What is a merchant acquirer?
A merchant acquirer, also known as an acquiring bank, is a bank or financial institution that offers card payment processing services to merchants. To accept credit card and debit card payments, a merchant needs to partner with a payment acquirer, who then handles all aspects of the transaction, from authorization to settlement.
The card authorization process involves checking the card used for the purchase to confirm its validity and the availability of enough funds to cover the amount for the transaction that the cardholder wants to perform.
The authentication process is an optional but helpful task also performed by the acquirer. It includes verification methods used to confirm the cardholder’s identity, such as 3D Secure.
If the transaction is approved by the payment processor, the merchant acquirer is responsible for settling the transaction and depositing the money into the merchant’s account.
Card schemes like Visa and Mastercard contract with acquirers, while acquirers contract with merchants.
The importance of merchant acquirers in the payment processing system
An acquirer is responsible for handling a merchant’s account and facilitating payments on their behalf. The payment journey starts when the customer fills in their card payment data at the checkout page in order to complete their purchase. If the card used for the purchase is approved by the issuing bank, the acquirer will hold the money from the credit or debit card. They will then move it to the merchant account and settle the money to the bank account linked to the merchant.
The 3 stages of the issuer-acquirer transaction
The card payment process involves the authorization, clearing, and settlement of transactions between a card issuer and a merchant acquirer.
- The authorization stage refers to the approval or decline of a transaction prior to purchase finalization or cash disbursement.
- Clearing includes the following functions: the delivery of final transaction data from the acquiring bank to the issuing bank for posting to the cardholder’s account, the summation of fees and charges for the issuer and the acquirer, and the alteration of the transaction amount to the settlement currencies.
- A transaction settlement occurs when the acquirer deposits the transaction funds in the merchant account. For the settlement to be done, the cardholder's issuing bank must send the funds to the merchant acquirer through the bank’s payment processor.
The difference between an issuer and an acquirer
A merchant acquirer is a financial institution that enables merchants to accept credit card and debit card payments. It is considered the merchant’s bank. A merchant acquirer receives the funds paid by the customer for purchasing goods or services from a merchant and transfers those funds to the merchant’s bank account. It also assists the merchant in responding to disputes and chargebacks.
On the other hand, an issuing bank is a financial institution that issues credit and debit cards to customers on behalf of card networks such as Visa and Mastercard. An issuer is considered the consumer’s bank. Issuing banks are also responsible for setting credit card interest rates, reward schemes, overdraft fees, credit limits, and so on. They’re also the ones that handle customer disputes and chargebacks.
Merchant acquirer vs payment processor
While it is possible to have some overlap between merchant acquirers and payment processors, both play different roles in the electronic payments system.
Let’s summarize the differences between the merchant acquirer and payment processor in a table.
Merchant Acquirer | Payment Processor |
| Responsible for transaction authorization, authentication, and settlement | Facilitates exchange of data for transaction authorization, capture, and settlement |
| Partners with merchants to provide account management and support services | Helps merchants, acquirers, and issuers communicate and exchange payment data with each other |
Establishes contractual agreements to provide card acceptance services
| Provides technical infrastructure for transaction processing |
| Ensures compliance with card network regulations | Ensures compliance with broader regulations, such as PCI DSS standards |
| Charges merchants fees for account setup, chargeback management, and transaction processing, including interchange fees, assessment fees, and markup | Charges fees for payment gateway usage for transaction processing, usually a flat fee per transaction or a percentage of the transaction amount |
Do acquirers charge fees for the merchant services they provide?
Merchant acquirers take the risk and responsibility of processed transactions. As a result, they charge various fees for the acquiring services that they offer. The most common fees that an acquiring bank will charge a business are application submission, setup, transaction, refund, chargeback, and settlement fees. It is important to note that the merchant acquirer imposes fees on behalf of themselves, the issuer, and the credit card network (e.g., Visa, Mastercard).
How to choose the right merchant acquirer for your business
Selecting an acquirer is one of the most important decisions you will have to make as a merchant when setting up your eCommerce business. Here are six major factors that should impact your decision of choosing a merchant acquirer.
1. The types of payment cards you want to accept
Some merchant acquirers might not offer certain debit or credit cards. Based on the cards you want to accept on your eCommerce website, you need to select an acquirer who can process those specific credit or debit card transactions.
