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BaaS Terminology

Acquiring Bank (Merchant's Bank)

A bank or financial institution that accepts debit or credit card transactions for a bank or financial institution that accepts card transaction requests from a merchant. Acquiring Banks are registered members of a Card Association, such as MasterCard or Visa, and accept (or acquire) transactions on these debit and credit Card Associations’ behalf for a Merchant. The Acquiring Bank exchanges information (through a card network) with the card issuing bank to determine whether the transaction should be approved and processed. Whenever a Cardholder uses a debit or credit card in a purchase, the Acquiring Bank will either approve or decline the transaction based on the information the Card Association and Issuing Bank have on record about that Cardholder’s account. An Acquirer assumes risk and responsibility associated with the transactions it processes. Because of this, the Acquirer charges various fees for its services. These fees vary by Acquirer, but they’re commonly assessed on a routine schedule for activity such as transactions, refunds, chargebacks, and other various situations and reasons.

Acquiring banks often enlist the help of third-party Independent Sales Organizations (ISO) to add merchants to their networks and monitor the day-to-day activities of their Merchant Accounts.

Banking-as-a-Service (BaaS) Bank

BaaS banks work with technology firms, vendors, and businesses to allow the company to offer banking services and payments access through the bank with the bank’s unique charter. This allows a fintech or business to make financial services a seamless part of their offering without needing to obtain licenses or a bank charter.

BaaS Infrastructure

Software company or an institution that works between a card network sponsor bank and a fintech brand or offering to facilitate payment processing and program offerings.

Bank Customer

Consumers or businesses that use a bank to conduct depository functions, lending, banking transactions and/or money movement.

BIN (Bank Identification Number)

The first four to eight digits on a credit, debit, or prepaid card, which can be used to identify the Issuing Bank that issued the card. The first section of the Bank Identification Number identifies the location of the bank that issued the card, while the latter portion identifies the specific name of the bank.


A new database technology that works as a record ledger. Blockchain is a digitally distributed ledger without the need for a central authority. Blockchains can be public or private. Blockchains may or may not be used for cryptocurrency.


A Cardholder is someone who obtains a bankcard (credit, debit, or prepaid) from a card Issuing Bank. They then present that card to Merchants as payment for goods or services.

Card Associations (Visa and MasterCard)

Visa and MasterCard aren’t banks and they don’t issue credit cards or Merchant Accounts. Instead, they act as a custodian and clearing house for their respective card brand. They also function as the governing body of a community of financial institutions, ISOs and MSPs through contracts directly or indirectly with each. This community works together in association to support credit card processing and electronic payments. The primary responsibilities of the Card Association are to govern their members (including interchange fees and qualification guidelines), act as the arbiter between issuing and acquiring banks, maintain and improve the Card Association and their brand.

Card Authorization

A request to see whether a debit card or credit card is approved for use to complete a given purchase transaction. Authorization is necessary to check whether a Cardholder’s deposit account (debit card) or credit line (credit card) holds sufficient funds or capacity, and is approved to purchase from a Merchant. An Authorization Request first emerges whenever a Cardholder attempts to purchase a good or service through a debit card or credit card.

The request for Authorization is first sent through the Merchant’s Acquiring Bank to determine the Cardholder’s bank. When notified, the Cardholder’s bank then determines whether the transaction with the Merchant will either be approved or declined based on the Cardholder’s available funds or line of credit. After the Acquiring Bank clarifies whether the Cardholder holds sufficient funds or credit for the transaction, this information of whether the transaction was declined or approved travels back through the Acquiring Bank to the Merchant. If the transaction is approved, then the amount of the transaction is deducted from the Cardholder’s account either as a posted deduction or as a hold until the transaction is settled by the Merchant.


Suppliers that serve their own APIs, that enable other third-party service providers to connect to the BaaS bank. The BaaS bank connects to the connector. Creating a layer or middle party between the BaaS bank and the end user. Example: End user gets a debit card, the debit processor for that card would normally connect to the BaaS bank. In this case, they use a middleware provider, a connector, that connects them to the BaaS bank. As you add layers of connectors, the complexity of ledgering, regulatory tracking, and awareness of the end user, gets more complicated to track and regulate.

Digital Only Bank

A chartered FDIC-insured depository institution whose products and services are only accessible through online or mobile channels.

Digital Asset Wallet

A financial application enabling a user to view, initiate, and receive digital assets. In traditional finance, this is typically fiat currency. In decentralized finance, digital wallets can hold many types of assets such as multiple cryptocurrencies, fungible tokens, and non-fungible tokens.

Digital Wallet

A digital wallet (or electronic wallet) is a financial transaction application that runs on mobile devices. It securely stores your payment information and passwords. These applications allow you to pay when you’re shopping using your device so that you don’t need to carry your cards around. You enter and store your credit card, debit card, or bank account information and can then use your device to pay for purchases.

Direct Bank

A division of a chartered FDIC-insured depository institution that creates a secondary branded product.

Embedded Finance

The integration of financial services into apps, websites or business processes of non-bank brands. Embedded Finance has introduced a new model of financial services distribution and opportunities for companies to offer credit or other financial services at the POS or other parts of the sales process.

End User

A consumer or business that is the final point of use for the banking product or service being offered by the Fintech brand (e.g., a Fintech’s customer using deposit, loan, payment and/or card services).

Fiat Currency

Currency (not backed by precious metals or other physical assets) issued and governed by sovereign nations such as the United States, Canada, or Mexico.

FI Fintech

A product designed to be a bank offered directly by a bank to its customer. The bank’s customer sees it as a bank product or service for its customers. Typically, a vendor providing a ready made solution to a bank will create an integration with the bank core processor, either direct API/file exchange or through a point solution vendor like online banking.


