For your customer, a transaction requires a tap of their card and it’s over in a few seconds. But behind every payment is an intricate relay between financial institutions, made possible with your acquiring bank.
Acquiring banks process payments for merchants.
When your customer submits their payment card details, your acquirer initiates a request to authorize the payment. It goes to the customer’s bank via the networks of the credit and debit card schemes. When the transaction is authorized, the acquirer retrieves the funds. If it’s not authorized, your acquirer tells you why.
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Acquirers must be licensed by local financial regulators and card schemes to relay transactions. They get this license through a long and complex administrative process, which involves compliance with financial institution regulatory requirements, as well as card scheme requirements.
This is why merchants work with an acquirer to process payments for them in exchange for a fee.
Note: An acquiring bank may also be called a ‘merchant acquiring bank’ or a ‘merchant acquirer’. They’re commonly referred to as ‘acquirers’.
Acquiring fees
The acquirer charges a fee, sometimes referred to as a merchant discount rate. This fee is typically a percentage per volume of transactions.
Where it gets complicated is that your total transaction costs, often charged by the acquirer, can be broken down into several different fees. These fees are charged by various other parties in the transaction flow.
These other parties are mainly card schemes and issuing banks, that charge scheme fees and interchange fees respectively. Other parties might also be contracted that charge fees for transaction related services, such as authentication (3D Secure), risk management, tokenization, foreign exchange, payment terminals, and gateway services.
Note: If your payment service provider (PSP) is also your acquirer, the PSP might charge these fees.
Some acquirers don’t disclose which fees go to which party and charge a flat fee on all transactions. This is called a blended pricing model, which makes it easier to understand how much you’re being charged, but is less transparent about what you’re paying to which party.
Other acquirers break down which fees on your invoice are shared with other parties. This is referred to as an Interchange+, Interchange++, or pass through pricing model. The advantage of these more transparent pricing structures is that you only pay what the other parties actually charge. With blended pricing you usually pay a fixed rate.
When choosing an acquirer, it’s important to understand the breakdown of all these costs, so that you know whether you’re getting a fair price for a particular service.
Examples of acquiring banks
Banking brands you might recognize are Wells Fargo, HSBC, JPMorgan Chase, and Bank of America. Tech-led providers, like Adyen, are another option. They build dedicated solutions to optimize global payment processing.
You can find an acquirer in your region by searching local databases maintained by card schemes like Visa (e.g. Australia, Singapore) and Mastercard (e.g. Australia, Singapore, UK, US). If you have a specific bank or platform in mind, reach out directly to learn if they are a merchant acquirer.
What’s the acquirer’s role in the transaction flow?
Where the acquiring bank sits in the transaction flow (simplified representation)
In the simplest terms: you, as a merchant, will usually work directly with a payment service provider (PSP) but you’ll receive money from your acquiring bank.
In a bit more detail, this is how the different roles interact in the transaction flow:
You’ve accepted a payment online or in store at a point of sale device through your payment service provider (PSP). The transaction is in motion. What happens now?
- Your PSP connects to an acquirer processor that sends a request to the card scheme to authorize the payment.
- The request goes to the issuing bank.
- The customer’s bank checks if enough cash or credit is available to complete the transaction.
- When the payment is authorized, the acquirer will retrieve the funds. The acquirer reserves the funds (minus the cost of transacting) in the merchant account they set up for your business. Within the next few days, the money is transferred to your company’s account.
- If the payment isn’t authorized, the acquirer is notified and communicates why it was declined.
With all these different roles involved, it can be complicated to unpick which party is responsible for what service in the transaction flow.
For instance, a PSP can help you accept payments, as well as offer acquiring services through a third party. This can be convenient, as you only need to manage one provider for your payments, but it can also make it difficult to understand which acquiring bank and acquirer processor is behind the service of the PSP.
Acquiring bank vs. issuing bank
In a nutshell, the issuing bank is the customer’s bank and the acquiring bank is the merchant’s bank.
The acquiring bank gets merchants the money customers have paid by retrieving money from the issuing bank.
The issuing bank is the financial institution that provides your customer the credit or debit card they used to make the payment. When the transaction is authorized, the issuer transfers the money to the acquirer, who brings it to you, the merchant.
Merchant acquirer vs. payment processor
The payment processor has a strictly technical function. The processor collects and processes the customer’s payment card information into the card scheme networks.
Processors typically work with PSPs on one hand to initiate the transaction, and with acquirers on the other hand, who provide the financial institution and card scheme licensing to process the transaction.
The PSP might also offer other services, such as risk management, tokenization, authentication, or reporting.
Your acquirer has a different role. It’s not always part of the technical transaction flow of each payment, but it communicates with every financial institution to retrieve funds and ensure you get the total sum of money for your customer’s purchases.
Acquiring internationally
Cross-border transactions aren’t necessarily troublesome, but they can cause snags in payment processing. Imagine a transaction initiated in the UK by a Swedish shopper with a credit card. If their issuing bank in Sweden doesn’t recognize the acquirer or some element of their authorization request isn’t satisfactory, the request can be refused and the payment declined.
A local acquirer can reduce payment refusals. They have lower fees, higher authorization rates, and settle payments faster. The biggest drawback for you is managing more providers in more territories.
Luckily, some acquirers have anticipated this headache with comprehensive solutions. With Adyen, for instance, you work with a single partner that has local acquiring licenses in all the markets you operate.
Acquirers make payments possible
Your acquirer is the engine behind payment processing for your business. It secures payments your business is owed by driving transactions through the flow. And they do it in the blink of an eye.
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