One major challenge that businesses face as they continue to grow globally and extend their market presence is optimising payment acceptance rates to reach their full sales potential. Failed transactions are a major issue in online commerce, and businesses should try to reduce them to protect their revenue.

Local acquiring is one emerging solution that can help global businesses streamline their payment processes and improve the success rate of their transactions. For businesses that operate across multiple countries or regions, understanding and implementing local acquiring strategies can be instrumental in improving their bottom line and enhancing the customer experience.

However, many businesses aren’t familiar with local acquiring. Below is a guide to help you understand what local acquiring is, its benefits and challenges, how it is used by different types of businesses and how it can be implemented through payment processing platforms like Stripe to help businesses make important decisions about their payments infrastructure.

What's in this article?

• What is local acquiring?
  
• How does local acquiring work?
  
• Benefits of local acquiring
  
• Challenges and barriers associated with local acquiring
  
• What types of businesses use local acquiring?
  
• Does Stripe enable local acquiring?
  

What is local acquiring?

Local acquiring is a method of payment processing in which the acquirer – the financial institution processing the payment on behalf of a business – is based in the country where the payment is made. This process contrasts with cross-border acquiring, in which the acquirer is based in a different country from the payment origin.

Local acquiring offers a home advantage for payments as the transaction takes place in an environment that is familiar to the issuing bank, increasing the chances of success. Local acquiring offers a variety of benefits, which we’ll cover further below.

How does local acquiring work?

Here’s a simplified look at how local acquiring works:

• Initiation: The process begins when a customer decides to make a purchase and initiates the payment by entering their card details on the business’s website or app.

• Local payment gateway: The payment details are sent through a secure, encrypted connection to a payment gateway in the customer’s country. The gateway acts as the intermediary, transmitting the card information securely from the business to the acquirer.

• Local acquirer: The local acquirer, also known as the merchant bank (which is based in the same country as the customer), receives the payment details from the gateway.

• Request to issuer: The acquirer sends the transaction request to the customer’s card issuing bank for approval.

• Approval or decline: The issuing bank verifies the details and either approves or declines the transaction based on the available funds, validity of the card and other security measures. Because the transaction is local, the chances of approval are typically higher compared with an international transaction.

• Confirmation: If the transaction is approved, the acquirer sends the confirmation back through the payment gateway to the business, who can complete the sale. The approved transaction amount is credited to the business’s account by the acquirer, minus any agreed-upon transaction fees.

This entire process takes place within a matter of seconds and is usually invisible to the customer. By keeping the transaction within the same country, businesses that use local acquiring can increase their chances of payment success and provide a smoother customer experience.

Benefits of local acquiring

Local acquiring offers several benefits for businesses that want to improve their performance and profitability in the global market. Here are a few key advantages to using local acquiring:

• Improved authorisation rates
  Authorisation rates signify the percentage of attempted transactions that are approved by the cardholder’s bank. With local acquiring, these rates tend to be higher. This is because the payment request remains within the country of origin, thereby reducing the chance of a decline due to cross-border factors. For example, if a UK-based company sells products to UK customers, using a UK-based acquirer can result in fewer declines (as the transaction is recognised as local by the issuing bank).

• Reduced costs
  Local acquiring can help businesses mitigate some of the financial burdens associated with international payment processing. Typically, businesses that use cross-border acquiring are subjected to additional fees because the transaction is international. In contrast, by using a local acquirer, businesses can avoid these cross-border fees. Further, interchange fees – the fees paid by the acquirer to the cardholder’s bank – are often lower for domestic transactions. A bank in France, for instance, could save on transaction costs when it uses a French acquirer for payments from French customers.

• Enhanced customer experience
  Local acquiring can contribute to a positive customer experience by reducing payment failures and ensuring that transactions are as seamless as possible. Fewer payment interruptions and declines means that customers can make purchases with greater ease. For instance, an online subscription service with customers in Germany could use a German acquirer to increase the success of recurring payments, improving customer experience by avoiding service interruptions from payment failures.

• Local compliance
  Local acquiring can simplify the ever-evolving regulatory landscapes and compliance processes for businesses. As each country has a unique set of rules and regulations related to payment processing, keeping transactions within the local regulatory framework can guarantee that businesses abide by all necessary rules and avoid potential legal issues that can arise from international transactions. For example, a Brazilian e-commerce company that uses a local acquirer would already be operating under Brazilian laws and regulations, easing the burden of compliance.

By adopting local acquiring, businesses can position themselves to optimise their payment processing, enhance customer satisfaction, reduce costs and navigate regulatory environments.

Challenges and barriers associated with local acquiring

While local acquiring provides significant advantages, it has its own set of challenges. Here are some obstacles to consider:

• Complicated, time-consuming setup
  The process of establishing a local acquiring setup requires considerable resources and effort. Businesses need to forge relationships with banks in every country of operation, and each relationship comes with its own set of requirements and negotiations. For example, a UK company that wants to expand to Japan would need to establish a relationship with a Japanese bank and create the infrastructure to process transactions locally. This involves not only navigating a new business relationship but also understanding and conforming to the banking practices and regulations of another country.

• Maintenance
  After a business sets up a local acquiring system, the system requires ongoing maintenance and monitoring. The payments landscape is constantly changing, and systems must be updated to ensure that they are functioning well and complying with evolving regulations. For example, if the European Union introduces new data security regulations, a business that uses local acquiring in any EU country will need to adjust its systems to ensure compliance.

• Currency conversion
  Businesses that operate in countries with different currencies face additional challenges. Even when using local acquiring, they may need to convert currencies for their financial reporting or to repatriate revenues. Currency conversion involves costs and potential risks related to exchange rate fluctuations. For instance, an Australian e-commerce company that sells products in France will receive payments in euros. However, if they want to convert the revenue back into Australian dollars, they will have to deal with exchange rates and conversion costs, which can add to operational expenses.

