You may have seen the term “card acquiring” time and time again in the payments sphere, but what does it really mean?
Card acquiring is just one step in the process of collecting payments, but it’s an incredibly important one.
Card acquiring is the process of collecting card-based payments from customers and their banks, and then delivering them to retailers and merchants – both in-person and online.
In this guide, we’re going to demystify the world of card acquiring, what it is, why it is important, and break down some of the terminology around card acquiring and the card acquiring process.
Acquirer meaning: What is card acquiring?
As we’ve established, the process of collecting card-based payments from retailers or stores is known as card acquiring.
Whenever an individual customer pays with a credit card in a store or online, their cardholder information is initially sent to the merchant’s issuing bank/processor, by an acquirer. Then, it is passed onto the customer’s issuing bank to be authorised, and once the authorisation process is complete, the acquirer either completes the transaction or lets the customer know the payment hasn’t been successful.
Card acquiring is just one step in a lengthy payment process, but it is vital. While users may only hear a beep, see a few seconds of waiting time and then see “approved” on a card reader (or simply a change of screen for online payments!), the number of steps that need to be taken in the background is extensive.
Without card acquiring, the “payments in seconds” process just wouldn’t work!
Card acquiring: A mini glossary
Before we get started, there are a few different terms you’ll hear around card acquiring – some of them can be used interchangeably, while others have slightly different meanings:
Card Acquiring – Card Acquiring refers to the process of collecting card-based payments, once retailers and online stores have accepted them.
Merchant Acquirer – Merchant Acquirers are the companies that carry out card acquiring services and processes on behalf of a business. They may be banks or other financial institutions. Merchant Acquirers are also known as Acquiring Banks, Acquirers, Card Acquirers or Credit Card Acquirers.
Card Schemes – A card scheme is a payment network of issuing banks and acquiring banks that process payment cards from a specific brand. The card scheme transfers the card transaction information from the merchant acquirer to the issuing bank. Visa, MasterCard and American Express are examples of card schemes. Card Schemes are known as card associations.
Payment Service Providers (PSP) – A payment service provider is a third-party organisation that enables merchants to accept different payment methods including credit and debit cards, digital wallets and much more. PSPs can also be known as Merchant Service Providers.
Payment Initiation Service Providers (PISPs) – A Payment Initiation Service Provider is a regulated entity that allows customers to pay merchants directly from their bank account and can execute a transaction on behalf of the customer (with their consent), bypassing the process of going through card associations like Visa or MasterCard. Acquired.com is registered as a PISP.
Payment Processors – Payment processors are the companies that manage the different steps of the card transaction process and act as a middleman between merchants and banks. A payment processor authorise credit and debit card transactions, helping ensure that merchants receive funds from customers in a timely manner.
Card-Issuing Banks – a card-issuing bank is a high-street or alternative bank that offers card association credit or debit cards with their own branding. Put simply, they are the bank that issued the debit or credit card to the customer. In the UK, these include banks like Barclays, HSBC, Santander, Starling and Bank of Scotland. Card-issuing banks are also known as issuing banks.
Payment Gateway – Payment gateways are a key part of the payment process. Payment gateways are the services that authorise card payments for merchants, the gateway will send payment card and customer information from the customer to the acquiring bank to be processed.
How does card acquiring work? The payments process explained
Card acquiring and the role of card acquirers is just one step in the process of managing debit card payments or credit card transactions. Once the initial request has been made, the process is largely the same for in-person and online transactions:
1. In the first stage of the process, the merchant has to process the payment card and extract its details, so it knows where to send any requests. In-person, this is done by a card reader, either using chip & PIN or contactless technology, and when transactions are carried out online, this process is done when users enter their card details or when merchants integrate with digital wallets like Google Pay and Apple Pay to input card details.
2. The merchant then passes these details on to the card acquirer, and asks for the payment to be authorised. The card acquirer acts as a messenger to facilitate communications between banks and merchants and to send requests and messages either way.
3. The acquirer will then pass this request on to the card-issuing bank, via the card associations channels. This allows the card provider (Visa, MasterCard etc.) and bank to connect the cardholder with their account, in order to ensure the right user account is charged for the transaction.
4. Once the bank has all the information it needs regarding the account to charge, it can authorise the transaction, or decline it based on a lack of funds or lack of authentication. Under SCA (Strong Customer Authentication), there are a range of different authentication methods that may be required based on the type of transaction being carried out. The rules for online transactions are sometimes even more stringent, as the physical credit or debit card isn’t being used in the transaction. If the bank needs additional authentication to process the payment, this is when that message will be passed back to the acquirer, and then back to the customer. If the transaction is approved, it is at this point that the money leaves the customer’s account.
5. Once the acquirer receives all of this information, they establish the approval or denial of the transaction and pass this on to the merchant to confirm if they can go ahead with the transaction or not.
6. Finally, the merchant receives all of this information from the acquirer, and processes the transaction.
7. Finally, depending on the agreement a merchant has with its acquirer, the payments are processed and funds deposited into the merchant account. Some acquirers and acquiring banks will bulk transfer funds at a certain time to reduce the administration load and pressure on payment systems, while others will process financial transfers immediately.
