depending on whether they intend to generate more than €5m in outstanding e-money.
Europay, MasterCard, and Visa (EMV) is a worldwide technical standard for payment cards that provides global telecommunications between all cards and acceptance networks (payment terminals). The EMV standard also applies to mobile payment solutions including mobile EMV with NFC (Near-Field-Communication).
The EURO1 is a large-value payment system for same day euro transactions at a pan-European level, which processes transactions of high priority and urgency, and primarily of large amount at a domestic and cross-border level on a multilateral net basis.
EURO1 processes in excess of 250,000 payments per day, with an overall value of approximately €210 billion. EURO1 is based on a messaging and IT infrastructure provided by SWIFT.
Foreign Exchange (FX) is the exchange, or conversion, of one currency into another currency. Foreign Exchange also refers to the global trading market whereby currencies are virtually exchanged around the clock, with the largest centres being based in London, New York, Tokyo, and Singapore. The term Foreign Exchange is frequently abbreviated to ‘forex’ as well as ‘FX’.
Host Card Emulation (HCE) is a specialist software that permits a mobile device to act as a card in order to perform a transaction on a Near Field Communication (NFC) enabled device without the need of a secure element.
Any organisation wishing to make international transfers requires an International Bank Account Number – IBAN. The IBAN is an internationally agreed system of identifying bank accounts across national borders to facilitate the communication and processing of cross-border transactions. Accounts can be physical or virtual.
Read more: Banking Circle Virtual IBAN
Knowledge-Based Authentication (KBA) is a security measure that seeks to prove the identity of a user who is attempting to access an online service, by asking them to answer at least one “secret” question. KBA is generally used as a component in multifactor authentication (MFA) and for self-served password retrieval.
Know Your Customer (KYC) is a mandatory banking regulation designed to protect the integrity of the banking system by reducing the likelihood of financial institutions becoming vehicles for money laundering, terrorist financing, and other unlawful activities. To mitigate risk, financial institutions perform KYC checks by obtaining sufficient information that can be used to develop a comprehensive profile of the customer, such as proof of address and photographic identification.
A Large-Value Payment System refers to Real Time Gross Settlement systems (RTGS), such as CHAPS, TARGET2, and country-specific equivalents. Payments via this method are sent securely, in real-time, with complete certainty that the payment will settle.
Multi-factor Authentication is a verification method that requires a user to provide two or more ways of confirming their identity – for example, SMS, email address, fingerprints. In financial services, MFA is commonly used when setting up new beneficiaries to significantly reduce fraud, while helping financial institutions meet compliance requirements.
The Markets in Financial Instruments Directive (MiFID) is the EU legislation that regulates providers of services that are linked to ‘financial instruments’, such as shares, bonds, investment schemes and derivatives, and the venues where these instruments are traded. In April 2014, the European Parliament approved an updated version of the law, MiFID II, which is set to expand the scope of the rules to cover more companies and products.
Money laundering is a process through which criminals ‘clean’ money obtained through illegal activities such as drug trafficking, organised crime or terrorism funding, to disguise the origin of the proceeds. Money laundering has grown rapidly as regulation and bank processes struggle to keep pace with the rise in criminal innovation.
An NBFI is a financial institution that offers banking services but does not have a full banking licence. NBFIs are unable to accept deposits but can facilitate alternative financial services such as foreign exchange, lending/credit and insurance. NBFIs can work with a licenced bank to offer additional banking solutions.
Near Field Communication (NFC) is a short range method of wireless data transfer that enables two electronic devices to establish communication without internet connection when they are in close proximity of one another. NFC chips are stored inside payment cards to enable contactless payments, and more recently, inside smartphones, stickers, and wearable devices.
NFT stands for non-fungible tokens. NFTs are a type of digital asset, which are coded in a unique way and use metadata to distinguish them as a unique asset – unlike ‘fungible’ assets such as Euros, Bitcoin, and other assets which are identical and interchangeable.
Because every NFT is unique, ownership and rights to licensing and royalties are hard-coded into the asset on the blockchain. They are most commonly digital assets such as artworks, recordings, and virtual real estate but have also been connected to physical assets such as bottles of wine or pets.
The Payment Card Industry (PCI) consists of all the organisations which store, process, and transmit cardholder data, including automated teller machines (ATMs), point of sale (POS) terminals and credit, debit, prepaid, and electronic money cards. PCI is governed by the Payment Card Industry Security Standards Council.
