Whether you’re looking to improve your business operations, expand your payment options, or streamline your accounting, there’s no better time than now to digitize your accounts receivable. Streamlining payments with the right merchant account will enable you to give customers a better experience, accelerate cash flow, and drive more revenue. But to do so, you’ll need a merchant account that’s been approved by an acquiring bank.
A merchant acquirer is a financial institution that authorizes merchants to accept credit card payments. They work on behalf of the customer’s issuing banks to confirm that transactions are authorized and that funds are available for withdrawal. In addition, they assess fees to the merchant – including interchange, risk management, terminal depreciation and servicing, and profit margin.
They also handle chargebacks and disputes on behalf of the merchant if they’re deemed to be legitimate. This is a significant role because it means absorbing a lot of liability and acting on behalf of the customer’s bank. Because of this, acquiring banks typically require more scrutiny when approving merchants for a merchant account and have more stringent requirements when underwriting their merchant agreements.
Merchant acquirers can be found all over the world and operate under various regulatory bodies. They can be large multinationals or regional players and some work with third-party, independent sales organizations to market merchant accounts. These ISOs act as the merchant’s main point of contact for equipment setup, support, and risk management and they often have relationships with multiple acquiring banks.
These partnerships are beneficial because they allow the merchant to take advantage of a variety of rates and fees, and reduce their risk by spreading their credit card transaction volume across different acquiring banks. This approach is also ideal for merchants that use third-party platforms and marketplaces that have integrated payments functionality. In these instances, the acquiring bank is often the same as the payment processor, which can be more convenient than having multiple providers for both payments processing and acquiring.
When a customer makes a purchase with a credit card, they enter their payment information online or by chipping the card in a physical terminal. The information is then sent to the acquiring bank through the processor and the issuing bank for approval. If approved, the acquiring bank transfers the sale amount to the merchant account provider (ISO or payment processor) and then the merchant’s business bank account – all while assessing fees for themselves, the issuing bank, and card brands.
There are a number of companies that serve as both a merchant acquiring bank and a payment processor, such as First Data, Global Payments, Elavon, and Harris Bank. These merchant acquiring banks approve merchants for a merchant account, provide the necessary infrastructure, and manage the payment processing on behalf of the business. They also act as a mediator between the card networks and the issuing bank, ensuring the correct fees are charged and that transactions are approved. This process is referred to as ‘swipe and settle’ and they’re directly accountable to the card brand regulators. Single acquiring account