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What is a Merchant Acquirer?

The merchant industry covers financial services, most often referring to processing services. These services allow merchants to accept transactions.

As the payments ecosystem becomes larger and more complex, the merchant services industry continues to grow with it. This industry includes both payment processors and merchant acquirers.

With the rise of e-commerce, merchant acquiring is undergoing a significant transformation. However, not all merchant service providers are created equal.

Today, we’re going to cover what merchant acquirers are, and why they matter. This will help you navigate one of the most critical components of your business — the ability to process payments, become more profitable and grow.

What Exactly is a Merchant Acquirer?

A merchant acquirer is essentially a bank that hold’s your merchant account. When you make a sale, they deposit your transaction. Therefore, the term “merchant acquirer” is often interchangeable with “acquiring bank.”

In the payments processing world, an acquirer collects card-based payments accepted by merchants. However, it is often used more broadly since merchant acquirers can take on several roles.

Merchant acquiring activities can affect retailers in several ways, including:

  • Recruitment
  • Underwriting
  • Support and service
  • Chargebacks
  • Account closures

It’s important to note that a merchant acquirer is a bank — but not all banks are acquiring merchants. Since these banks are members of card networks, including MasterCard and Visa, they must follow specific regulations. To clarify, the payment networks that facilitate the processing of payments, including Visa and MasterCard are known as card schemes. Banks and other financial institutions become members of these card schemes.

Now, this is where things get a bit more complicated.

Many in the industry will refer to merchant acquirers in relation to a payments processor. This is the entity that authorizes transactions and then routes them to the appropriate card network.

Regardless, a Merchant Acquirer Helps Merchants With:

  • Payment processing
  • Customer authentication
  • Card authorization
  • Receiving money from the bank that issued the card
  • Refunds, chargebacks, and returns
  • Scheme fees charged by credit card companies

Bottom line — A merchant acquirer acts like a “switch” that protects merchants from having to understand all the fine print and details associated with card schemes. They work with merchants to effectively and securely process payment.

Recommended reading: Your Complete Guide to Managed-Risk Merchant Services

Breaking Down the Payment Cycle

Whether you’re set up in-store, are at a trade show event, or sell products online, it only takes a second for a customer to tap their card or finalize a digital payment. The transaction is almost instantaneously approved — but how does a merchant acquirer fit into the picture?

The payment cycle looks like this:

Customer –> Merchant –> Merchant Gateway –> Merchant Acquirer (Acquiring Bank) –> Card Scheme –> Issuing Bank –> Accepted

The merchant acquirer processes transactions on behalf of you, the merchant.

The issuing bank issues credit cards to consumers, acting as the customer middleman. In comparison, the merchant acquirer is the middleman for the merchant.

Understanding the Services Provided by Merchant Acquirers – Here’s How the Payment Processing Cycle Works:

– Customer Authentication

In the United States, two-factor authentication is not mandatory for every industry. However, it is required in healthcare, finances, law enforcement, government, and other sectors.

Since online shopping fraud is on the rise, many merchants, both on and offline, are considering an extra layer of security. Two-factor authentication helps confirm a user’s claimed identity. For “cardholder present” payment processing (meaning in-person), this is typically handled by CHIP and PIN processing at the point of sale (POS). For online purchases, this is a bit more complex. The merchant acquirer acts as a gateway to the card issuer.

So, when a customer wants to buy something, you tally up the total and ask for their card details. Control is then passed onto the merchant acquirer; the card scheme routes to the card issuer for authentication. If strong customer authentication (SCA) is required, a one-time password will be requested. Once a customer confirms they are who they say they are, the merchant and acquirer move onto payment authorization.

– Card/Payment Authorization

As the merchant, you will swipe a customer’s card. Your POS system will then dial up the merchant acquirer for authorization.

The acquirer routes this request to the card scheme, which routes it to the issuer. The issuer checks that the customer has enough available funds, sending back a unique authorization code to the scheme. The acquirer then receives authorization, routing it to the POS system.

This all happens in a matter of seconds.

Each night, merchant acquirers sort transactions into piles for each scheme. This eventually leads to the issuer bank transferring the amount payable to the scheme’s bank account.

The merchant acquirer also provides detailed information about transactions. These are intended for your records as a merchant.

Do I Need a Merchant Acquirer?

In 2018, merchant acquirers provided services to around 10.6 million merchants.

Whether you are operating a business online, in a physical brick-and-mortar location, or both, you may need to partner with an acquirer.

If you are charging customers using a point of sale, card reader, or virtual terminal, you will not need to sign a contract with a merchant acquirer. Instead, the company you partner with for these payment services will work directly with a merchant acquirer. As the merchant, you will generally pay a transaction fee.

Once card information is collected from the payment gateway, a merchant acquirer will be responsible for the authorization and authentication. However, if your company processes payments yourself, you will be required to have a merchant acquirer. There are some exceptions to this, but for the most part, you’ll need a merchant acquirer to offer a one-stop shop for your merchants.

LOLA POS is Here for You

LOLA POS is an innovative merchant services provider, pro-business advocate, and payments acquirer transforming the financial services industry.

Being a trusted partner for over 15 years means LOLA POS has revolutionized the payment processing space. We proudly stand behind our signature, “.”

We understand that your business is unique and requires a customized, tailored approach.Visit our website to learn more and to get started today!

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