What is an Acquirer in Payments?

There were 2.05 billion debit and credit card transactions in the UK in April 2024. So, what part does a merchant acquirer play in payments?

An acquirer is a financial institution that facilitates card payments for businesses. They act as an intermediary between the business, card networks, and banks. They are also often referred to as a merchant acquirer or an acquiring bank.

In the growing landscape of digital payments, acquirers play a crucial role in enabling businesses to streamline their operations by integrating digital payment solutions.

When a customer makes a purchase using a card, the acquirer secures authorisation from the card issuer, processes the transaction, and ensures the secure transfer of funds into the merchant bank account.

Acquirers are essential in managing the complexities of card transactions. They often provide the necessary technology and hardware for businesses to accept these payments, such as point-of-sale (POS) terminals and online payment gateways.

This article will discuss the key functions of acquirers and the different types, addressing their significance in the payments ecosystem.

We will also explore how to choose the best acquirer for your business, with a focus on getting the best pricing through payment processing services like Cardflo.

Key functions of an acquirer

Merchant account provisioning

A merchant account is a specialised bank account which enables businesses to process payments made by credit or debit card.

The acquirer sets up the merchant’s account, linking it with the necessary payment networks. This involves vetting the business, assessing its risk profile, and ensuring compliance with relevant regulations.

Merchant accounts facilitate the flow of funds from the cardholder’s bank to the business’s bank account.

Payment processing

Once a merchant account is set up, acquirers offer payment processing services on the behalf of merchant clients.

A payment service provider (PSP) can simplify the payment process by combining the roles of both payment processor and merchant acquirer, enabling businesses to manage all aspects of payment processing in a more streamlined manner.

The payment process involves several steps including authorising the transaction, securely transmitting the transaction data to the card networks.

Whilst also ensuring that the funds are deducted from the cardholder’s bank and credited to the merchant’s bank account.

What is a Payment Processor?

A payment processor is a service provider that handles the technical aspects of payment transactions between merchants, acquirers and issuing banks. It manages the transmission of transaction data, processes payments and ensures that funds are accurately transferred. 

Payment processors facilitate communication between the point-of-sale systems or online payment gateway and the financial institutions involved, making them essential for the smooth operation of card transactions.

Risk management

The acquirer plays an important role in mitigating risk - protecting both the merchant and the customer. 

Acquirers assess the creditworthiness of merchants, setting transaction limits and other safeguards to minimise potential losses.

They are also responsible for managing the risk associated with card transactions, including fraud detection and prevention measures.

Settlement services

After a transaction is processed, the acquirer facilitates the transfer of funds from the customer's issuing bank to the merchant bank's account. This process, known as settlement, typically occurs within a couple of business days.

The acquirer ensures that the funds are accurately credited and provides detailed transaction reports to the merchant. These reports help businesses manage their cash flow and reconcile their accounts.

What is an Issuing Bank?

An issuing bank is a financial institution that provides credit or debit cards to consumers.

It is responsible for authorising transactions made with its issued cards, managing cardholder accounts, and handling customer service related to card usage. 

When a cardholder makes a purchase, the issuing bank verifies the transaction, ensures sufficient funds are available, and communicates approval or denial to the merchant through the acquirer.

Chargeback handling

Chargebacks occur when a customer disputes a full card transaction amount, requesting a reversal of the charge.

Handling chargebacks is a key function of an acquirer, who must investigate the claim, communicate with the merchant and the issuing bank and determine the validity of the dispute. 

This process involves gathering evidence from the merchant and assessing whether the transaction was authorised and fulfilled as agreed.

Types of acquirers

Merchant acquirer

A merchant acquirer, also known as an acquiring or merchant bank, acts as a third-party partner to businesses, enabling them to accept electronic payments from customers.

This type of acquirer is usually a bank or financial institution that handles the processing of debit and credit card transactions.

