Merchant acquirers and payment processors both play key roles in the business payment processing ecosystem. Learn more about acquirers vs processors here.
Summary: This blog explains the roles and differences between merchant acquirers and payment processors in facilitating card payment transactions.
In some ways, payment processing is incredibly simple. When everything is set up correctly and all the right pieces are in place, your business can easily complete transactions in seconds.
In other ways, payment processing is especially complex. There’s an awful lot that goes into the easy and seamless experience enjoyed by your customers.
From the technology to the many service providers and various payment processing cost models and fees, the inner workings of payment processing can feel hard to understand.
That’s why we take the time to help you learn more about important topics in payment processing. Today, we’re taking a closer look at two key players in the payment processing workflow: merchant acquirers and payment processors. Although both have vital roles in completing transactions, they’re very distinct from each other.
Swipesum is here to help you learn more about payment processing and optimize your approach to processing payments as a business. Our experienced payments experts help you find the right tech, tools, and providers and cut down on fees through effective negotiations.
We can help you continually optimize your payment processing strategy, too. Book a free consultation to learn how changing your approach to payments can lead to major benefits for your business.
Now, let’s take a closer look at acquirers vs processors.
Before comparing payment processors and merchant acquirers, it helps to have a clear definition of each. Here’s some foundational info about processors and acquirers.
In some cases, the same entity can serve as both a merchant acquirer and a payment processor, handling both the financial and technical aspects of payment transactions.
As we explain in our blog on the basics of merchant credit card processing, a payment processor is a facilitator that processes payment transactions by connecting other parties in each transaction. In other words, “Payment processors receive authorization requests, passing them along to card networks and issuing banks and then back to the merchant.”
The most foundational players in a card-based transaction are the:
It’s not easy for all of these individuals and organizations to quickly and efficiently share information. That’s where payment processors come into play.
Payment processors streamline the process of sharing vital information about a customer’s card and its associated account.
More specifically, payment processing services receive authorization requests from the merchant (which are passed through a payment gateway) when a customer tries to make a purchase. That request then goes to the card network and then to the issuing bank, which checks if sufficient funds are available.
If those funds are indeed available, the card network notifies the merchant bank. That information is then shared with the payment processor, which passes the “approved” or “declined” message back to the merchant.
The term “merchant acquirer” can sound a little abstract. What does acquiring merchants have to do with card-based transactions? The simplest answer is that a merchant acquirer is the bank used by a merchant to hold a merchant's account that accepts customer card payments.
That’s right — merchant acquirer is simply another term for the acquiring bank or the merchant’s bank. These banks help move transactions along, playing their role in the larger payment processing workflow. They also take on the responsibility for chargebacks and other disputes related to card payments for merchants, as Stripe explains.
The merchant acquirer is indispensable. Every merchant needs to work with an acquiring bank to maintain a merchant account and accept card payments.
It is important to note that we’re using the term “bank” conversationally to mean a financial services provider. Many, although certainly not all, merchant acquirers are actual banks. Others aren’t structured like traditional banks and provide more or different services than those organizations.
Merchant acquirers can be other types of financial institutions as well as banks. The lack of traditional bank structure or certain operations does not make this type of merchant acquirer less legitimate or trustworthy.
In a payment transaction, the merchant acquirer and payment processor play distinct yet complementary roles. The merchant acquirer is responsible for maintaining the merchant’s account and facilitating the transfer of funds between the customer’s bank and the merchant’s bank. This involves ensuring that the merchant can accept card payments and that the funds from these transactions are securely deposited into the merchant’s account.
On the other hand, the payment processor handles the technical aspects of the transaction process. This includes verifying payment details, ensuring fund availability, and securely transferring funds between customer and business accounts. The payment processor acts as the intermediary that communicates transaction data between the merchant, the card networks, and the issuing banks, ensuring that each transaction is processed quickly and accurately.
You can look at payment processors and merchant acquirers as closely related parties that work together in card payment processing. Both must participate in a card-based transaction for the necessary information (and money) to move between the appropriate parties. Additionally, both are service providers that merchants pay to work with.