• Management of multiple acquirers
  Depending on the number of countries in which a business operates, they may need to manage relationships with multiple acquirers. Each acquirer may have different fees, reporting tools and customer support levels. This complexity increases with each additional market a business serves. For instance, a global marketplace with sellers in the US, Canada, the UK and Australia would need to manage four different acquirer relationships, each with their own set of requirements.

With careful planning, strategic partnerships and the right payment processing platform, businesses can successfully work through these potential obstacles and experience the benefits of local acquiring – especially if they work with the right provider.

What types of businesses use local acquiring?

Local acquiring is a versatile solution that can benefit many business types, especially those that have a global presence or intend to expand internationally. The model’s wide application stems from its fundamental goal: optimising payment acceptance rates and improving customer experiences. Here are several types of businesses that can benefit significantly from local acquiring:

• Online retailers
  One of the most prevalent types of businesses that use local acquiring is those operating in the online retail space. These businesses often cater to an international customer base, making payment processing an important component of their operations. With local acquiring, online retailers can increase their authorisation rates, as payments processed in the same country as the customers making the payments are less likely to be declined. Consider an online fashion retailer based in the US with a considerable customer base in the UK. By using local acquiring for its UK transactions, the retailer can increase the likelihood of successful payments, thereby reducing lost sales due to declined transactions.

• Subscription services
  Businesses that operate on a subscription model can significantly benefit from local acquiring. These businesses depend on recurring revenue, meaning consistent and successful payments are important for their financial stability. Local acquiring can increase the success rate of recurring payments, reducing churn due to payment failures. For example, a Sweden-based music streaming service with subscribers in Spain could use local acquiring for its Spanish transactions. This approach would help ensure that subscribers’ payments aren’t declined due to cross-border processing issues, leading to fewer subscription cancellations due to payment failures.

• Digital platforms
  Digital platforms, including social media platforms, gaming platforms and content streaming services, frequently have – or aspire to have – a broad international user base. These businesses can use local acquiring to provide their users with a seamless payment experience, which can significantly influence user satisfaction and engagement. For example, a gaming platform with users from around the globe could use local acquiring to process in-game purchases. This strategy would not only increase the likelihood of successful transactions but also enhance the overall user experience by reducing payment-related interruptions.

• Travel and booking platforms
  Companies in the travel and hospitality sector, such as online travel agencies and booking platforms, deal with a high volume of international transactions. These businesses can use local acquiring to improve their payment success rates, which is particularly important in an industry in which instant payment confirmations are vital. For instance, a booking platform based in Singapore that serves customers globally could use local acquiring in each country to process payments. This approach could reduce the number of declined transactions, ensuring that customers can easily make bookings.

• Software-as-a-service (SaaS) companies
  SaaS businesses often cater to a global customer base and, much like subscription services, depend heavily on recurring payments. Local acquiring can benefit these companies by reducing payment failures and ensuring a steady revenue stream. For example, a US-based SaaS company providing services to businesses in Germany could use a local acquirer in Germany. This strategy could improve the success rate of its monthly subscription fees, thereby ensuring consistent revenue and minimising involuntary customer churn from payment issues.

Any business with a significant volume of online transactions and international customers can use local acquiring to optimise payment processes and improve customer experiences.

Does Stripe enable local acquiring?

Yes, Stripe provides support for local acquiring through a comprehensive global payments infrastructure. With Stripe’s suite of APIs and extensive network of partner banks, businesses can easily establish and manage local acquiring in many countries worldwide.

Stripe’s local acquiring capabilities provide several key benefits. Firstly, businesses can enjoy improved authorisation rates, leading to more successful transactions and increased revenue. Secondly, businesses can avoid cross-border fees and potentially benefit from lower interchange fees. Additionally, by using Stripe, businesses can tap into a powerful, feature-rich platform that simplifies the complex process of setting up and maintaining local acquiring.

Here's how Stripe is empowering businesses to use local acquiring:

• Global operations
  Stripe operates in over 40 countries worldwide. This extensive coverage allows businesses to use Stripe as a local acquirer in a large number of markets, without the need to establish individual banking relationships in each country.

• Unified platform
  Stripe offers a unified platform, meaning that businesses can manage all their transactions, both domestic and international, using a single interface. This streamlines operations and reduces the complexity of dealing with multiple acquirers or payment processors.

• Dynamic routing
  Stripe intelligently routes transactions based on numerous factors, including the country of issue and the type of card, further boosting authorisation rates and improving payment performance. For example, we intelligently route payments in France to Cartes Bancaires, Visa or Mastercard, depending on where we see the highest success rate.

• Regulatory compliance
  Stripe stays up to date with the regulatory changes in the countries where it operates, which largely removes the burden from businesses when it comes to worrying about compliance issues in each individual market.

• Currency conversion
  Stripe supports processing in over 135 currencies, simplifying the process of currency conversion for businesses operating in multiple markets. While businesses still need to be aware of exchange rate risks and costs, Stripe's ample currency handling can help alleviate some of the complexities associated with international transactions.

• 24/7 support
  Stripe offers round-the-clock customer support. This can be incredibly valuable for businesses as they work with international payments and local acquiring.

While setting up local acquiring can be an intricate task that requires considerable resources, providers like Stripe can simplify the process. By choosing a payment provider that supports local acquiring, businesses can navigate the challenges and reap the benefits of this strategic approach to payment processing. To learn more about how Stripe takes on local acquiring within a vast scope of tailored solutions for global businesses, start here.