Merchant Acquirer vs. Payment Processor: Spotting The Differences

Spreedly frequently receives questions about the various players in the payments ecosystem, particularly the roles of merchant acquirers and payment processors. While these are distinct roles, some providers will act as both to their clients. In order to provide clarity, we've developed this comprehensive guide. The goal is to break down the complex payment ecosystem, and help businesses understand these critical roles of the tools in their payment stack.

What is a Merchant Acquirer?

A merchant acquirer acts as a financial institution that enables businesses to accept card payments from customers. They maintain the merchant's bank account, facilitating the transfer of funds between the customer's bank and the merchant's bank. They also bear a significant portion of the risk associated with these transactions, from ensuring compliance with card network regulations to handling chargeback disputes. Their role, though often overlooked, is critical to the smooth functioning of the eCommerce ecosystem. 

Let's take the example of an online ticketing platform such as SeatGeek that uses Paysafe as their merchant acquirer. This platform sells tickets to concerts, plays, and sports events worldwide. When a customer in Europe decides to buy a ticket for a Broadway show in New York, they enter their card details on the platform. As the merchant acquirer, Paysafe steps in to securely process this card-not-present transaction. They obtain authorization from the customer's bank, manage the interchange with the payment networks, and settle the funds in the ticketing platform's merchant account. The entire process is seamless and secure, which is crucial for a business that handles high volumes of international transactions.

Bearing The Risks

Merchant acquirers play a pivotal role not only in the transaction process but also in managing significant risk and liability. For payouts especially, merchant acquirers are effectively extending credit to merchants to facilitate some types of payouts where there is no referenced pay-in. Where this type of general credit is offered, merchant acquirers will underwrite merchants, taking into account the merchant’s financials, credit worthiness and their type of business. 

• They ensure compliance with card network regulations, adhering to strict guidelines set forth by entities like Visa, MasterCard, and American Express.
• They manage chargeback disputes, dealing with customer issues directly.
• They bear liability for the transactions they process and take measures to manage the associated risks effectively.

What is a Payment Processor?

The payment processor enters the transaction process as the facilitator. A merchant acquirer may also be a payment processor but it’s possible that a payment processor simply partners with one or more acquirers. A payment processor such as Stripe takes the baton from the acquirer, verifying the payment details entered by the customer and conveying this information to the relevant banks and card networks. They then confirm the success or failure of the transaction back to the merchant. But they are not just facilitators. Payment processors are also the guardians of the transaction process, utilizing advanced technologies to detect and prevent fraudulent activities, thereby ensuring the security of your transactions. All of these steps happen instantaneously, creating a seamless experience for the customer.

Eager to streamline your payment process? Get in touch with our team of payment experts today!

Providing The Technology

Beyond facilitating transactions, payment processors are also technology providers. These are a few of the technological offering things they do to enable businesses to collect payments.

1. They maintain the security of the transaction process, employing sophisticated algorithms and technologies.
2. They provide necessary technologies and equipment for businesses to accept card payments - from secure payment gateways for online transactions to local and alternative payment methods.
3. They offer analytical and reporting tools, providing businesses with insights into their transaction data for better decision-making and business growth.

Breaking Down the Differences

It's crucial to distinguish between the roles of a merchant acquirer and a payment processor, particularly for businesses operating in digital commerce. By distinguishing the unique functions and responsibilities of these entities, you can streamline your payment operations and optimize your transactional success. As mentioned above, an entity may be both a merchant acquirer and a payment processor. What is often the case is in certain markets, an entity might be both, but then in some markets simply a payment processor. For example, Adyen was simply a payment processor in the United States and in a partnership with Wells Fargo as the sponsoring merchant acquirer. However in 2021 Ayden obtained its own banking license in the US so that it could act as its own acquiring bank. 

Role in A Transaction

The acquirer maintains the merchant's bank account, ensuring compliance with card network regulations. The payment processor, in contrast, handles the technical aspects of the transaction process and communicates between various parties.

Risk and Liability

The acquirer shoulders the risk and liability associated with the transactions, including handling chargebacks. The payment processor, while not bearing this risk directly, plays a vital role in preventing fraudulent transactions.

Merchant Relationships

Payment Processors often have a direct relationship with the merchant, providing a merchant account for accepting card payments. In contrast, merchant acquirers can operate with a more indirect relationship to the merchant, particularly when they are part of a package offered by an acquirer or sourced through a third-party payment service provider. The merchant typically only becomes aware of the acquirer through the paperwork they sign to open an account.

Are you ready to streamline your payment processes? Reach out to Spreedly’s team of payment experts today and discover how we can help elevate your business to new heights.

Wrapping Up

Now that you know the difference between a payment processor and a merchant acquirer you see the need for active participants in your payment stack. Providers may be able to fill one or both roles to your organization, but maintaining the flexibility to work within and among these providers (especially across regions) is pivotal to building an optimized and adaptable payments ecosystem. 

Spreedly’s payment orchestration platform is designed to help businesses optimize their payment processors and simplify the role of merchant acquirers. Whether implementing with new partners or reconciling diverse data streams, Spreedly enables the swift integration to, and operations with, the best providers for your business. With a deep understanding of these roles, we can tailor solutions that drive growth and resilience in an increasingly digital-centric economy.

Looking to orchestrate your payment stack? See how we can help.

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