The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard for organisations that handle payment cards. This standard is governed by the Payment Card Industry Security Standards Council and exists to increase controls around cardholder data and to reduce credit card fraud. Compliance is validated on an annual basis, either by a qualified security assessor, or by self-assessment questionnaire, depending on the volume of transactions made by each organisation.
Organisations providing payment services in the UK must be registered or authorised as a Payment Institution (PI) by the FCA. Providers can apply to become Small or Authorised Payment Institutions depending on their turnover in payments transactions – more or less than €3m per month.
PISPs are authorised to execute payments on a customer’s behalf from their bank account, with customer consent, allowing for a wider range of payment options to be made available to end users. PISPs do not manage a customer’s money – they simply act as the mechanism to trigger transactions.
A Point of Sale (POS) is a cashier counter, or checkout, usually located within a retail shop, or an environment whereby transactions and purchases may occur. The term may also apply to the actual hardware and software including electronic cash registers, barcode scanners, touch screen displays receipt printers, and pole displays. In simpler terms, if something can be exchanged for monetary value, then this will happen at a Point of Sale.
A Mobile Point of Sale (mPOS) is a tablet, smartphone, or wireless device that performs the functions of a regular POS terminal. Any device can be transformed into a mPOS with the use of a dedicated app.
Established in 2007, the Directive on Payment Services (PSD) is EU legislation that provides the legal foundation for the creation of a single market for payments across the Eurozone, and the necessary legal platform for the Single Euro Payments Area (SEPA). The introduction of PSD made cross-border payments easier and faster with SEPA payments being used to make transfers across the majority of Europe.
Another key goal for the PSD is to improve competition by opening up payment markets to new entrants, providing greater efficiency and cost-reduction to end users.
The Revised Directive on Payment Services (PSD2) builds on the existing PSD, and has been developed to make certain provisions in PSD clearer, as well as putting emphasis on further opening up the payments industry for third party businesses and non-banks, to increase competition.
Read more about PSD2 and its impact on the payment landscape
A Payment Service Provider (PSP) is a third party that facilitates payments on the behalf of merchants, typically by partnering with an acquirer (such as a bank). The PSP takes on the responsibility of ensuring that electronic payments are processed in a secure and reliable way. Some PSPs are able to provide merchants with a connection to multiple payment methods and networks, including cross-border payments, digital wallets, P2P (peer-to-peer) transfers, and other alternative payment methods.
Typically, large value, inter-bank payments are undertaken by real-time gross settlement (RTGS) systems operated by central banks (for example, the Bank of England’s CHAPS system, in the UK). Settled on a one-to-one basis without bundling or netting, payment is immediate, final and irrevocable, eliminating settlement lags and lowering credit risks.
Request to Pay (RtP) is a messaging framework designed to complement existing payment infrastructure – ultimately creating the ability to easily request and complete real-time direct account-to-account payments. Request to Pay schemes active across global markets include initiatives from PayUK and The European Payments Council.
SCA was introduced to reduce fraud and make online payments more secure by adding extra levels of security. Banks must perform MFA checks to confirm consumer identities when making payments. Card payments and bank transfers will be rejected by the customer’s bank if they do not pass SCA requirements.
SEPA is the area in which individuals and businesses can make and receive card and electronic payments in euros, across Europe, simply, cheaply and efficiently, regardless of their location.
STEP1 is a payment service offered by EBA Clearing for small and medium-sized banks for single euro payments of high priority and urgency, processing approximately 20,000 transactions on a daily basis.
STEP2 processes mass retail payments in euros which provides banks across Europe with one channel through which they can send and receive their SEPA Credit Transfers and SEPA Direct Debits.
The SWIFT international payment network is one of the largest financial messaging systems in the world. SWIFT codes are used when transferring money between banks, particularly for international wire transfers.
The Trans-European Automated Real-Time Gross Settlement Express Transfer System (TARGET2) is a real-time gross settlement system owned and operated by the Eurosystem.
TARGET2 handles mostly large-value central bank transactions across twenty euro area central banks (including the ECB), as well as five central banks from non-euro area countries which include Bulgaria, Croatia, Denmark, Poland and Romania, which are made instantly and with immediate finality.
XS2A allows third parties to access the bank accounts of customers, with permission, via an API. This allows AISPs to access information about accounts and balances, and PISPs to initiate payments without going through the traditional payment networks (such as credit cards).
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