A financial technology company that is offering a product feature or banking function that requires a chartered FDIC-insured depository institution to perform. A sophisticated business client that uses the infrastructure of a BaaS Bank in exposing banking features of the BaaS Bank to its End Users.

Fintech Brand

A marketing brand, usually connected with a suite of services or products of the Fintech that relies on a chartered FDIC-insured depository institution to perform a banking function.

Fintech Customer

The customer of the branded product that is relying on the infrastructure services of a chartered financial institution, a BaaS Bank.

Independent Sales Organization (ISO)/Third Party Senders

A third-party sales organization that signs Merchants up to accept payments on behalf of one or more Acquiring Banks. Generally, ISO sales representatives receive a commission for each Merchant they sign up. Many Fintechs are a hybrid of ISOs and third party senders and offer payments platforms to their customers or offer payments platforms that can be offered through a bank


Interchange refers to the fees or transfer pricing between Issuing Banks, Card Associations, and Acquiring Banks. Participating Acquiring Banks and Issuing Banks pay or receive interchange each time a credit, debit, or prepaid card is used. The amount is usually a portion of the processing fee paid by the merchant to the Acquirer or ISO. This fee tends to be paid by

the Acquiring Bank to the Issuing Bank.

Issuing Bank (Cardholder Bank)

A bank or financial institution that is responsible for issuing debit, credit, and/or prepaid cards. An Issuing Bank is responsible for any Cardholder’s ability to pay off the transaction amount he or she accumulates with the debit, credit, or prepaid card. Issuing banks pay acquiring banks for purchases that their Cardholders make. It is then the Cardholder’s responsibility to repay or prepay their Issuing Bank under the terms of their card agreement.

Issuing Processor

The payment processing company, which may be the Issuing Bank or a third party, typically chosen by the Program Manager, who processes card transactions when their customers use their physical or virtual prepaid, debit, or credit card. The Issuing Processor is likely different from the acquiring (or merchant) processor who is the “other side” of the transaction.


The business with the point of sale payment terminal that sells goods or services and receives payment from a consumer or business. An e- commerce Merchant refers to a party that sells goods or services exclusively through the internet. Merchant accounts are the types of bank accounts that authorize Merchants to accept credit or debit card payments. Merchant accounts are often called MIDs (or Merchant IDs).

Neo Bank

A Fintech that provides online and/or mobile banking services through a partnership with a BaaS Bank with the intent of representing its product as including all the typical features of a traditional bank but more digitally accessible than traditional banks.

Payment Gateway

A Payment Gateway securely authorizes payments for e-commerce websites – on an online point-of-sale terminal for a Merchant. The payment gateway acts as a mediator between the transactions that take place on the website and the payment processor. This is needed because it is prohibited, due to security reasons, to transmit transaction information directly from a Merchant’s website to a payment processor. The Card Associations have created a set of rules and security standards which must be followed by anyone with access to card information, including gateways. This set of rules and security standards is called the Payment Card Industry (PCI) Data Security Standard.

Payment Processors

Payment Processors are financial market infrastructure that work in the background to provide payment processing services. The Payment Processor connects to both the Merchant Account and Payment Gateway, quickly passing information back and forth, keeping it secure and almost instantaneous for the End User.

Payment Processors make reselling agreements with Payment Gateways or Merchant Account providers to provide their services directly to Merchants. They are typically broken down into two categories: front-end and back-end.

Front-end processors have connections to various Card Associations and supply authorization and settlement services to the Merchant banks’ Merchants. Back-end processors accept settlements from front-end processors and move the money from the Issuing Bank to the merchant bank.


Technology used to improve or deliver financial services. It could be a product level, for example – lending, or it could be a tech level, for example – mobile. Bundles of services can also be referred to as a platform, such as embedded finance or a card issuing platform or to create new accounts.

Point-Of-Sale (POS)

The location where a Merchant and a Cardholder completes a transaction. Traditionally, a Cardholder or customer delivers payment for a good or service at a Point-of-Sale. Points-of-Sale use scales, scanners, and other, newer technologies to collect credit card information. In addition, peripherals to tablets and smartphones allow smaller Merchants to collect credit card information through a payment service provider.

Program Manager

Organization responsible for evaluating, building, and launching Fintech programs in connection with financial institutions.

The Program Manager’s role can vary from a narrow focus of performing due diligence and reviewing compliance readiness for both the financial institution and a specific Fintech to the broader scope of running the entire program from product recommendations, service integrations and negotiating commercial relationships to launching a program. Program Managers are typically considered the “General Contractor” for fintech programs. Not every Fintech program will have a Program Manager.

Software-as-a-Service (SaaS)

Software-as-a-Service is typically a digital service offering where most of the code and logic is maintained by the software service provider, enabling them to serve many customers at a more affordable price as the software overhead can be spread across the entire customer base.


The last step of a transaction, when all obligations, debits, and credits have been executed.

Sponsor Bank

The BaaS Bank that is performing a banking function on behalf of a Fintech. The banking functions of a Fintech are performed through a chartered FDIC-insured depository institution with full regulatory responsibility. Sometimes the sponsor bank also means a bank that has a direct relationship with a payment card network where the sponsor bank can provide indirect access to other institutions.


A digital currency designed to maintain a stable price (minimize volatility), typically pegged or collateralized by a “real world” asset such a Fiat Currency, gold, or Bitcoin.


Sub-ISOs are generally sales organizations that resell the services of either larger ISOs or direct processors. In Banking-as-a-Service we can probably use this to refer to Fintech that resell Banking-as-a- Service Providers who are sponsored by Sponsor Banks.