Introduction 

Payments can occasionally move between bank accounts, as in ACH and Direct Debit transactions. Payments can go the roundabout way.

In these "scenic" transactions, a payment processor serves as the middleman to give consumers convenience, choice, and consumer protection. The safe exchange of payment information between the other participants in the transaction cycle is the responsibility of processors.

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How recently have you made a direct deposit payment to a business? For most customers, it isn't a common event. All types of buyers typically favor a payment process that uses a secure processor. However, these come with fees, therefore, some retailers might encourage their customers to use inexpensive transfer options like Direct Debit.

The acquirer is always essential to any transaction, regardless of the involvement of a third-party processor. Payments are settled into your merchant account, which is owned by the acquiring institution. Therefore, you couldn't get paid at all without the acquirer.

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In this article, we will provide an overview of merchant acquirers and payment processors. A merchant acquirer: what is it? A payment processor: what is it? The distinctions between a payment processor and a merchant acquirer. Why is it that merchant acquirers and payment processors are frequently confused? The advantages and disadvantages of payment processors and merchant acquirers

Merchant acquirer vs payment processor

While a merchant acquirer is the authorized financial service provider that oversees merchant accounts, which are used by companies to accept card payments, a payment processor transfers data between other parties involved in a transaction.

What is a merchant acquirer?

A financial organization that oversees merchant accounts, submits payment requests on behalf of merchants, and settles payments is known as the merchant acquirer, or simply "the acquirer." A company can process debit and credit card payments through a merchant acquirer. Though not always, it is frequently a bank in the conventional sense. On the other hand, it might be a broader PSP with a merchant acquisition license.

The merchant acquirer is essentially the hub for your company's inflow and outflow of funds.

What is a payment processor?

A payment processor securely transfers payment data on request. In order to guarantee that the payer's money reaches the payee's account, the processor sends and receives messages when a payment is initiated.

The payment processor's responsibilities in an example transaction are as follows:

Getting the transaction information from the payment gateway and forwarding it to the merchant acquirer is the first step.

Ringfencing the desired payment amount is known as pre-authorization.

Requesting authorization entails making sure the card is real, that the cardholder has enough money, and that the account is not blocked or being investigated.

Authentication is the process of safely sending the issuer the cardholder's authentication information and then returning the response to the acquirer.

Capturing: taking the appropriate amount of money out of the cardholder's account

Facilitating the payment's deposit into the payee's account is known as settlement.

Difference between the acquirer and the processor

Despite having a companion role, the merchant acquirer and the payment processor are typically distinct actors. The following are some notable distinctions:

Functions in the processing of payments

The payment processor sends a payment request to the merchant acquirer after your consumer has selected the items they wish to buy. As a result, the acquirer usually doesn't interact with the merchant (or customer) about specific transactions; instead, the payment processor serves as a conduit in the payment cycle. In contrast, the processor notifies the merchant (and customer) if the payment was successful or unsuccessful. And the funds (less transaction costs) are deposited into your merchant account.

Regulations

The primary distinction between the acquirer and the payment processor is that the latter needs an acquiring license in order to conduct business in the area of their choice. This indicates that, in comparison to a payment processor, the entrance barrier for a merchant acquirer to exist and function is significantly greater. Because of this, signing up with an acquirer is typically a more involved procedure than with a processor.

Connection to the vendor

Compared to the acquirer, the merchant and the payment processor typically have a significantly closer relationship. Given that the acquirer is the one holding your company's funds, this may seem contradictory. However, on behalf of the merchant, the payment processor is the one who makes and receives payment requests on a daily basis. when a result, When you negotiate pricing, seek data, and get service updates, you and your processor may get much closer.

Prices and fees

Usually, your acquirer will charge you a monthly fee for your merchant account. Both one-time and recurring service fees may be assessed by the payment processor.

Depending on your transaction volume, company size, and security needs, fee structures can vary significantly. Nevertheless, interchange fees will be paid by your company for each credit or debit card payment. In contrast to blended pricing, interchange++ pricing, which is offered by certain payment service providers (PSPs) like Checkout.com, provides additional information about the percentage of merchant fees that go to each party.

Chargebacks and disagreements

A chargeback is started by the issuer, and the acquirer receives the chargeback reason code from the payment processor. Money is taken out of your merchant account by the acquirer. By providing proof to your payment processor, which works with the acquirer to relay this information to the issuer, you can contest the chargeback.

Why are payment processors and merchant acquirers commonly confused?

Due to their comparable roles—both are essential for businesses to accept credit card payments—there is confusion. However, they are very different; the acquirer, who oversees the merchant's bank account, receives the transaction messages from the processor.

Both the processor and the acquirer must adhere to stringent regulatory requirements for processing payment data securely, which is another similarity between them. However, because their merchant clients could experience chargebacks, accept fraudulent payments, incur debt, or go bankrupt, acquirers are subject to higher financial risks. Because of this, acquirers are more closely watched by regulators than processors.

Selecting between a payment service provider and a conventional acquiring bank

You must choose how to set up your payment processing if you want your company to take electronic card payments. You have the option of opening a merchant account with a traditional bank and then selecting a different PSP to handle your payment processing.

You can decide to do this because you like the particular prices and advantages that each party provides. Or this arrangement might have been passed down from a predecessor. If the latter, the addition of numerous PSPs at different points in time may make your payment processing appear like a Frankenstein invention. This isn't necessarily the most economical or effective configuration.

As an alternative, you can increase your gains by partnering with a vendor who provides both card processing and direct acquisition. These providers may provide outstanding insight into processing metrics from every phase of the transaction and have complete control over their payment technology stack.

It is always a long-term strategic choice to set up with a payment processor. If you're having trouble choosing a processor, think about which one can help you achieve your strategic objectives.

Compatibility of card schemes

Both the payment processor and the merchant acquirer are associated with certain card schemes (like Visa and Discover) but not with others (like American Express and Mastercard). You may encounter a revenue blockage if your payment processor does not accept American Express, but your acquirer does.

For instance, you should choose a payment processor and acquirer with that relationship established if your company needs to accept American Express payments because your clients enjoy traveling.

Also read: International wire transfer: How to quickly send money abroad

Capabilities for international payments

If your company intends to grow abroad in the future, you should think about whether your acquirer or PSP can help you achieve your goals. You can lower your risk of authorization declines by joining a PSP that provides local acquiring in several nations. Better checkout experiences, greater repeat business, and increased income for your company are all results of this.

How Transfi handles payment processing and acquirers

Transfi's Bizpay integrates the functions of payment processing and acquiring into a single platform. Transfi simplifies the electronic payment process for businesses.

FAQs 

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

• The acquirer deposits the funds into the merchant account, typically within a few business days. The payment processor ensures that the transaction data is accurately recorded and transmitted to all parties.

2. What is the difference between a merchant of record and a payment processor?

• The main difference between an MoR and a PSP is that a merchant of record handles your entire order process, which includes taking on the related liabilities, whereas a payment service provider only handles the transaction process – the part where money leaves your customer's bank account and arrives in yours.