Behind every single card transaction that takes place, these steps happen in almost an instant. By working with a trusted card acquirer, merchants can be sure that their transactions are being processed quickly, accurately, and intelligently, to provide their customers with a seamless and successful card payment portal.
The risks of card acquiring
Acquirers or acquiring banks are one of the most important parties in any card transaction, whether that is carried out in person or online. However, they are also involved in several other functions to support merchants, retailers, card issuers and banks.
An acquirer’s primary function is to manage all transactions that a customer makes using their credit or debit cards. As part of this service, an acquirer takes on the risk and responsibility associated with these transactions. Acquirers typically assess fees for their service, which vary depending on the type of transactions, the volume of payments processed and the number of ‘unusual’ transactions (this includes transactions such as chargebacks and refunds, where the acquiring bank takes on additional risk).
When acquiring banks are involved in processing transactions on merchants’ websites, they are exposed to certain risks. If there is a transaction reversal, a return, or a chargeback for whatever reason, the acquirer is the one who has to transfer that money back to the customer, reversing the regular process. However, acquirers then have to wait until the merchant returns funds to them, meaning they are the party that is out of pocket!
What chargebacks and refunds mean for card acquirers
This level of risk is one of the big reasons that acquirers and acquiring banks need to charge fees to merchants. If a merchant is regularly involved with refunds and chargebacks, the fees from their card acquiring service will likely be higher to compensate for this higher level of risk.
The reversal of a transaction is usually caused by four different situations:
- When the merchant refunds a customer voluntarily
- When the merchant cancels a transaction after it has been authorised.
- When the customer requests a chargeback from their bank
- When fraud is detected
If a merchant chooses to refund a customer, the payment process essentially happens in reverse. This is the simplest way of reversing a transaction for acquirers, as all parties in the chain are aware of the reversal. The acquirer will receive notification from the merchant to begin the return of funds to the customer, who will then pass this to the issuing bank before the transfer of funds is approved and takes place. In these instances, the card acquirer usually only has to wait a short period of time to receive funds from the merchant, as it is merchant initiated. This can happen if a customer is unhappy with the product, has returned the product, or the merchant has decided to reimburse a customer for any other reason.
Similarly, if a merchant cancels a transaction post-authorisation, the process works in reverse. In some cases, if a transaction has been cancelled before the funds have been moved across, there is a waiting period, as the funds still need to reach the merchant account before being reversed. However, in other instances, the charges can be cancelled and the funds don’t have to move back and forth. This tends to happen if merchants are unable to fulfil an order or service, or if the wrong product/service has been ordered, for example.
When a cardholder requests a chargeback, acquirers are required to start this process, even when they don’t have the merchant funds. Chargebacks allow customers to dispute payments via their bank directly, rather than via the merchant, which is important to protect individuals from fraudulent card activity and prevent them from losing funds if a card is lost or stolen, and someone else makes payment with a credit card belonging to them. However, credit card refunds and chargebacks pose a little bit more risk when it comes to card acquiring as the money has to be returned to the cardholder before it goes through the merchant. In this instance, card acquiring services may be left out of pocket until merchants make their side of the payment. In some chargeback cases, this can be a lengthy process.
When features of concern are identified around a transaction, acquirers also take on the majority of financial liability. Fraudulent credit card payments pose a credit risk as money is moved down the payment processing chain, without the actual card and cardholder having the funds required. Because the acquirer is the part of the credit card transaction process that is responsible for sending both credit card details and the actual consumer card payment funds between merchants, issuing banks and card associations, they need to be confident that the transactions are genuine. This is why acquirer banks tend to have very stringent authorisation processes, and why legislation like SCA and PSD2 is so significant.
Choosing a Card Acquiring Partner for your Payments
Any organisation that wants to be able to accept card payments – whether that’s by an app, online, in stores, by phone or even by post – needs an acquirer in order to process their payments and ensure that funds are moved across correctly.
Many acquirers will also offer other categories of payment services, though some are specific merchant acquirers. Other services often offered by acquiring banks include payment gateways, or they may already be part of a wider card association.
At Acquired.com, we offer a range of payment services and open banking options to allow our customers to carry out payments quickly and seamlessly, as well as to understand their payment strategies and increase approval rates.
If you’re in the process of choosing a card acquiring partner, there are a few questions you should be asking to ensure a successful partnership:
What does your business development trajectory look like?
One of the big problems organisations face when they choose a card acquiring partner is that there is limited scope for growth. Your provider may not be equipped for rapid growth, or have payment plans based on certain metrics that don’t fit your business.
At Acquired.com, every one of our clients receives our bespoke consultative approach, which means the service is entirely scaleable to your needs, no matter how they change over time.
Which payment methods does the provider support?
At Acquired.com, we create bespoke payment solutions for every one of our clients to ensure that their needs are met, whether that’s through the volume of transactions, analytics, repeat/subscription payment processing or a smooth integration process. We support Visa, MasterCard and American Express as well as open banking payments, and also offer integrations for Apple Pay, Google Pay and shopping carts.