Payment acquiring refers to the process by which an acquiring bank or financial institution facilitates card payment transactions on behalf of a merchant.
The payment acquiring process consists of four key steps.
The customer commences the payment process by swiping, tapping, or inserting their credit or debit card.
After the cardholder has initiated the transaction, the acquirer receives an authorisation request from the merchant. Online, this request usually arrives through a payment gateway, which captures the card details at checkout and passes them to the acquirer.
Once the authorisation request has been received, the acquirer collates the transaction information and submits it to the card networks (also called card schemes), such as Visa, Mastercard, American Express, and Discover. The networks do not hold merchant or cardholder accounts themselves; they route messages between the acquirer and the issuer and set the rules both must follow.
The card network then processes the request, clarifying with the issuer whether sufficient funds are available.
The issuer approves or declines the transaction after examining the cardholder's account, then forwarding the status of the transaction back to the acquirer.
If sufficient funds are available and the transaction is approved, money is then transferred from the issuing bank to the acquirer, who deposits the money into the merchant account. Authorisation only reserves the funds; the actual movement of money happens later during clearing and settlement, which is why a sale and the payout to the merchant rarely land on the same day. During this stage the acquirer pays the issuer an interchange fee on each transaction, and that fee makes up the largest share of what the merchant is ultimately charged for card acquiring.
Start Accepting Card Payments Online
DECTA payment acquiring gives merchants and PSPs Visa, Mastercard, PayPal and Apple Pay acceptance in 50+ currencies with a dedicated account manager.
The acquiring bank and issuing bank are both important to accept payments, but their roles are very different.
A merchant acquirer refers to a bank or financial institution that represents the business in a transaction. The acquiring bank enables a merchant to collect payments made during credit or debit card transactions.
The merchant acquiring bank receives the money from the issuer and ensures the payment is processed and completed, depositing the money into the correct merchant's business account. That account is the merchant account: without one, a business has no way to receive card funds, which is why every merchant that accepts cards is connected to an acquirer, either directly or through an intermediary.
An acquirer is also responsible for complying with the security standards implemented by the Payment Card Industry Data Security Standards Council (PCI DSS). If the acquiring bank fails to implement the necessary security measures, it will be liable in the event of a data breach or if a cardholder's information is stolen.
Moreover, acquirers carry a financial risk. If a chargeback occurs (when a customer disputes a charge and requests for the transaction to be cancelled or the funds returned), the acquirer is liable for repaying the issuer. Supplying this service carries a substantial cost for merchant acquirers as they require the internal resources to review chargeback requests.
They may offer a line of credit to a business to cover these costs. However, if the business claims bankruptcy or becomes insolvent and is unable to pay, then the acquiring bank must accept the loss.
To reduce this risk, businesses often go through a vetting process before a merchant acquirer decides to represent them, assessing and limiting their financial risk and liability. This merchant underwriting typically covers KYC checks on the company and its owners, processing history, and the industry the business operates in. It is also why some verticals are classed as high-risk and face stricter terms or declined applications.
A merchant acquirer is not always the same entity as the payment processor. The acquirer holds the card scheme licence and the merchant relationship, while a payment processor supplies the technology that switches and settles the transactions, often on behalf of several acquirers. Many merchants also buy acquiring through a Payment Service Provider (PSP), which resells an acquirer's services together with a gateway and onboarding, without holding scheme membership of its own.
In comparison, an issuing bank means the institution representing the customer in the transaction. They can take the form of a traditional bank, credit union, or other financial institution. The issuing bank supplies an individual with the debit or credit card they use to initiate a transaction.
As such, they take the risk of issuing credit to an individual. To do so, issuers consider the creditworthiness of an individual based on their credit score and financial history.
Once approved, they issue a card which enables the individual to access a line of credit. The loans offered are usually unsecured (no collateral or security is required to guarantee repayment).
However, the customer's bank can collect interest if the loans are not paid back by their predetermined deadline. If the customer is unable to do so, the issuer becomes liable for the debt and, therefore, responsible for the initial transaction.
Issuing banks also handle chargebacks, serving as the arbitrator and determining whether the customer's request is reasonable.
Find the Right Acquiring Setup for Your Business
Tell us your payment methods, currencies and volumes, and DECTA will propose an acquiring configuration and pricing that match them.
