Understanding the Merchant Acquirer
A merchant acquirer plays a key role in the payment processing of online card payments. In this article, we explain exactly who they are and the roles they perform in ensuring payments are made the right way.
All you need to know about a merchant acquirer
Looking for an acquirer meaning? It 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 will handle the authorization and authentication aspects of a transaction. The authorization process involves the check of the card used for the purchase to confirm its validation and the availability of the transaction’s amount.
The authentication process is an optional but helpful task performed by the acquirer and includes the verification tools used to identify the cardholder’s identity, such as 3D secure. If the transaction is approved by the payment processor, the acquiring bank 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 the merchant.
Why is an acquirer important in order to process payments?
An acquiring bank is responsible for handling a merchant’s account and for facilitating payments on their behalf. The payment journey starts when the customer fills their credit card 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.
A transaction process involves the authorization, clearing, and settlement of transactions between an issuer and an acquirer
Outlining each stage of the issuer-acquirer transaction:
- 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 is when the acquirer deposits the transaction funds in the merchant account. For the settlement to be done, the issuing bank of the cardholder must send the funds to the merchant’s acquiring bank through the bank’s payment processor.
Acquirer services fees
Acquiring banks 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 (Visa, Mastercard, for example).
How do you select the most appropriate acquiring bank?
Selecting an acquiring bank is one of the most important decisions you have to make as a merchant when setting up your e-commerce business.
The major factors that will impact your decision before choosing an acquiring bank include:
- The types of payment cards you want to accept – some acquiring banks might not offer certain credit cards. Based on the credit cards you want to accept on your e-commerce website, you will select an acquirer who processes transactions made via those cards.
- The number of transactions you will expect on a weekly or monthly basis – some acquiring banks charge monthly fees that might be costly for merchants who process a small number of transactions. Make sure to check and discuss with the acquiring bank all the fees they charge and their financial impact on your business before partnering with them.
- The amount of money made per transaction – based on that amount, you can predict how much a potential acquiring bank will charge you for every transaction.
- The geographies and currencies you wish to accept – the selected acquirer should be able to support your geo-targeting, in terms of the currencies they process as well as the currencies in which they would settle with you as the merchant. They should also have other added value services such as an alternative payments portfolio with good global coverage.
- Fees charged by the acquirer – fees charged by different acquirers vary since each one has distinct business models and margin requirements. Compare the total fee package carefully.
- Regulation – what type of licenses does the acquiring bank have? Acquiring banks in the European Union are regulated payments or EMI institutions, supervised by their local central banks and their licenses are passported to the countries in the EU where their merchants are registered and operate. The acquirer holds merchant’s funds in segregated client accounts, from which they are then transferred to the merchant’s bank account. With a regulated acquirer, merchant funds are therefore protected by regulation.
Keep in mind that over time you will develop a relationship with the chosen acquirer - thus, you should make a wise choice from the outset.
What should you ask an acquiring bank?
Merchants should ask a potential acquiring bank a number of important questions before finalizing their decision. The questions to ask include:
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 should search for a new payment gateway or choose from the ones that the potential acquiring bank can integrate with.
What e-commerce platform integrations do you have?
If you are an e-commerce merchant you are likely using a specific e-commerce platform for the store front and back office of your website. Popular platforms have several integrations to payment gateways, and it is useful to review the list of plugins or integrations of your platform. If no such integration exists, but the rest of the terms of your chosen acquiring bank are advantageous, you need to consider your IT resources or discuss the potential of the acquirer proceeding with integrating with the e-commerce platform you are utilizing.
What cards do you support?
Offering your customers the choice to select between a list of cards to pay for the goods and services you offer, is a great benefit that can increase sales. Before partnering with a bank, it is important to know what credit card types, card schemes and other alternative payment methods such as eWallets they support. For example, Powercash21 is one of the listed Visa acquirers and MasterCard acquirers, with a longstanding membership with both card schemes.
What are the geographies and currencies that are supported?
In order for an acquirer to fit your needs, they definitely should offer their services in the country that your business is registered in and in the countries that you sell your products or services to. Moreover, not all currencies are supported by all acquiring banks. If you wish to enable your customers to pay in specific currencies, then you need to check that the acquirer you want to work with supports the relevant processing currencies. An important aspect to consider is not only the processing currencies but also the settlement currencies that an acquiring bank supports, based on the currencies your business bank accounts are denominated in.
What fees are required?
Prior to signing a contract, the acquiring bank will present you with a schedule of prices and fees associated with their services. Some examples of fees are:
- application cost
- setup and monthly fees
- transaction costs
- chargeback fees
- settlement fees
Pay close attention to hidden fees, terms and conditions. Rolling reserves, for example, a very common term in merchant agreements, is a percentage of your processed volume held back by the acquiring bank for a certain period of time. This is typically a 6 month period, and it is held as security against future chargebacks on your merchant account. Different acquiring banks will charge different rates of rolling reserves. It is important for your business that you understand the rolling reserve rates and timeframes as they will impact your cash flow through each settlement cycle.
Are anti-fraud features available?
Part of the services that acquiring bank offer is fraud prevention features that are used to protect transactions from fraudulent activity. One of the most frequently used features is 3D secure, which is a security layer for online card transactions. When 3D secure is enabled on an e-commerce website, the credit cardholder will be asked to insert a one-time password to authenticate themselves and complete the purchase. Ensure that the acquiring bank selected utilizes a gateway that is armed with sufficient risk management tools and has experienced risk management teams in place that will set up and monitor your account in a way that would minimize your exposure to chargeback and fraud risk.
Do you offer dedicated or aggregated accounts?
A dedicated merchant account is created exclusively for one merchant and has a merchant-specific billing descriptor. An acquiring bank offering dedicated accounts usually tailor the pricing based on the business’ sales volume and background and set up the account based on the risk profile of the particular 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 transactions processing. Aggregated merchant accounts are mostly suitable for new businesses that do not have processing history or large processing volumes. Bear in mind that aggregated accounts come with disadvantages such as higher chargeback rates due to the fact that merchants share the same billing descriptor, making it unclear to the consumers who the charge on their credit card statement is from. Furthermore, high chargeback ratios coming from one of the merchants could lead to the acquiring bank shutting down the account, impacting all other merchants sharing the account.
Powercash21, as a European merchant acquirer with a long-standing principal membership with both the world’s biggest card schemes, namely Visa and Mastercard, offers e-commerce merchants access to payment processing for transactions on Visa and Mastercard credit card and debit card products via dedicated merchant accounts, as well as a rich portfolio of alternative payment method, through a secure gateway, rich in anti-fraud features and merchant support tools.
What is the difference between an Issuer and an Acquirer?
An acquiring bank is a financial institution that provides credit card transaction services which enable merchants to accept credit card and debit card payments. An acquirer is considered the merchant’s bank as it obtains the payment funds used by the customer for purchasing goods or services from a merchant and transfers those funds to their merchants’ accounts.
On the other hand, an issuing bank is a financial institution that issues the cards to cardholders on behalf of the card networks, such as Visa and Mastercard. An issuer is considered the consumer’s bank and issues the card that the consumer will use to make purchases. Issuing banks are also accountable for setting card interest rates, reward schemes, overdraft fees, credit card limits, and so on. Lastly, the issuing bank is the one that handles customer disputes and chargebacks, whereas the acquiring bank assists the merchants to respond to such disputes and chargebacks accordingly.
Which Merchant Acquirer is the best?
Online businesses can obtain merchant account through different avenues. Most popular is via a merchant acquirer or alternatively through a PSP. Obtaining a merchant account through an acquirer has many advantages.