Payment Processors vs. Acquirers - Explained

Posted on 29th August, 2024 by Andy

In the intricate world of electronic payments, two key terms often crop up: payment processors and acquirers. While they may seem similar, they play distinct roles in ensuring that transactions go smoothly. This article aims to demystify these terms, providing a clear understanding of their functions and how they interact. As a merchant, you will require both a processor and an acquirer.

It's worth noting that many of the providers we feature on Payments Compared are both a processor and an acquirer, which aims to simplify the process as everything lies with one provider.

What is a Payment Processor?

A payment processor is essentially the intermediary between a merchant and the various payment networks (like Visa, Mastercard, or American Express). It acts as a central hub, handling the complex routing and authorisation of transactions. When a customer makes a purchase using a card, the payment processor receives the transaction data, verifies it, and routes it to the appropriate payment network.

Key functions of a payment processor include:

Transaction Routing: Directing payments to the correct network based on the card type.
Authorisation: Verifying with the card issuer that the customer has sufficient funds.
Settlement: Facilitating the transfer of funds between the merchant and the card issuer.
Fraud Prevention: Employing advanced algorithms and tools to detect and prevent fraudulent transactions.

What is an Acquirer?

An acquirer is a financial institution that enables merchants to accept card payments, usually a bank. They typically work in conjunction with payment processors to provide merchants with the necessary infrastructure and services. Acquirers establish contracts with payment networks and merchants, ensuring that funds are transferred between the two parties efficiently.

Key functions of an acquirer include:

Merchant Onboarding: Providing merchants with the necessary equipment and software to accept card payments.
Risk Management: Assessing the merchant's risk profile and setting appropriate limits on transactions.
Settlement: Handling the settlement of funds between the merchant and the payment processor.
Customer Support: Providing technical and customer support to merchants.

The Relationship Between Payment Processors and Acquirers

While payment processors and acquirers have distinct roles, they are often interconnected. In many cases, a payment processor may also act as an acquirer, offering a comprehensive suite of payment services to merchants. However, there are also instances where a merchant may work with a separate payment processor and acquirer.

The typical workflow for a card transaction involves the following steps:

1. Customer Makes a Purchase: The customer presents their card to the merchant.
2. Merchant Processes the Transaction: The merchant uses a point-of-sale (POS) terminal to capture the card details and transaction amount.
3. Transaction Sent to Payment Processor: The POS terminal sends the transaction data to the payment processor.
4. Payment Processor Routes Transaction: The processor routes the transaction to the appropriate payment network based on the card type.
5. Network Authorises Transaction: The network verifies with the card issuer that the customer has sufficient funds.
6. Funds Transfer: If the transaction is authorised, funds are transferred from the customer's account to the merchant's account through the payment processor and acquirer.

Choosing the Right Payment Processor and Acquirer

For UK businesses, selecting the right payment processor and acquirer is crucial for ensuring efficient and secure transactions. When making a decision, it's important to consider factors such as:

Transaction Fees: Compare the fees charged by different providers, including transaction fees, monthly fees, and setup costs.
Payment Methods Accepted: Ensure that the provider supports the payment methods that your customers prefer (e.g., credit cards, debit cards, contactless payments).
Security Features: Look for providers that have robust security measures in place to protect against fraud and data breaches.
Customer Support: Evaluate the quality of customer support provided by the provider, including response times and availability.
Integration Capabilities: Consider how easily the provider's services can be integrated with your existing business systems and software.

By understanding the differences between payment processors and acquirers and carefully evaluating your options, UK businesses can make informed decisions to optimise their payment processing capabilities.