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Navigating Payments: Merchant Acquirer vs Payment Processor

Once you’ve dipped your toes into the payments industry waters, you realize how deep and expansive they get. Between the complex technology, confusing terminology, and waves of compliance regulations, navigating them can feel like you’re on a raft in the middle of an ocean during a hurricane.

One of the best ways to find “calmer seas” is to understand the underlying players. In this blog, I’ll be unraveling the differences between merchant acquirers and payment processors. 

Understanding the basics

First, let's demystify the roles:

Merchant acquirer is another term for an acquiring bank. These banks focus on nurturing merchant relationships, negotiating terms, and onboarding businesses to accept payments.

Before there were processors like Finix, businesses had to apply for a merchant account with an acquirer, which entailed a long and rigorous process to access the merchant’s risk profile. Today, banks rarely assess risk and outsource the merchant underwriting process to payment processors.

Once approved, the processor serves as a bridge between the business and the acquiring bank.

An important distinction is that a merchant acquirer doesn’t actually process payments. That’s the job of the payment processor.

Payment processors optimize the transactional flow. You can think of them as the captain of the ship. They authorize transactions, communicate the “orders,” and funnel the card data between the banks and the card networks. They’re also in charge of completing the transaction.

No matter what payment solution you use for credit card processing, an issuing and acquiring payment processor is involved behind the scenes.

One of the best ways to find “calmer seas” is to understand the underlying players. In this blog, I’ll be unraveling the differences between merchant acquirers and payment processors.

The wind in your credit card processing sails: How payment processors and merchant acquirers work together

Any time a customer initiates a payment they signal the beginning of the transaction. A payment processor handles card authorizations and securely transfers the customer’s card information between the card networks and the issuing banks.

Once everything checks out, the payment processor finalizes the transaction (sometimes called clearing) and requests that the funds be transferred from the cardholder’s bank (issuing bank) to the merchant acquiring bank. The acquirer accepts the money from the transaction and then uses the payment instructions from the processor to deposit the funds into the merchant’s account.

Want to get deeper into the transaction process? Read our Guide to Payment Gateways.

Examples of payment processors

  • Finix

  • Elavon

  • Worldpay

  • Global Payments / TSYS

  • First Data / Fiserv

  • Paymentech

Examples of merchant acquirers

  • Pathward Bank

  • Fifth Third Bank

  • Peoples Trust Bank (Canada only)

  • Bank of America Merchant Services

  • Wells Fargo Merchant Services

  • U.S. Bank

  • Chase Bank

Fintech fact: Chase Bank no longer sponsors platforms and Wells Fargo ceased sponsorship of PayFacs and Marketplaces in 2022.

Payment service providers: Boats in the massive ocean of money movement

Now that you understand the difference between payment processors and merchant acquirers, you might be wondering how payment service providers fit into the picture. If a processor can accept payments and works with the acquirer, would you even need one?

The answer is, it depends on your business goals.

While processors enable businesses to accept credit cards, payment providers simplify the entire process. They can also be more cost-effective depending on their ease of integration and its associated costs. Furthermore, they provide additional features that let you optimize payments and maximize the efficiency and profitability of your entire business operations.

Acquiring banks are generally more conservative when it comes to risk. Merchants are also often on their own when it comes to staying PCI compliant. Payment solutions like Finix, on the other hand, include embedded compliance and features that make managing compliance easier.

Choosing the right partner

Whether your business is just entering the payment waters or you’re looking at new options, it’s crucial to find a solution that aligns with your business needs.

Consider your requirements

Some questions to ask yourself when shopping for a payment solution include:

  • Are you a small business seeking a seamless payment process or a larger enterprise with complex payment needs?

  • Do you need e-commerce credit card processing?

  • Are you looking to monetize payments or lower your processing costs?

  • Do you want subscription-based, flat-rate, or interchange pricing?

  • Are you a SaaS platform or marketplace that manages other merchants?

  • Do you currently have a team that handles payments or are you willing to hire for these roles?

  • How important is customer support to your business?

  • How quickly do you need to get up and running?

  • Are you looking for a white label payment solution?

Below is a handy chart that breaks down the differences between acquirers, processors, and payment service providers such as PayFacs, and independent software vendors (ISVs).

* Payment processors are always in the mix because they have direct connectivity to the card networks. ** Depends on provider, processor, and/or underlying processor. *** Some providers onboard instantly and do thorough underwriting later, which leads to issues like withheld funds or account cancellations.

How Finix is different

One of the biggest differences between Finix and other payment providers is that Finix is also a payment processor. Because of this, we can cut out the “middleman” in the payment process. This results in superior customer support, more transaction transparency, and more seamless experiences—all while lowering your costs. We also include embedded compliance along with no- and low-code tools that can be used right out of the box. Plus, you have a dedicated team of payment experts that’s got your back.

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