Technology

Merchant acquiring: how it works

The workings of merchant acquiring services. Understand how they support businesses in accepting payments, the process involved, and the advantages they offer.

20.05.2024

Jason Francisco

The workings of merchant acquiring services. Understand how they support businesses in accepting payments, the process involved, and the advantages they offer.

Merchant acquiring refers to the process by which a business partners with a financial institution or payment processor to accept and manage electronic payment transactions, such as credit and debit cards, and other digital payments. This relationship allows businesses to offer customers a convenient and secure way to pay for goods and services, ultimately increasing sales and improving customer satisfaction.

In this article, we will give a merchant acquiring definition and uncover a step-by-step process involved in accepting payments.

Understanding Merchant Acquiring

So what is an acquirer in payments? Merchant acquiring is the process by which businesses partner with financial institutions, known as acquiring banks, to accept and manage electronic payments such as credit and debit cards, mobile payments, and other forms of digital transactions. This collaboration is crucial in today’s business scene, as customers increasingly demand fast, secure, and convenient payment options.

The relationship between merchants, acquiring banks, and payment processors is central to seamless payment processing. A merchant establishes an agreement with an acquiring bank to facilitate the acceptance of various payment methods. The acquiring bank works with payment processors to handle the technical aspects of transactions, such as communicating with card networks and the customer’s issuing bank to verify and authorize payments.

For example, a small online retailer may partner with an acquiring bank to accept credit card payments. The acquiring bank ensures that the retailer receives funds from the customer’s bank account promptly and securely, facilitating smooth business operations. This collaboration is beneficial, as it enables merchants to focus on their core business while payment processors handle the complexities of payment transactions.

Merchant Acquirer vs Payment Processor

A merchant acquirer is a financial institution that provides businesses with a merchant account to accept card payments, managing the relationship between merchants and card networks while offering support for account management and fraud prevention. 

In contrast, a payment processor or payment gateway is a third-party service provider that handles the processing of payment transactions as an intermediary between the merchant, acquirer, and card networks, ensuring transactions are authorized and settled efficiently.

The Merchant Acquiring Process

Merchant acquiring is the cornerstone of efficient payment processing, enabling businesses to accept a wide range of payment methods. The process involves a series of steps, from transaction initiation to settlement, ensuring smooth transactions and secure fund transfers.

Transaction Initiation

The process begins when a customer makes a purchase using their preferred payment method, such as a credit card, debit card, or mobile wallet. For instance, over 80% of global consumers prefer using digital payments over cash.

Authorization

The payment details are sent securely to the merchant’s acquiring bank or payment processor. They communicate with the customer’s issuing bank to verify the transaction details and check the availability of funds.

Processing

Once authorized, the transaction data is processed and recorded. The acquiring bank sends a confirmation back to the merchant, allowing the transaction to proceed. This step takes only a few seconds and ensures the transaction is valid.

Settlement

After the transaction is completed, the acquiring bank settles the funds by transferring the money from the customer’s issuing bank to the merchant’s account. This process typically takes one to two business days, ensuring timely cash flow for the merchant.

Reconciliation

The merchant’s accounting team reconciles the transactions, ensuring all funds are received and recorded correctly.

Types of Merchant Acquiring Services

Merchant acquiring services cater to various business needs, allowing merchants to choose the most suitable option based on their operations and customer preferences.

  1. In-store acquiring. This type of merchant acquiring solution allows merchants to accept payments in a physical store using point-of-sale (POS) terminals. It’s suitable for businesses with a brick-and-mortar presence, such as retail stores and restaurants. Retail transactions are set to exceed $4 trillion globally by 2025.
  2. Online acquiring. This service supports e-commerce transactions, enabling businesses to accept payments on their websites. Online acquiring is crucial for businesses with an internet-based sales model, such as online retailers and subscription services. E-commerce is projected to account for 22% of global retail sales by 2023.
  3. Mobile acquiring. Mobile acquiring facilitates payments made through mobile apps or devices. This type of service is beneficial for businesses with a strong mobile presence or those that operate in the field, such as food trucks or delivery services. Mobile payments are expected to reach $4.5 trillion globally by 2023.
  4. Omni-channel acquiring. This combines in-store, online, and mobile acquiring into a seamless experience for customers across all channels. It is advantageous for businesses that want to provide a consistent payment experience, regardless of where customers choose to shop. This approach boosts customer satisfaction and loyalty.

Benefits of Merchant Acquiring for Businesses

Merchant acquiring offers numerous advantages to businesses, enabling them to enhance their operations and customer experience. Let’s take a closer look at some key benefits.

Improved Payment Acceptance and Processing Efficiency

Merchant acquiring services streamline the payment process, allowing businesses to accept various payment methods and ensure smooth transactions. This leads to faster checkout times and greater customer satisfaction.

Access to a Variety of Payment Methods

By partnering with a merchant acquirer, businesses can accept different payment methods, including credit card acquirers, digital wallets, and even emerging options like cryptocurrency. This flexibility appeals to a wider customer base.

Enhanced Security and Fraud Protection

Merchant acquirers employ robust security measures, such as encryption and tokenization, to protect sensitive payment data. Advanced fraud detection systems help prevent unauthorized transactions, safeguarding businesses and customers.

Simplified Financial Reporting and Reconciliation

Merchant acquiring services provide detailed transaction reports and statements, simplifying accounting and reconciliation processes for businesses. This aids in maintaining accurate financial records and tracking revenue.

Selecting a Merchant Acquirer

Choosing the right merchant acquirer is crucial for businesses to maximize the benefits of payment processing services. Here are some factors to consider when making a decision

  • Fees. Compare the fees charged by different acquirers, including transaction fees, monthly fees, and any additional costs. Opt for a provider that offers transparent pricing and aligns with your budget.
  • Services offered. Evaluate the range of services each acquirer offers, such as payment methods supported, security features, and reporting tools. Select an acquirer that meets your business’s specific needs.
  • Customer support. Reliable customer support is essential, especially in case of any issues with payment processing. Choose an acquirer known for responsive and helpful support.
  • Compatibility with existing systems. Ensure the acquirer’s services integrate seamlessly with your existing point-of-sale (POS) systems, e-commerce platforms, and accounting software.

Conclusion

Merchant acquiring is a vital aspect of modern business operations, enabling efficient and secure payment processing. By leveraging merchant acquiring services, businesses can offer a variety of payment methods, enhance security, and simplify financial reporting. 

Selecting the right merchant acquirer tailored to your needs is key to optimizing these benefits. Embracing merchant acquiring can lead to smoother transactions and better customer experiences, ultimately helping businesses thrive in today’s competitive marketplace.

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