Picking up the payments basics? Get the knowledge you need with this guide to the key differences between a merchant acquirer and a payments processor. (What’s more, we’ve got explainers for all the terms we talk about in our GPS payments glossary.)
What is an acquirer?
A merchant acquirer or acquiring bank (known as an acquirer) is a bank or financial institution that processes credit and debit card payments for businesses.
Acquirers enable merchants to accept and process credit and debit card payments from card-issuing banks within a card association or card scheme (card network) (for example Visa and Mastercard).
An acquirer is responsible for receiving card transaction details from a merchant’s terminal, passing these through to the card issuer via the card scheme for authorisation and completing the processing of the transaction.
Once a transaction takes place, the merchant’s terminal forwards the details on to the acquirer. The acquirer then authorises and completes the transaction by running the information through the card scheme, to the card issuer.
The acquirer will arrange the card transaction’s settlement and will typically credit the merchant’s nominated bank account with the funds in accordance with the service agreement.
By processing this transaction, and by crediting the merchant’s bank account with the correct amount, the acquirer essentially acts as a payment facilitator that completes and takes responsibility for payment.
The acquirer will also deal with any chargebacks and/or disputes or requests for information that might be received from card issuers on any of their merchant’s transactions.
What is an issuer?
On the other side of the payments process, an issuer, also known as the issuing bank, ‘issues’ the cards to consumers for the major card schemes like Visa, Mastercard and American Express.
Issuer processing companies act as payment facilitators between the consumer and the card scheme by committing to the payment of the transactions on behalf of the cardholders.
What is a payments processor?
A payments processor is – as its name suggests – an entity that processes payments. They are technology companies with the capabilities to authorise and carry out transactions on behalf of the issuing/acquiring bank.
However, this is where things can get a bit more confusing as there are two types of payments processor:
- An issuer processor, like Global Processing Services: connects with the card schemes and issuing banks to manage card issuance, authorise transactions, provide the system of record and communicate with all the different clearing and settlement parties.
- An acquiring processor: appointed by a merchant to handle transactions from various channels such as credit cards and debit cards for the acquiring bank.
Both kinds of payment processors must abide by card associations’ standards and regulations and complete multiple functions, such as implementing fraud protection measures that assess transactions’ authenticity.
What is a payment gateway?
Of the two types of payments processor, the acquiring payment processor allows merchants to accept card payments via a payment gateway.
Payment gateways are secure software services that process card transactions online, either through an ecommerce website or face-to-face via a card terminal.
Once the processor receives the issuers’ authorisation, the gateway completes the transaction by forwarding all the information to the merchant.
Payment processor vs payment acquirer
The important thing to remember is that merchant acquirers and payment processors are very different - although historically the acquirer has also been referred to as ‘the processor’.
While some financial institutions can be both the merchant acquirer and the processor, in recent years with the fintech boom there has been a move towards using separate third-party processors. Unlike a credit card acquirer, which manages communications between banks and holds funds at various points, payment processors simply process payments.
A processor is, in a way, a technical arm of an acquirer. It provides a technology, authorises transactions and, potentially, receives transaction settlement information.
Processors manage technical merchant services such as the process of moving funds, but do not take on financial liability for this – that stays with acquiring banks.
Acquiring banks’ risk departments decide whether to underwrite merchant applicants.
Payment processors work directly with merchants, obtaining and processing credit or debit card information for transactions, whereas acquiring banks work and mediate between card networks, including the issuing bank and the merchant.
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