Merchant acquirer vs payment processor: What's the difference?

Sometimes payments travel from one bank account to another, such as in Direct Debit and ACH transactions. Other times, payments take the scenic route. 

To provide customers with convenience, choice, and consumer protection, a payment processor acts as the go-between in these “scenic” transactions. Processors are responsible for the secure transfer of payment data between the other parties in the transaction cycle.

When was the last time you paid a business by direct deposit? It’s certainly not an everyday occurrence for most consumers. Buyers of all kinds usually prefer a payment journey involving a secure processor. Yet these incur costs, so certain merchants may push their buyers towards low-cost transfer methods like Direct Debit.

Whether a third-party processor is involved or not, the acquirer is always integral to any transaction. The acquiring institution owns your merchant account, and settles payments into it. So without the acquirer, you couldn’t receive any payments at all.

In this article, you’ll learn:

- Summary of payment processor vs merchant acquirer

- What is a merchant acquirer?

- What is a payment processor?

- Differences between a merchant acquirer and a payment processor

- Why are payment processors and merchant acquirers commonly confused?

- Benefits and drawbacks of merchant acquirers and payment processors

- Checkout.com as a merchant acquirer and payment processor

Quick summary: payment processor vs merchant acquirer

A payment processor transmits data between other parties involved in a transaction, whereas a merchant acquirer is the licensed financial services provider that manages merchant accounts, through which businesses accept card payments.

What is a merchant acquirer?

The merchant acquirer (or, more simply, “the acquirer”) is a financial entity that manages merchant accounts, sends payment requests on behalf of merchants, and settles payments. It is through a merchant acquirer that a business can process credit and debit card payments. It is often – but not always – a bank in the traditional sense. However, it may be a more generalized payment services provider (PSP) which has a merchant acquiring license.

Put simply, the merchant acquirer is the nexus for your incoming and outgoing business funds.

What is a payment processor?

A payment processor securely transfers payment data on request. When a payment is initiated, the processor sends and receives messages that ensure the payer’s funds end up in the payee’s account.

Here are the roles of the payment processor in an example transaction:

• Initiating: receiving the transaction data from the payment gateway and sending it to the merchant acquirer
• Pre-authorization: ringfencing the requested payment amount 
• Authorization: requesting confirmation that the card exists, that the cardholder has sufficient funds, and that the account is not blocked or under investigation
• Authentication: securely transmitting authentication data from the cardholder to the issuer, then delivering the response back to the acquirer 
• Capturing: deducting the correct monetary amount from the cardholder’s account
• Settlement: facilitating the transfer of the payment into the payee’s account

Differences between a merchant acquirer and a payment processor

Although the payment processor performs a companion role alongside the merchant acquirer, the two are usually separate actors. Here are some distinctive differences:

Roles in payment processing

When your customer has chosen their products to purchase, the payment processor contacts the merchant acquirer with the payment request. The payment processor is therefore a conduit in the payment cycle, and the acquirer does not typically engage with the merchant (or customer) regarding individual transactions. By contrast, the processor delivers the message of payment success or failure back to the merchant (and customer). and the money hits your merchant account (minus the transaction fees).

Regulatory requirements

This is the main difference between the payment processor and the acquirer: the latter must possess an acquiring license to operate in their chosen region. That means the barrier for entry is much higher for a merchant acquirer to exist and operate compared with a payment processor. For that reason, it’s usually a lengthier process to sign up with an acquirer compared with a processor.

Relationship with the merchant

The payment processor tends to have a much closer relationship with the merchant than the acquirer. This may seem counterintuitive – the acquirer houses your business funds, after all. Yet it’s the payment processor that sends and receives payment requests on behalf of the merchant every day. So you may have a much closer relationship with your processor as you negotiate rates, make data requests, and receive service updates.

Fees and pricing

You will typically pay a monthly fee to your acquirer for your merchant account. The payment processor may charge ongoing service fees as well as per-transaction fees. 

Fee structures vary broadly, depending on your transaction volume, business size, and security requirements. However, your business will pay interchange fees for every payment made with a credit or debit card. Some payment service providers (PSPs) such as Checkout.com offer interchange++ pricing (as opposed to blended pricing), which offers more insight into the proportion of merchant fees that go to each party.

Chargebacks and disputes

The issuer initiates a chargeback, and the payment processor passes the chargeback reason code to the acquirer. The acquirer deducts funds from your merchant account. You can dispute the chargeback by submitting evidence to your payment processor, which collaborates with the acquirer to communicate this back to the issuer.

Why are payment processors and merchant acquirers commonly confused?

The confusion comes from the similar roles that both parties play: both are critical for businesses to take credit card payments. Yet they are distinctly different; it is the processor which passes the transaction messaging to the acquirer, which manages the merchant’s bank account. 

Another similarity between the processor and acquirer is that both need to meet the strict regulatory criteria for secure payment data processing. However, acquirers are exposed to greater financial risks because their merchant clients may face chargebacks, accept counterfeit payments, go into debt or become insolvent. For those reasons, acquirers are subject to more regulatory scrutiny than processors.

Deciding between a traditional acquiring bank or payment services provider

If you want your business to accept electronic card payments, you’ll need to decide how you want to configure your payment processing. You can choose to sign up with a traditional bank for your merchant account, and then choose a separate PSP to carry out your payment processing. 

You may choose to do this because you prefer the specific rates and benefits offered by each party. Or you may inherit this setup from a predecessor. If the latter, your payment processing can start to look like a Frankenstein creation with multiple new PSPs added at various stages. This isn’t always the most cost-effective or efficient setup.

Alternatively, you can compound your benefits by signing up with a vendor that offers both direct acquiring and card processing. Such providers have full control over their payment technology stack, and can offer excellent visibility into processing metrics from each stage of the transaction. 

Setting up with a payment processor is always a long-term strategic decision. If you’re struggling to decide between processors, consider which has the technical capabilities to support your strategic goals.

Card scheme compatibility

Both the merchant acquirer and payment processor have relationships with specific card schemes (for instance, Discover and Visa) and not others (such as Mastercard and American Express). If your acquirer supports Amex, but your payment processor doesn’t, then you could run into a revenue blocker.

For example, if your business must offer Amex payment because your customers love travel, then you should select a payment processor and acquirer with that relationship established. 

International payment capabilities

If your business has future plans to expand internationally, you should consider whether your acquirer or PSP can support your ambitions. Signing up with a PSP that offers local acquiring across multiple countries means you could reduce your risk of authorization declines. That means better experiences at checkout, more repeat custom, and more revenue for your business.

Checkout.com as a merchant acquirer and payment processor

You can save a lot of effort and build efficiency into your payment processing by combining multiple financial services under one provider. Checkout.com provides a secure payment gateway, direct acquiring in more than 55 countries, and intelligent payment processing in over 150 countries.

Browse our payment processing solution to investigate the opportunity for your own business.