Merchant Acquirer vs Payment Processor: What’s the Difference?
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As a busy e-commerce business owner, getting a deep understanding of a merchant acquirer vs payment processor probably isn’t top on your to-do list. We get it. But having basic knowledge of each is crucial to make sure you’re choosing the best payment service provider for your online store.
Merchant acquirers, payment processors, and payment service providers all play an essential role in processing online payments. In this article, we’re breaking down how they're different, yet work together, so you can make an informed decision.
You’ll find answers to the following questions:
- What is a merchant acquirer?
- What is an issuing bank?
- What is a payment processor?
- What is a payment service provider (PSP)?
- Merchant acquirer vs payment processor vs PSP: What’s the difference?
Let’s dive in.
What is a merchant acquirer?
A merchant acquirer, also known as an acquirer or acquiring bank is the financial institution or bank that processes credit and debit card payments for your e-commerce business.
Essentially, the acquirer is a payment facilitator that allows you to complete online payments. It also takes responsibility for payments and handles payment settlements into your business bank account.
The merchant acquirer lets you accept and process credit and debit card transactions from card networks such as Visa and Mastercard. These card associations are also referred to as card schemes.
The acquiring bank receives credit and debit card payment details through a payment gateway or payment service provider (PSP) and sends the information to the issuing bank through the card network to be authorized.
Then the payment details are sent to the merchant acquirer for final authorization. Once the transaction has been approved, the information gets sent through the card network to the issuing bank (i.e. the card issuer).
Transaction settlements are handled by the acquiring bank. Generally, it takes 1-7 days to receive a payout depending on your acquirer, PSP, and service agreement.
Chargebacks and payment disputes received from card networks are also handled by the merchant acquirer.
What is an issuing bank?
Before we look at what the payment processor is, it’s important to get a better understanding of another key player in online payments. The issuing bank, also known as the issuer, provides consumers with a credit card or primary account number (PAN) from card networks such as Mastercard, Visa, or American Express.
Issuing banks are the link between the customer and the card network in the payment process. The issuer commits to the payment value on account of the cardholder.
📚 Further reading: How to Accept Payments Online: 6 Step Guide
What is a payment processor?
A payment processor is necessary for both online and in-person retail sales.
In-person payment flow
During in-person payments, the processor transfers information between your business, the merchant acquirer, and the issuing bank. Brick-and-mortar businesses process payments using a point-of-sale (POS) or payment terminal that can read EMV chip cards.
When your customer uses their credit card in person, the card is authenticated and then information is sent from the POS to the issuing bank where the transaction is either approved or declined. Then the payment processor sends the payment status to the terminal. For approved transactions, the payment processor also sends the payment information to the merchant acquirer.
📌 Pro Tip: Get MONEI Pay to take in-person payments from your phone. It's the perfect POS alternative to let customers checkout anywhere in your store, restaurant, or on the go us QR code payments.
Online payment flow
In online payment processing, the processor works with a payment gateway or PSP to send information between the issuing bank, merchant acquirer, and your business to complete the transaction.
When the customer enters their card information online, it’s sent through the payment gateway where the data is encrypted and turned into a token. Tokenization is used to protect sensitive payment information by replacing the data with a non-sensitive equivalent. After a token has been created, it gets sent through the processor. Then, through the payment gateway, the processor notifies the customer if the transaction has been approved or declined.
💡Pro Tip: Check out our guide on how to choose the best payment gateway for your e-commerce business to learn what questions to ask and factors to consider before you select a payments partner.
Setting up payment processor routing rules to send transactions to more than one processor (in case one is experiencing downtime) can help reduce false payment failure messages. This is also known as payment orchestration and results in more approved payments and improves your e-commerce conversion rate.
Once the payment is approved, the processor relays the payment information to the acquiring bank.
What is a payment service provider (PSP)?
A payment service provider or PSP provides you with payment card services. The terms of service are based on an agreement between the PSP and the merchant acquirer. Depending on the PSP you select, it may also process other types of transactions aside from credit and debit cards. With MONEI, you can accept alternative payment methods including digital wallets such as Apple Pay, Google Pay, and PayPal, as well as local payment methods like Bizum and Cofidis 4xcard in Spain.
Some payment service providers are all-in-one and also provide merchant acquiring services, making your life easier. More on this later in the article.
📚 Further reading: A Simple Guide to Accepting Credit Card Payments Without a Merchant Account
Merchant acquirer vs payment processor vs PSP: What’s the difference?
The fundamental difference between a merchant acquirer, payment processor, and payment service provider is that each of these key players completes different steps during the digital payment process. It all happens within a matter of seconds, but each component is equally important to ensure payments are frictionless, safe, and successful.
The merchant acquirer accepts payments on behalf of your business, while the payment processor takes care of processing the payments. During the payment process, the merchant and the payment processor don’t interact directly.
Finding a payment service provider that offers payment processing and merchant acquirer services is the ideal solution. This way, you can streamline your operations instead of working separately with a PSP and a merchant acquirer. You’ll have one provider that lets you accept card payments and alternative methods of payment in a single platform.
Use an all-in-one PSP that handles the entire online payment process
With MONEI as your payment service provider, all you need is us. We have direct relationships with acquiring banks, so you don’t have to deal with multiple payment service providers.
After connecting MONEI to your website and configuring payment methods in your account, you’ll be able to accept online payment methods including credit and debit cards and a range of alternative payment methods. We add new payment options regularly, so you can reach more people, improve the customer experience, and grow your e-commerce sales.
You may also like to read:
- What is SCA? (+ How it Benefits Consumers)
- Strong Customer Authentication Guide
- PSD2: What is It? Why it’s Important + How to Be Compliant
Merchant acquirer vs payment processor FAQ
Do I need both a merchant acquirer and a payment processor to accept card payments?
Yes, both are necessary for you to accept card payments. The payment processor is needed to authorize and manage the transactions, and the merchant acquirer is required to receive the funds.
Can the same company be both a merchant acquirer and a payment processor?
Yes, some PSPs do serve as both a merchant acquirer and a payment processor. These are often referred to as integrated or all-in-one solutions, and they can simplify the payment process by offering both services together. MONEI’s payments platform offers built-in merchant acquiring and processing services, so you don’t need to get virtual POS credentials from an acquiring bank to accept online payments or set up another integration with a payment processor.
Which is more important for my business, the merchant acquirer or the payment processor?
Both are equally important for different reasons. Without a merchant acquirer, you would have no bank account to receive the funds. Without a payment processor, you would not be able to authorize and manage transactions efficiently.
What should I consider when choosing a merchant acquirer and processor?
Consider the fees they charge, their reliability and reputation, the quality of customer support, their understanding of your industry, and their ability to integrate with your existing or preferred payment systems. Or you could use a PSP like MONEI, so you don’t have to deal with getting a merchant ID from an acquiring bank or setting up a separate integration for payment processing.
Can I switch between merchant acquirers or payment processors?
Yes, but switching can involve some complexity and potential downtime for your payment systems. It's best to choose carefully at the outset to minimize the need for changes later on.
Are merchant acquirers and payment processors regulated?
Yes, both types of institutions are regulated to ensure they follow certain standards and rules, particularly regarding the security of transactions and the protection of customer data. Always ensure that your chosen acquirer and processor comply with the necessary regulations in your country and industry.
Alexis Damen
Alexis Damen is a former Shopify merchant turned content marketer. Here, she breaks down complex topics about payments, e-commerce, and retail to help you succeed (with MONEI as your payments partner, of course).