Merchant acquirers manage the electronic deposits from card payments into a merchant account and they often serve as settlement banks, facilitating the transfer of funds to the merchant’s bank account.

Every time a customer uses a card for a payment, the merchant acquirer processes and settles the transaction. They work with a network of card issuers and processors, including major brands like Visa, Mastercard and American Express.

Merchant acquirers charge varying fee structures for their services, typically including pre-transaction fees and a monthly fee for account maintenance.

These fees cover the costs associated with processing payments and other account services, such as customer support and risk management.

Corporate acquirer

A corporate acquirer is a financial institution or a specialised company that processes credit and debit card payments on behalf of large businesses or corporate clients. 

They also provide services that include transaction authorisation, clearing, settlement and often additional services like fraud prevention, data analytics and customer support tailored to the needs of large-scale enterprises.

Examples of Acquirers

Examples of acquirers include major banks and financial institutions like JPMorgan, Chase, Bank of America and Wells Fargo, whom all offer comprehensive merchant services.

Specialised companies such as First Data, Worldpay and Global Payments act as acquirers, providing tailored payment processing solutions and technology to various types of businesses.

Importance of acquirers

Enabling commerce

Acquirers enable businesses to accept a wide range of payment methods, including credit and debit cards.

This capability is critical for expanding customer reach and facilitating seamless transactions, which are vital for both in-store and online sales. 

By providing the necessary infrastructure payment data and technology, acquirers help businesses facilitate individual transactions by streamlining payment processes and improve the overall shopping experience.

Security and compliance

Acquirers ensure the secure processing of transactions, protecting sensitive financial data from the likes of fraud or a data breach. They adhere to industry standards like the Payment Card Industry Data Security Standards (PCI DSS) to safeguard cardholder information.

By maintaining compliance with these standards and regulations, acquirers help merchants meet legal requirements to protect their customers' data.

Financial intermediary

As intermediaries, acquirers manage the flow of funds from customers to merchants, ensuring timely and accurate settlement of transactions. 

They handle the complexities of payment processing, including interactions with card networks and issuing banks, thereby ensuring consistent cash flow for businesses. 

Why do you need a merchant acquirer?

Acquiring banks provide the necessary infrastructure and services to process transactions, handle settlements and manage risk. 

Without an acquirer, businesses would struggle to manage the complexities of payment processing, including processing a high transaction volume, secure authorisation, compliance with security standards and receiving funds. 

Considerations when choosing an acquirer

Fees and pricing: 

Evaluate the cost structure, including transaction fees, monthly fees and any additional charges.

Technology and integration:

Ensure the acquirer offers compatible technology and integration options for your payment systems.

Customer support:

Look for reliable 24/7 customer service and support to address any customer issues promptly.

Security and compliance: 

Verify that the acquirer meets industry security standards and compliance requirements.

Transaction types and limits: 

Check the types of payments accepted and any transaction limits that may apply. 

Get the very best pricing for an acquirer with Cardflo

Cardflo ensures you receive the best pricing for acquiring services by leveraging its relationships with different UK payment acquirers. With rates starting at just 0.35% and no hidden fees, Cardflo offers transparent and competitive pricing tailored to your business needs.

In addition to great rates, Cardflo provides:

Quick integration 

Our tech-focused approach means expert developers can facilitate a swift onboarding process, often completing it within the same day to get you up and running quickly.

Easy-to-use reporting 

Navigating payment processing data can be complex, but the reporting system is designed for simplicity, providing clear and straightforward insights.

Top-tier security 

Cardflo is PCI Level 1 certified, guaranteeing that all your payment transactions are protected with the highest standard of encryption.

Conclusion 

Acquirers are essential for facilitating secure and efficient card transactions, offering a range of services from transaction processing to risk management. 

Knowing how these institutions function helps businesses choose the right acquirer to meet their needs, ultimately enhancing their payment processing capabilities. 

For more insights on optimising your payment systems, be sure to check out our comprehensive guides on payment processing and merchant services.