Payment processor vs merchant acquirer: What they are and how they work together

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  1. Introduction
  2. What is a payment processor?
  3. What is an acquirer?
  4. What are the differences between payment processors and acquirers?
  5. How do payment processors and acquirers work together?
  6. Do Stripe customers need to have a separate acquirer?
  7. How Stripe handles payment processing and acquirers

Considering that subscription businesses lose 9% of revenue, on average, due to failed payments, it's clear that finding a nuanced and strategic approach to payment processing is important for businesses that need to improve operations and revenue. To facilitate payments on every channel – and protect the customer experience – businesses must understand the roles of key players, such as payment processors and acquirers, that work together to make digital payments possible.

In this article, we'll examine payment processors and acquirers in terms of their differences, their unique functions and how they work together in the payment process. We'll also cover how Stripe's all-in-one approach to payments services streamlines payment processing for businesses. Here's what you need to know.

What's in this article?

  • What is a payment processor?
  • What is an acquirer?
  • What are the differences between payment processors and acquirers?
  • How do payment processors and acquirers work together?
  • Do Stripe customers need to have a separate acquirer?
  • How Stripe handles payment processing and acquirers

What is a payment processor?

A payment processor is a company or service that facilitates electronic transactions between customers and businesses by processing and authorising credit card, debit card and other digital payment methods, such as digital wallets. The primary function of a payment processor is to verify the transaction details, ensure the availability of funds and transfer the funds between the customer's account and the business's bank account securely.

What is an acquirer?

An acquirer, also referred to as an acquiring bank or merchant acquirer, is a financial institution that partners with businesses to process credit and debit card transactions. In the context of electronic payments, the acquirer plays an important role by:

  1. Establishing and maintaining merchant accounts, which allow businesses to accept card payments
  2. Facilitating the authorisation and settlement of transactions between the business and the issuing bank, or issuer (the bank that issued the credit or debit card to the customer)
  3. Assuming the risk of chargebacks, fraud and disputes in card transactions

The acquirer communicates with the issuing bank through card networks to verify the transaction details and ensure that funds are available. Once a transaction has been approved, the acquirer settles the funds with the business, typically within a few working days.

What are the differences between payment processors and acquirers?

Payment processors and acquirers play different roles in the overall payment processing system, with each serving a unique purpose in facilitating transactions between customers and businesses. Although their roles may appear similar at first glance, it's important to understand their individual functions and relationships within the system.

Here's a summary of the key differences between payment processors and acquirers:

Role in the transaction process:

  • Payment processor: the payment processor facilitates and authorises electronic transactions between customers and businesses by verifying the transaction details, checking the availability of funds and transferring funds between customer and merchant accounts securely.

  • Acquirer: the acquirer partners with businesses to process credit and debit card transactions. It is responsible for establishing and maintaining merchant accounts, facilitating the authorisation and settlement of transactions with issuing banks, and assuming the risk of chargebacks, fraud and disputes.

Relationship with the business:

  • Payment processor: the payment processor works as a service provider for the business, processing and authorising transactions on their behalf. The business does not have a direct relationship with the processor. However, it does have a direct relationship with a payment service provider, who acts as an intermediary between the business and the payment processor. In some cases, the payment processor and payment service provider are the same entity – as with Stripe, for example – and this entity does have a direct relationship with the business.

  • Acquirer: by providing and managing the merchant account, the acquirer has a direct relationship with the business. The acquirer is responsible for underwriting the merchant account and assuming some level of risk in the event of disputes or chargebacks. Again, if the business is working with a comprehensive payment service provider, such as Stripe, there is no need to work with a separate acquirer. Later on in this article, we'll discuss more about how Stripe provides this combined functionality.

Relationship with card networks and issuing banks:

  • Payment processor: the payment processor communicates with card networks and issuing banks to verify and authorise transactions. The processor typically has agreements with multiple acquirers and works as an intermediary between acquirers and businesses.

  • Acquirer: the acquirer communicates with card networks and issuing banks to authorise and settle transactions. Acquirers are members of card networks and have agreements in place to process transactions on their behalf.

In other words, payment processors handle the technical aspects of processing and authorising transactions, while acquirers manage the financial aspect, including establishing merchant accounts and facilitating communication with issuing banks. Both entities are key to a smooth and secure electronic payment process.

How do payment processors and acquirers work together?

Payment processors and acquirers are important components of the electronic payment ecosystem, working together to provide efficient and secure transactions between customers and businesses. The close collaboration between these two entities can be broken down into the following steps:

  • Transaction initiation
    When a customer initiates a payment using a credit or debit card, the business's payment gateway securely captures the transaction details and transmits them to the payment processor.

  • Transaction authorisation
    The payment processor forwards the transaction information to the acquirer, who sends it to the card network. The card network directs the transaction to the issuing bank for authorisation.

  • Approval or decline
    The issuing bank verifies the card details and checks the availability of funds in the customer's account. Based on these factors, the issuing bank either approves or declines the transaction. This response is sent back through the card network, the acquirer and the payment processor to the business.

  • Settlement
    If the transaction is approved, the issuing bank transfers the funds to the acquirer. The acquirer deposits the funds into the merchant account, typically within a few working days. The payment processor ensures that the transaction data is accurately recorded and transmitted to all parties.

Throughout this process, the payment processor and acquirer work in tandem to manage the transaction's technical and financial aspects, respectively. The payment processor handles the authorisation and secure transfer of transaction data, while the acquirer manages the merchant account, authorises the transaction with the issuing bank and facilitates the settlement of funds.

Do Stripe customers need to have a separate acquirer?

Stripe is a payment-processing platform that serves as both a payment processor and an acquirer. When a business signs up with Stripe, it does not need to have a separate acquirer or establish a separate merchant account. Stripe handles all aspects of electronic payment processing, from transaction authorisation to settlement of funds.

As a full-stack payment service provider, Stripe simplifies the payment process for businesses by combining the roles of payment processor and acquirer into a single service. This means that businesses using Stripe can accept different forms of digital payments, including credit and debit cards, without establishing relationships with multiple entities.

How Stripe handles payment processing and acquirers

By integrating the functions of payment processing and acquiring into a single platform, Stripe simplifies the electronic payment process for businesses. Here's how Stripe handles payment processing and acquiring:

  • Onboarding
    When a business signs up with Stripe, it creates a Stripe account that serves, effectively, as its merchant account. This account allows the business to accept various forms of digital payments, including credit and debit cards, without needing a separate acquirer or merchant account.

  • Transaction processing
    When a customer initiates a payment on the business's website or app, Stripe's integrated payment gateway securely captures the transaction details and forwards them to Stripe's processing infrastructure.

  • Transaction authorisation
    Acting as both the payment processor and acquirer, Stripe communicates with the card networks and the issuing banks to verify the transaction details and check the availability of funds.

  • Approval or decline
    The issuing bank approves or declines the transaction based on the card details and available funds. This response is sent back through the card network to Stripe, which relays the decision to the business.

  • Settlement
    If the transaction is approved, Stripe facilitates the transfer of funds from the issuing bank to the business's Stripe account. Stripe then transfers the funds – referred to as a payout – to the business's designated business bank account, typically within a few working days.

By combining the roles of payment processor and acquirer, Stripe provides a comprehensive, integrated solution for businesses to accept, process and manage electronic payments. This all-in-one approach simplifies the payment process, reduces the need for multiple relationships within the payment environment and streamlines the overall experience for businesses and their customers. To learn more and get started, take a look here.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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