What is a Merchant Acquirer?
By Mariana Almeida Marques
If you run a business or deal with the payments side of your company, you have probably heard of Merchant Acquirers before. They enable merchants to accept debit or credit card payments, a crucial part of any business. In this article we will explore the role of Merchant Acquirers in payment processing and how you can choose the right one for your company.
What does a Merchant Acquirer do?
Merchant Acquirers, also called Acquiring banks, are responsible for settling a transaction and depositing the funds in your merchant bank account. They represent the last step of payment processing and work as a middleman for the merchants.
As payments always come with a certain degree of fraud risk or data breach, Merchant Acquirers closely monitor transactions to spot any suspicious payment. If acquirers find one or more fraudulent transaction and there are chargebacks involved, they can charge the merchants a fee or even close the merchant’s account.
Merchant Acquirers also have strong security measures in place to protect the merchants: they have to comply with PCI DSS regulations and often perform authentication checks to verify the cardholder’s identity. They usually charge a flat fee per transaction, but there can be more costs involved for sign up, setup, refunds and chargebacks, transaction limits or currency conversion, amongst others.
Some banks can be both Issuers and Acquirers, so they work on behalf of both the cardholder and the merchant. This is the case of Wells Fargo, Bank of America, Barclays or Citi Bank.
Why you need a Merchant Acquirer to process payments
All merchants need a bank account where they can deposit funds. In order to be able to take debit or credit card payments, you need to sign an agreement with an Acquiring bank that can open and maintain a merchant account for you. This is the only way for you to receive payments, as Issuing banks only work on the cardholder’s (consumer) behalf.
Are there different acquiring models?
The payment acquiring process is very much standardised across the payment industry. However, there are two main models used: the four-party model and the three-party model.
The four-party model is the most traditional and requires four main players: the customer or cardholder, the Issuing bank (on behalf of the cardholder), the merchant and the Acquiring bank (on behalf of the merchant). Naturally, there are other additional players that take part in the payment process, such as the payment gateway, processor and card network.
In the three-party model, the Issuing bank and the Acquiring bank are the same institution (as we mentioned above, banks like Wells Fargo, Citi Bank and Barclays offer both Issuing and Acquiring services). In this model, the three main players would be the customer, the Issuing and Acquiring bank, and the merchant. This model is not as common, because it is unlikely that the cardholder and the merchant have accounts in the same bank. However, it is the easiest, because it doesn’t involve any communication between two separate banks.
What is the difference between an Acquiring bank and an Issuing bank?
An Issuing bank issues debit or credit cards to customers on behalf of card networks such as Visa and MasterCard. They represent the payer (cardholder) in payment processing and are responsible for transferring the funds to the Acquiring bank. If payments are made with a credit card, then Issuing banks are also responsible for opening lines of credit, lending credit (money) to the cardholders and paying the Acquiring bank upfront. This comes with a considerable level of risk which Issuing banks have to manage.
The Acquiring bank, on the other hand, is responsible for acquiring the funds and depositing them in the merchant’s account, thereby settling the payment. Acquiring banks connect to Issuing banks on the merchant’s behalf, and must comply with the card networks’ regulations. They can also hold the responsibility of authenticating the payment to verify the identity of the payer, should the merchant request.
There are other players involved in payment processing but Issuing banks represent the first step and Acquiring banks represent the last step of the process.
Do I need a Merchant Acquirer to begin accepting payments?
Yes, you need to partner with a Merchant Acquirer or Acquiring bank to start accepting debit or credit card payments. Once you sign a contract with a Merchant Acquirer, then they will open a merchant account for you where all the funds will be deposited.
How to choose the right acquiring service provider
Before choosing an acquiring service provider for your business, you need to consider your company’s plans and overall strategy. Merchant Acquirers do have quite a lot of influence on the company’s success, so it is critical to find one that allows you to, for example, expand your services to different countries or have strong protection against fraud. Overall, there are a few aspects to consider when finding the right acquiring service provider for your business:
You will want to partner with a Merchant Acquirer that offers a tailored solution to truly benefit your business. So, it might be relevant to check whether merchant acquirers have this kind of customer-focus and will be available to support via multiple channels (phone, email, website live chat) should you encounter any issues.
Make sure that the Merchant Acquirer you partner with complies with security regulations such as PCI DSS and is financially regulated by a Financial Supervisory Authority. It is also crucial that the Merchant Acquirer has strong authentication services in place to comply with PSD2 and, ultimately, to protect you from potential fraud or chargebacks.
Location and currencies
These can be detrimental factors because they will impact your customer base and overall company expansion. Make sure that the Merchant Acquirer offers services in the country your company is registered in, but also any other country that you are doing business with, or plan to in the future. Also, make sure that it supports all the currencies you would like to offer your customers to pay in.
Other aspects to consider are the payment gateways that the Merchant Acquirer works with (you will need to choose a payment gateway based on that, or opt for an acquirer that uses your preferred gateway), the card and payment methods it supports, the fees and any other unique features.
Imburse connects your company to the whole payment ecosystem, so you have the freedom to partner with the Merchant Acquirers that best suit your company’s needs. You also have the flexibility to change acquirers or add new ones according to the business’ plans. If you would like to discuss how Imburse can help your business, reach out to us below. Our team is happy to hear from you.