In the payments processing world, the term acquirer can be confusing. Even though it refers to a specific function in the payments processing chain, it is often used more broadly as well, as key players often take on multiple roles.
Fundamentally, the term refers to an acquiring bank– the bank that holds the merchant’s account, accepting the deposits from the merchant’s transactions. This article will use the term acquiring bank when speaking of that function.
Not every bank is an acquiring bank. Acquiring banks are members of card networks, such as Visa and Mastercard. As entities that are licensed to enable merchants’ access to the payments system, acquiring banks must follow regulations from the card networks. They bear financial responsibility for their merchants’ credit card transactions, so they are responsible for underwriting and performing ongoing due diligence on their merchant customers.
But here’s where confusion can set in: Many in the industry use the term acquirer when referring to a payments processor– the entity authorizing transactions and routing them to the appropriate card networks, as well as settling funds to the acquiring bank received by way of the networks from the bank that issued the consumer’s card.
A merchant needs both of these functions – a merchant account and a means to process its transactions – to accept electronic payments, and companies that offer both bundled together are often referred to collectively as acquirers, confusing just about everyone.
Many large banks that offer merchant accounts enable processing as well, and processors can enable access to merchant accounts through their relationships with financial institutions. Many people call these entities acquirers, merchant acquirers, or various other formulations, just adding to the confusion. To make it even worse, some of the larger ISOs have taken to calling themselves acquirers, as the term may be viewed as sounding bigger or further up the value chain whether they are or not.
Historically, any merchant who wanted to accept payments had to have a relationship with one of these parties. Today, that process is simplified for many merchants, particularly small to medium-sized businesses. Payment facilitators undergo the underwriting process to obtain their own merchant accounts, and they integrate their technology with the payments processing system. They then facilitate payments on behalf of their submerchants, creating a single point of contact and eliminating the need for those submerchants to sort through the merchant acquiring maze.