2. Expected transaction volume
Some acquiring banks charge monthly fees that might be costly for merchants who process a small number of transactions. Discuss all fees with potential merchant acquirers to help predict their financial impact on your business.
3. Expected revenue per transaction
Based on the expected average transaction amount, you can predict how feasible it will be when the potential merchant acquirer charges you for every transaction.
4. The regions and currencies you want to accept
The merchant acquirer should support your targeted regions and currencies for processing and settlement. Find an acquirer with a diverse alternative payments portfolio with good global coverage.
5. Transaction fees and other charges
The fee structures offered by different merchant acquirers vary since each one has distinct business models and margin requirements. Compare the total cost carefully.
6. Compliance with data protection and payment regulations
What type of licenses does the merchant acquirer hold? In the EU, acquiring banks are regulated and supervised by local central banks, with licenses valid across the EU. They hold merchant funds in segregated client accounts, ensuring funds are protected and transferred securely to the merchant’s business bank account.
What questions should you ask an acquiring bank before making your choice?
Merchants should ask a potential acquirer a number of questions before finalizing their decision. Let’s talk about some of the most important ones.
Can you work with the payment gateway that I am using?
If you are already using a specific payment gateway and your chosen bank cannot work with it, you might have to search for a new payment gateway or choose from the ones that the potential acquiring bank can integrate with.
What eCommerce platform integrations do you offer?
If you are an eCommerce merchant, you are likely using a specific eCommerce platform for the storefront and back office. Popular platforms have several integrations with payment gateways. Review the list of plugins or integrations of your platform. If no such integration exists but the merchant acquirer offers favorable terms, you need to consider your IT resources or discuss the potential for the acquirer to integrate with your eCommerce platform.
What cards do you support?
Before partnering with a merchant acquirer, it is important to know what credit card types, card schemes, and payment methods they support. For example, payabl. is one of the licensed Visa and Mastercard acquirers, with a longstanding membership with both card schemes.
What regions and currencies do you support?
In order for a merchant acquirer to fit your needs, they must offer their services in the country that your business is registered in as well as the countries where your customers are based. Also, take into consideration that not all merchant acquirers support all currencies. Additionally, check both the processing and settlement currencies, based on your business bank accounts.
What kinds of fees can I expect to pay?
Prior to signing a contract, check the merchant acquirer’s schedule of prices and fees, which may include:
- Application fee
- Setup and monthly fees
- Transaction costs
- Chargeback fees
- Settlement fees
Most importantly, pay close attention to hidden fees, terms, and conditions, such as rolling reserves—a percentage of your processed volume held back as security against chargebacks, typically for six months.
What kind of anti-fraud mechanisms do you have in place?
Part of the services that merchant acquirers offer is fraud prevention. They must protect every debit and credit card transaction from fraudulent activity by following certain security protocols and standards, such as 3D Secure for customer authentication. Make sure the acquiring bank works with a secure payment gateway that is armed with sufficient risk management tools to minimize your exposure to chargeback and fraud risk.
Do you offer an aggregated or dedicated merchant account?
A dedicated merchant account is created exclusively for one merchant. A merchant acquirer offering dedicated accounts usually tailors the pricing based on a particular business’s sales volume and background and sets up the account based on the risk profile of that merchant. On the other hand, an aggregated merchant account is a ‘shared’ account used to process transactions for several merchants.
Although it is less complicated to be set up as part of an aggregated account, a dedicated account offers a number of advantages, such as faster transaction processing and merchant-specific billing descriptors. Aggregated merchant accounts are mostly suitable for new businesses that do not have processing history or large processing volumes. They do come with some serious disadvantages, such as higher chargeback risk due to shared billing descriptors, or the fact that high chargeback ratios coming from one of the merchants could lead to the acquiring bank shutting down the entire shared account, impacting all other merchants.
Secure a merchant account with payabl.
As a European merchant acquirer with a long-standing principal membership with two of the world’s biggest card schemes, Visa and Mastercard, payabl. offers eCommerce merchants access to payment processing for transactions on both credit card and debit card products via dedicated merchant accounts, as well as a rich portfolio of alternative payment methods through a secure payment gateway equipped with anti-fraud features and merchant support tools.