What’s an acquiring bank and why you need one

Acquiring banks process payments for merchants.

When your customer submits their payment card details, your acquirer initiates a request to authorize the payment. It goes to the customer’s bank via the networks of the credit and debit card schemes. When the transaction is authorized, the acquirer retrieves the funds. If it’s not authorized, your acquirer tells you why.

Acquirers must be licensed by local financial regulators and card schemes to relay transactions. They get this license through a long and complex administrative process, which involves compliance with financial institution regulatory requirements, as well as card scheme requirements.

This is why merchants work with an acquirer to process payments for them in exchange for a fee.

Note: An acquiring bank may also be called a ‘merchant acquiring bank’ or a ‘merchant acquirer’. They’re commonly referred to as ‘acquirers’.

The acquirer charges a fee, sometimes referred to as a merchant discount rate. This fee is typically a percentage per volume of transactions.

Where it gets complicated is that your total transaction costs, often charged by the acquirer, can be broken down into several different fees. These fees are charged by various other parties in the transaction flow.

These other parties are mainly card schemes and issuing banks, that charge scheme fees and interchange fees respectively. Other parties might also be contracted that charge fees for transaction related services, such as authentication (3D Secure), risk management, tokenization, payment terminals, and gateway services.

Note: If your payment service provider (PSP) is also your acquirer, the PSP might charge these fees.

Some acquirers don’t disclose which fees go to which party and charge a flat fee on all transactions. This is called a blended pricing model, which makes it easier to understand how much you’re being charged, but is less transparent about what you're paying to which party.

Other acquirers break down which fees on your invoice are shared with other parties. This is referred to as an Interchange+, Interchange++, or pass through pricing model. The advantage of these more transparent pricing structures is that you only pay what the other parties actually charge. With blended pricing you usually pay a fixed rate.

When choosing an acquirer, it’s important to understand the breakdown of all these costs, so that you know whether you’re getting a fair price for a particular service.

Banking brands you might recognize are Wells Fargo, HSBC, JPMorgan Chase, and Bank of America. Tech-led providers, like Adyen, are another option. They build dedicated solutions to optimize global payment processing.

You can find an acquirer in your region by searching local databases maintained by card schemes like Visa (e.g. Australia, Singapore) and Mastercard (e.g. Australia, Singapore, UK, US). If you have a specific bank or platform in mind, reach out directly to learn if they are a merchant acquirer.

Selling internationally? You’ll need a local acquirer or your acquirer must complete cross-border transactions.

Cross-border transactions aren’t necessarily troublesome, but they can cause snags in payment processing. Imagine a transaction initiated in the UK by a Swedish shopper with a credit card. If their issuing bank in Sweden doesn’t recognize the acquirer or some element of their authorization request isn’t satisfactory, the request can be refused and the payment declined.

A local acquirer can reduce payment refusals. They have lower fees, higher authorization rates, and settle payments faster. The biggest drawback for you is managing more providers in more territories.

Luckily, some acquirers have anticipated this headache with comprehensive solutions. With Adyen, for instance, you work with a single partner that has local acquiring licenses in all the markets you operate.

Your acquirer is the engine behind payment processing for your business. It secures payments your business is owed by driving transactions through the flow. And they do it in the blink of an eye.