What actually happens when a customer enters their card details into an online checkout page and clicks “pay”? Money moves. Accounts get debited and credited. People pay and get paid, but what happens in between?
In this article, we explain exactly what goes on behind the scenes to make card payments happen.
If you are operating your business online, you will probably be somewhat familiar with debit and credit card payment processing More than accepting card payments, though, you need to optimize your payments to avoid leaving money on the table. Demystifying the payment process gives businesses more control and ultimately allows them to increase their card approval rates and conversion.
In this article we explore:
- What is an acquirer
- Who needs an acquirer
- How to choose an acquirer
- Using a full-stack solution
What is a merchant acquirer?
Also known as the acquiring bank or merchant bank, the acquirer is a financial institution that handles a merchant’s account so that they can accept credit or debit cards. Essentially, it is a bank that serves merchants.
The acquirer will settle card transactions into a merchant’s account, and, in some cases, the payment processor and the acquirer are one and the same. Importantly, the acquirer must be licensed by financial regulators and card schemes and businesses work with an acquirer to process payments in exchange for a fee.
An acquirer will:
- be licensed to issue business accounts
- assess fees to the merchant on behalf of the issuers and processors
- secure funds from the cardholder’s issuing bank and deposit these funds into the merchant’s account
- monitor merchant risk and regulations
Approval and conversion rates explained
The approval rate is the percentage of transactions that successfully pass through the authorization process and are approved. The conversion rate is the number of visitors to your site that then make a purchase and become a paying customer.
Who needs an acquirer?
Any business that wants to trade online, via app, telephone, mail or in stores needs an acquirer to process payments and settle funds.
Acquirers connect directly to the card networks and alternative and local payment brands. As a customer makes a transaction, the acquirer will receive a request for authorization, and this information will be forwarded to the issuing bank for approval. Once the transaction is approved, the payment will be deposited into the merchant’s account.
Of course, there’s more to payment than getting paid, so acquirers increasingly provide other value-adding services. For example, these services might be around loyalty, offers and incentives, data analytics, risk management, access to credit and/or working capital and so on.
How to choose an acquirer
Although acquirers do the same or similar things in terms of routing payment messages and settling funds, not all are created equal.
Some are strong in certain markets or regions, while others are able to process payments globally. Some have developed products and services for specific industries, geographies or business models. Others offer a general ecommerce or retail proposition, or both.
So, how do businesses choose the right acquirers? Here are five questions to consider.
1. What specific services are offered for my business?
Most acquirers offer a standard package for general retail or ecommerce businesses. However, if you run a subscription business, want to take payment in-app as well as online, or have specific sector or country requirements, ask a prospective acquirer about what’s available for your business.
2. How will my business develop over the next few years?
Think about whether you plan to expand across new sales channels or geographies (domestic and international). Similarly, consider whether your product, sector or customer focus will change. This may influence the acquirer and payment acceptance you choose today.
3. What payment types are offered?
Different customer groups and countries have their own ways of paying. Depending on who you sell to and where, it may be worth considering an acquirer able to offer local or alternative payment methods in addition to cards, for example, bank transfers, mobile payments, BNPL and so on.
4. Which currencies are supported?
If you sell online or have physical stores in more than one country, it makes sense to price in local currency. Find out whether a prospective acquirer can enable this, plus how the settlement of sales works.
5. How can my business get more out of an acquiring relationship?
Accepting digital payments could help digitalize other aspects of your business: customer loyalty, liquidity and reconciliation to name but three. Consider the support available from a prospective acquirer, both in terms of products and people. There’s more to payment than getting paid.
Merchant acquirer vs payment processor
The merchant acquirer and the payment processor are two separate functions. A payment processor is a function that connects the merchant acquirer, card networks, and banks. Payment processors forward the payment information to the banks and the card networks. The payment processor communicates between the card networks, issuing banks, and acquiring banks.
The merchant acquirer, on the other hand, is the function that handles the merchant’s account and deposits the appropriate funds. While the acquirer and payment processor are two separate functions, there are some cases in which one entity acts as both.
Choosing an integrated, end-to-end solution
The acquirer plays an important role in the payment processing lifecycle. However, other players such as the payment gateway and payment processor play an equally significant part in accepting card transactions online.
Choosing an end-to-end solution that is an acquirer, gateway and processor all in one can allow for transactions to be processed faster with less downtime and more accuracy—helping businesses increase acceptance rates and drive overall growth.
Is Checkout.com an acquirer?
Yes, Checkout.com is an acquirer, payment gateway and processor. Checkout.com offers these in an end-to-end solution. Transactions can be processed faster with less downtime and more accuracy, helping merchants increase acceptance rates and drive overall growth.
Find out more about local acquiring and how it can improve your business’ payment strategy.