Without both a payment processor and merchant acquirer, a card payment cannot be completed.
However, these two entities don't serve the same role. Instead, payment processors are primarily facilitators. They pass information between the other parties in a transaction, helping the process go quickly and smoothly.
Also, processors don't directly handle the funds from a transaction. Instead, they share important information related to those funds with organizations like the issuing bank and merchant acquirer.
Merchant acquirers are banks or other financial service providers that work with merchants. They maintain and protect the merchant's account.
If a card-based transaction is approved in the authorization process, the merchant accepts the funds from the customer's issuing bank. Ultimately, the merchant acquirer makes that money available to the merchant.
These two entities are distinct because they complete different tasks in the payment processing workflow. However, they work together in every card-based transaction and are both crucial for successful card payments.
Merchant acquirers and payment processors work together to provide efficient and secure transactions between customers and businesses. The payment processor handles the technical aspects of processing and authorizing transactions, ensuring that payment details are verified and funds are available. This involves communicating with card networks and issuing banks to confirm the transaction’s validity.
Meanwhile, the merchant acquirer manages the financial aspects, including establishing and maintaining merchant accounts. They facilitate the transfer of funds from the customer’s bank to the merchant’s account and handle any issues related to chargebacks or disputes. This collaboration between the payment processor and the merchant acquirer enables businesses to accept card payments and process transactions smoothly, providing a seamless experience for both the merchant and the customer.
Examples of payment processors include Stripe, Adyen, and Finix. These companies facilitate electronic transactions between customers and businesses by verifying transaction details, ensuring fund availability, and securely transferring funds. They play a crucial role in the payment process by acting as intermediaries that connect merchants with card networks and issuing banks.
Examples of merchant acquirers include Paysafe, Wells Fargo, and Bank of America Merchant Services. These financial institutions partner with businesses to process credit and debit card transactions. They communicate with card networks and issuing banks to verify transaction details and ensure that funds are available, ultimately making the money accessible to the merchant. Both payment processors and merchant acquirers are essential for the smooth operation of card transactions.
Swipesum helps merchants just like you find the best possible approach to payment processing. By leveraging our deep industry knowledge and experience, we assemble customized recommendations based on your unique needs. The result is an optimized strategy for payments, from finding the right acquirer and processor to reducing negotiable fees and similar charges.
Our analysis, optimization proposal, and fee negotiations come at no additional cost to your business. Ready to improve payment functionality and improve related costs? Schedule your consultation today!
Payment service providers simplify the payment process for businesses by offering a range of services that enable them to accept card payments and process transactions efficiently. These providers often offer additional features, such as payment gateways, APIs, and compliance tools, to help businesses optimize their payment processes and maximize revenue.
Examples of payment service providers include TSYS, Elavon, and Worldpay. These companies provide comprehensive solutions that cover everything from transaction processing to fraud prevention and regulatory compliance. By partnering with a payment service provider, businesses can streamline their payment operations and focus on growth.
Working with a merchant acquirer offers several benefits to businesses. Merchant acquirers provide a secure and reliable way to process card transactions, reducing the risk of chargebacks, fraud, and disputes. They offer a range of services, including payment processing, merchant accounts, and compliance tools, to help businesses optimize their payment processes and maximize revenue.
Additionally, merchant acquirers often have established relationships with card networks and issuing banks, making it easier for businesses to accept card payments and process transactions smoothly. By partnering with a reputable merchant acquirer, businesses can ensure that their payment processing is efficient, secure, and compliant with industry standards.
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Michael Seaman
Michael Seaman is the co-founder and CEO of Swipesum. A veteran of the payments industry and former employee at one of the largest payments companies, Michael, along with his brother Stephen, has led Swipesum since its inception in 2016. Swipesum is committed to providing innovative payment solutions and exceptional service to its diverse clientele. In his free time, Michael enjoys traveling with his wife Kelsey and their three children, pole vaulting, and engaging in typical Midwestern dad activities.
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