What is acquiring and what is its role in card payment processing?

In our blog, we have frequently discussed the flow of creation and use of debit, credit, and prepaid cards: from their issuance through BIN Sponsorship, to how they generate profits for new or existing projects. This time, we will focus on one of the stages closest to the consumer and merchants: acquiring, the card payment intermediation process.

The acquirer, responsible for this, plays a very important role in card payments that goes beyond mediating to process each transaction: it brings all types of businesses, entrepreneurs, and e-commerce closer to the possibility of accepting card payments. This way, the range of payment methods is expanded, and innovation is fostered around it: tokenized cards, interoperability tools, and all kinds of new technologies to make the process more agile and promote banking.

In this article, learn all about what acquiring is, its role in the card payment flow, and the benefits it brings to the fintech ecosystem to optimize and improve payment tools. Let's go!

What is acquiring and who plays its role within the financial ecosystem?

Acquirers are financial entities or payment service companies that facilitate and process transactions with credit, debit, and prepaid cards on behalf of merchants and businesses. Yes, we are talking about the payment terminals present in physical merchants and at the e-commerce checkout, which aim to accept and process payments quickly, securely, and efficiently!

They act as intermediaries between merchants and card issuers in the payment acceptance and processing process, which increases their sales opportunities and improves the buying experience for their customers. This process of connecting the parties involved in payment processing is called acquiring.

As in the entire financial ecosystem, there are regulations, licenses, and changes to follow to remain operational. In the case of acquirers, local regulations in each country are the central point to consider to operate as an acquirer. In addition to that, they must always follow the agreement they have with each merchant regarding financing and interest for each transaction they process.

Regarding cardholders, acquiring is a tool of great benefit, as it -although it may seem elementary- enables the use of cards in countless merchants, opening the doors for people to consume and access benefits, financing, and reward programs offered by cards. Additionally, acquirers have security systems that protect their data from possible fraud or unauthorized transactions, it's a win-win!

What other functions do acquirers perform?

Let's look at the most important ones in detail:

• After processing transactions, they distribute the funds to each merchant: Acquirers are responsible for transferring the corresponding funds to the bank accounts of each merchant -after deducting the commission agreed upon for their services-.
• With the payments it processes and receives, it can act as a financier: It has the ability to offer installments that the merchant cannot (as long as it is agreed upon), and can even decide whether to advance payments or generate returns with them until it is time to transfer them.
• They provide businesses with information about transactions: generate detailed reports and statistics that allow merchants to make informed decisions for their business.
• Conduct fraud prevention tasks: Acquirers have secure systems and procedures to process card payments and protect merchants from fraud or unauthorized transactions.

Considering all the functions that acquirers fulfill, from a technical perspective, they should not lose sight of the following features:

• Currency check for each transaction
• Fraud engine
• Support for installment purchases
• Dispute and chargeback management
• Rejection notification

How is the payment flow with cards and how do acquirers intervene?

When a customer makes a card purchase at a business, whether physical or online, the acquirer is responsible for authorizing and processing the transaction in a secure and efficient manner. This involves communicating with the card issuer to verify the availability of funds, authenticating the cardholder, and transmitting transaction data between the merchant, the acquirer, and the card issuer.

The card payment process, simplified, is carried out as follows:

1. The consumer or cardholder initiates the process by making a purchase at a merchant, either in person or online, using their card. This transaction is connected with the acquirer that provides services to the merchant.
2. The acquirer takes care of collecting the card data and connects merchants with the card networks to be able to process those payments, while the networks verify with the issuer that the card has funds.
3. Once the transaction is approved, it returns through the card rails to the acquirer's terminal and the purchase is authorized or rejected in front of the cardholder.
4. When the processor pays each network, the acquirer is responsible for distributing the funds to the merchants.

There can also be intermediaries between acquirers and merchants, called PSP or payment aggregators. These have a more user-friendly design (or for tech-savvy readers, a frontend) and facilitate the card payment process for merchants, since, for example, integrating with an acquirer at the e-commerce level is not easy. By having the ability to choose which acquirer to process each purchase with, PSPs also benefit from flexibility: they can offer financing or accept payments in different types of currencies.

Types of acquiring from the consumer's perspective

Undoubtedly, alongside the advancement of technology, all kinds of payment terminals began to emerge for people to more easily use their cards. Since the outbreak of the COVID-19 pandemic, e-commerce transactions have skyrocketed, which forced acquirers and every player in the payment flow to update and provide a payment experience. And the same happened with physical payment methods!

Thus, acquirers had to adapt to new forms, evolve, and be present in all types of technologies to accept card payments:

• Self-service kiosks: as we often see in large fast food chains, these tools allow users to place their orders and pay digitally, without having to queue or needing assistance.
• QRs: with the advancement of mobile technology, more and more functions are performed with them. In the case of payments, why not scan a code that allows you to choose which card to pay with and how to finance it? This advancement in interoperability has taken acquiring services to another level of abstraction.
• Card tokenization: this technology for digitizing cards and operating with them without having them physically—by integrating with virtual payment services like Apple or Google Pay—has led acquirers to adopt contactless payment terminals that support this technology.
• Tap to mobile: what’s coming next! Many brands and banks are developing their technology so that people can make payments simply by tapping their physical card on the merchant's phone. This is another level of digitization for acquirers!

As we have seen, acquiring can take many forms and be present physically or digitally. However, its function remains fundamental and essential: providing the possibility of accepting card payments to more and more businesses, entrepreneurs, and sellers who no longer wish to depend on cash.