Merchant acquiring explained

Did you know that purchases made via one of the most prevalent card schemes, Visa, are estimated to hit a whopping $5 trillion by 2023, according to Statista? It's no secret that cashless payments are raising in popularity, and signing up with a merchant acquirer that can help you acccept credit and debit card payments seamlessly and securely is a must-have.

Whether a merchant or a retailer, online or offline, it's crucial that you’re fully aware of the acquirer’s role in the payment process. Keep on reading, as we demystify what a merchant acquirer is while helping you understand how card payments move from your customer to you.

What is a merchant acquirer?

A merchant acquirer (or else, acquirer or acquiring/merchant bank) is the financial institution or acquiring bank licensed by the major card schemes (e.g. Mastercard or Visa) to accept credit or debit card payments for merchants. In effect, a merchant acquirer’s main function is to collect and transmit the payment data to the card schemes in a secure manner for authorisation by the issuer (more on this below).

Their other equally vital role is to deposit the relevant transaction amount from the merchant’s card payments into their merchant account. While a merchant account is a bank account that enables them to accept credit/debit and electronic payments, it shouldn’t be mistaken with the business bank account where merchants can access their funds once the issuer authorises the payments for the acquirer to settle them. It's also significant to note that merchants need to sign a Merchant Service Agreement (MSA) before they're able to open their account with an acquirer.

In the following section, we'll drill down into all the key information you need to know about the purpose of acquirers in the payment experience, and what to look for when selecting the right one for your business.

What does the merchant acquirer do in payment processing?

To understand where the acquirer fits within the payment processing cycle, imagine a typical debit or credit card transaction. The customer embarks on a payment journey from the moment they make an eCommerce purchase and the payment gateway passes the encrypted card details onto the acquirer; or the customer completes a transaction using the merchant’s point of sale (POS) terminal. The acquirer will relay the approve or decline message directly to the merchant or via the payment gateway for online payments based on the data the card schemes and the issuer have on record about the cardholder’s account (made available at the time of the sale and after running it through the relevant fraud checks). This may include confirming the validity of the account and the available balance to perform the transaction.

Upon authorisation, the issuer debits the amount from the customer’s account and sends it to the acquirer. In turn, the acquirer communicates the clearing message to the card schemes – a process which ensures that the payments will be settled. Once completed, the card schemes settle the funds to the acquirer for the latter to deposit to the merchant’s account (note that when the actual settlement of the funds will occur depends on the agreement the merchant has with their acquirer). In the meantime, both the merchant and the customer receive a success or failure message regarding the payment. Watch our video for deeper insight into the payment experience.

At this point of the transaction, the merchant is only able to view whether the amount in their merchant account can be converted into sales or whether they've been incurred with fees related to chargebacks. When it comes to chargebacks, namely when a cardholder requests the amount they spent on a purchase from the merchant through their issuing bank, the acquirer assumes much of the initial liability. In fact, when the issuer initiates the chargeback and the card schemes send it to the acquirer, the acquirer debits the funds from the merchant’s account and charges the merchant a fee. The merchant is expected to review the transaction dispute and submit a defence document if they decide to challenge it. The acquirer guides the merchant throughout the chargeback process by forwarding the merchant's request via the card schemes back to the issuer. (Read our comprehensive guide about chargebacks here).

What to look for in a merchant acquirer

If you’re active on the market ready to accept payments and you’re shortlisting merchant acquirers, here are a few considerations you need to take into account before you sign up with one:

1. PCI compliance – this will enable them to process card transactions according to the PCI DSS requirements.
2. Easy and seamless integration – a flexible configuration for both POS and online payments is paramount. For eCommerce stores, choosing the integration solution that best suits your business needs – whether a hosted payment page, client-side encryption, or server to server integration – is equally important for seamless payment processing. (Find out more about different integration solutions here).
3. Fast and easy onboarding – in order to remain competitive, merchants expect their acquirer to collate all the needed paperwork to ensure the legitimacy of their business while also understanding their processing requirements to start transacting payments immediately.
4. Local acquiring – it's essential for acquirers to cover the merchant's market(s) of interest for increased payment acceptance in key regions of expansion.
5. Multi-currency payment acceptance – it's crucial for merchant acquirers to both process and settle in as many preferred currencies of the merchant's target consumers as possible.
6. Subscription-based transactions – if your business model requires a flow of recurring transactions, make sure you select an acquirer that can support them seamlessly through a well-developed and cutting-edge API.
7. Broad coverage of card types (credit or debit cards) and card schemes (Visa, Mastercard, etc.) – does this involve alternative payment methods (APMs), including mobile payments, which could allow you to meet changing consumer demand and expand your scope into new markets via cross-border transactions?
8. In-depth data analysis – do they provide monitoring and reporting tools for traffic management that can help you maximise acceptance rates and boost business performance?
9. Do they have a transparent list of prices and fees? (Find out more about interchange fees and pricing structures in our article here).
10. Anti-fraud features – Do they keep their finger on the pulse of the industry and stay on top of shifting regulations such as Strong Customer Authentication (SCA), 8-digit BINs as well as risk and fraud management tools that can help you protect your business while also manage transaction disputes more effectively? (Want to find more about fraud prevention related to card payments? Watch our video).
11. How will you receive settlements and access to your funds?
12. Will you get personable customer support with the designated Account Manager?

How emerchantpay can help

Payment processing is integral to running a business, but it doesn’t have to be stressful and time-consuming. Therefore, choosing the right acquirer that best suits your business needs is key. emerchantpay is a trusted payment service provider and global acquirer for most popular card brands, delivering multiple local and international alternative payment options.

We’ll work closely with you to understand your business model and design a tailored solution that enables you to increase revenue and conversions. Our secure payment gateway paired with our selection of merchant acquiring solutions means that our merchants can seamlessly collect payments and constantly optimise their payments performance. We aim towards simplifying payments, so you can do what you know best – growing your business far and wide.