What is the difference between a merchant acquirer and a payment processor?

The world of digital payments is more complex than it may seem to those sending money across the world with a few taps. There are multiple parties that handle different aspects of an electronic transaction when funds are transferred between a customer’s bank account and a merchant’s account. Two important players in this digital payments ecosystem are the merchant acquirer and the payment processor. While they may seem similar and work in tandem, each has a distinct role, which we’ll outline below. 

What is a merchant acquirer?

A merchant acquirer, sometimes referred to as an acquiring bank, merchant bank or simply as an acquirer, is a financial instituation that is licensed by card schemes (such as Visa and Mastercard) to authorise credit and debit card transactions for merchants. The acquirer establishes and maintains the merchant’s account where funds are settled, and takes on the risks of card fraud, disputes and chargebacks. This contributes to a seamless and reliable payment experience for both merchants and customers.

When a business decides to accept card payments online, they partner with a merchant acquirer to make this possible. The acquirer will set up an account for the merchant and start providing services:

1. The first step is onboarding merchants. This involves assessing the merchant's creditworthiness, business type, and other factors to determine the risk associated with processing payments for that merchant.

2. Once this is done, the acquirer sets up a merchant account for the seller. This is where funds from card transactions are settled.

3. When a customer buys an item from the merchant’s online store, the customer’s payment data is sent to the acquirer by the payment processor. This information is forwarded to the respective payment networks (for example, Visa, American Express or MasterCard) who send it to the bank that issued the customer’s card. 

4. After the transaction is approved, the issuing bank transfers the funds to the acquirer, and the acquirer settles the funds into the merchant’s account, after deducting any fees. 

How merchant acquirers handle risk, security and compliance

Acquirers are responsible for managing and mitigating the risks associated with processing card transactions. This takes many forms. It begins with an initial assessment of the merchant’s financial situation and business model, in order to identify high-risk businesses. Higher risk businesses may be subject to increased fees, obligations to hold funds in reserve to cover potential chargebacks, or limited payment options.

Fraud is another form of business risk that merchant acquirers are expected to monitor and avoid. As such, merchant acquirers implement fraud prevention tools in order to ensure transactions are legitimate, and monitor transactions for suspicious patterns and anomalies.

As merchant acquirers must handle sensitive cardholder data, another important part of their job is to ensure this data is secure. They commonly use encrypted data transmission and tokenisation to protect payment data, and enforce Payment Card Industry Data Security Standard (PCI DSS) compliance. They also ensure that merchants are compliant with applicable laws and regulations, such as anti-money laundering (AML) and Know Your Customer (KYC) requirements.

When customers dispute a transaction, also called a payment chargeback, merchant acquirers can assist merchants in managing and resolving them. Chargebacks are in place to protect consumers against errors, fraudulent charges, and consumers can also dispute a charge if they are dissatisfied with the quality of the merchandise, service or delivery.  However, these can be time consuming for merchants to resolve on their own and may eat into merchant’s profits. Merchant acquirers can monitor chargeback ratios, help merchants respond to chargeback claims and help them provide evidence to support their case.

What is a payment processor?

Payment processors handle the authorisation and transfer of transaction data, ensuring that payment information is securely transmitted and verified. These are the steps that a payment processor takes when facilitating transactions:

1. When a customer pays, the payment processor transmits the payment data to the merchant acquirer.

2. The acquirer sends the transaction data to the card network, and the card network sends the data to the card issuing bank (that's the customer's bank).

3. The card issuing bank will either accept or decline the transaction, and will send that response back through the card network to the acquirer and payment processor.

4. The payment processor ensures all transaction data is recorded and shared with all parties.

During this process, rigorous security measures are implemented by the payment processor to protect sensitive payment information and prevent data breaches. This includes encryption, tokenisation, and adherence to industry standards such as the Payment Card Industry Data Security Standard (PCI DSS).

Many payment processors also offer payment gateway services. A payment gateway is a service that allows merchants to accept online payments and integrate them into their websites or applications.

Is a payment processor the same thing as a merchant acquirer?

Both payment processors and merchant acquirers are essential in enabling electronic transactions between customers and businesses. They ensure that digital transactions operate smoothly, securely and successfully, in compliance with laws and regulations. Both payment processors and merchant acquirers operate in relationship with card schemes like Visa, Mastercard and American Express.

There are several key differences, however, between payment processors and merchant acquirers: 

• Roles: The merchant acquirer focuses on establishing and maintaining relationships with merchants, managing merchant accounts, and handling risk and customer support. The payment processor primarily deals with the technical aspects of transaction processing, ensuring the secure and efficient transfer of transaction data.

• Direct and indirect relationships: Acquirers hold direct relationships with merchants. It’s standard for merchants to use acquirers as intermediaries between themselves and payment processors, especially if they are smaller. However, large businesses or eCommerce platforms sometimes have a direct relationship with payment processors, and don’t use an acquirer as an intermediary.

• Risk Management: While both entities are concerned with risk, the acquirer is more involved in assessing the risk associated with specific merchants. Payment processors are more focused on transaction security and fraud prevention. They are also equipped to handle various transaction errors, such as declined payments, expired cards, and network issues. 

Airwallex offers both payment processing and acquiring on a global scale.

Combine payment processing and acquiring services with Airwallex

Airwallex is a financial platform that simplifies global payments. Fast-growing eCommerce businesses can choose to use Airwallex as both payment processor and merchant acquirer, and collect online payments from 180+ countries in 180+ currencies. Airwallex offers like-for-like settlement in multiple currencies, meaning merchants can avoid paying unnecessary foreign exchange (FX) fees. Airwallex also offers high-speed payouts to 150+ countries with 70% of payments arriving same day.

Orbitkey, is an Australian business that expanded into Europe with the help of Airwallex. Our partnership has allowed Orbitkey to accelerate their footprint to over 1,000 stores. With Airwallex as their acquirer and payment processor, the company now completes payments 75% faster, and saves 70% on international transfer fees on USD and EUR payment. Rather than accepting payments in foreign currencies and converting them to AUD, Airwallex provided Orbitkey with a Global Account that could directly accept payments in euros and dollars. This money can then be sent out to pay suppliers without the unnecessary cost of currency conversions. Orbitkey also eliminated the time and stress of dealing with multiple financial service providers. All financial data was visible at a glance, streamlining accounting and boosting transparency. 

Designed with the modern global business in mind, Airwallex meets the highest international security standards and complies with regulations and industry standards in the many markets around the world where we operate.

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