A merchant initiated transaction, or MIT, is a card payment the merchant triggers using stored credentials after the customer has authenticated an initial setup. Subscriptions, metered usage billing, automatic account top ups and delayed charges all run as MITs: the cardholder is not present and does not actively approve each charge, because they agreed to the arrangement when the credential was first stored. Its counterpart is a customer initiated transaction, the payment the cardholder actively makes and is present for.
Why it matters
Under PSD2 and Strong Customer Authentication, a correctly flagged MIT is out of scope for the step up challenge, which is why a recurring charge does not authenticate the customer every cycle. That flag is not automatic. It rests on a documented mandate, the agreement the customer gave when the first payment was authenticated, and on the transaction carrying the right scheme indicators. Getting recurring billing correctly flagged as merchant initiated is one of the highest value fixes available to a subscription or continuity billing business, because a mislabelled charge is either declined outright or forced through friction that costs conversion.