What Is a Merchant Acquirer and Does Your Small Business Need One?

The latest industry research suggests that credit cards are the most preferred form of payment today, accounting for 38% of all point of sale payments in the US. If your business processes card payments, then you already have a merchant acquirer—even if you may not know it. 

As such, your merchant acquirer is the financial home for your small business. All payment processes go through it. Whether your customer uses electronic payments or credit cards at your point-of-sale, it all goes through your acquiring bank.

As a small business owner, it’s important to make sure that your merchant acquirer is right for you, or else it can cost you dearly. Here’s everything you need to know about merchant acquirers and the role they play in payment processing.

What is a merchant acquirer?

A merchant acquirer is the “merchant bank” or the “acquiring bank” in payment processing. It’s the bank that processes your payments for you. Not to be confused with the “issuing bank,” which is your customer’s bank.

Merchant acquirers fill an essential role in the global payments ecosystem. All card transactions go through your merchant acquirer, whether they’re EMV payments, swipe payments, etc. It’s your business’s financial institution, so you want to choose wisely to avoid issues down the line.

Understanding the basics of merchant acquiring

Before we talk about the functions of a merchant acquirer, you first need to understand the players involved in payment processing. Each of the following entities is involved every time a cardholder makes a purchase:

Key players

• The merchant. Your SMB.

• Payment gateway. This is what you use to process transactions. It may be the checkout page at your e-commerce store or a physical POS machine.

• The acquiring bank (or merchant’s bank). Your SMB’s bank aka your merchant acquirer. This is the bank you choose to partner with for your merchant account.

• Card associations. Mastercard, Visa, American Express, etc. It’s the card network where customers get their debit card or credit card.

• The card issuer (or issuing bank). Your customer’s bank. The card-issuing bank that they debit for each transaction. This bank needs to confirm that your customer has the funds or available credit for each purchase.

• Payment services provider (or merchant services provider). The company that provides you with an account to process customer payments.

Steps involved

There are more steps involved in a typical card transaction processing than would appear at first glance. There’s a whole payment ecosystem in place to help your small business process payments. Here’s a quick breakdown of how it’s done:

1. The customer enters their card info at your store or e-commerce site.
2. Your payment processor sends the information to the card association.
3. The card association sends the info to your customer’s bank account (the issuing bank) for funds authorization.
4. The issuing bank then pays the card association after taking their cut.
5. The card association pays your payment processor after taking their cut.
6. Your payment processor places the funds in your merchant acquirer after taking their cut.

The key functions of a merchant acquirer

In the past few years, there’s been a significant increase in alternative payment solutions made available to SMBs. And by 2025, small businesses are expected to spend over $100 billion on payment solutions.

A merchant acquirer is more than just a payment facilitator. They offer a few unique advantages:

• Seamless payment processing. They offer protection from unexpected account shutdowns and personal attention to your merchant account.

• Security and fraud protection. They offer PCI DSS compliance to create a payment network that adheres to industry security standards.

• Individual (not aggregate) accounts. You get increased account security compared to payment aggregators like PayPal.

• Dispute management. They handle chargebacks and refunds, so you don’t have to.

• Transaction data. Merchant acquirers report your data back to you, helping you make more informed business decisions.

Each merchant acquirer offers a slightly different pricing system. Because of this, you’ll want to review the offerings of a few top financial services providers before choosing your bank.

Merchant acquirer vs issuer

The merchant acquirer is your business’s bank. The issuer or issuing bank, on the other hand, is your customer’s financial home. Issuers give your customers access to their credit or checking accounts through various card schemes.

Issuing banks determine what line of credit to give each customer based on their payment history. Following up on missed payments and collecting interest fees for unpaid loans is part of the gig.

Merchant acquirer vs payment processor

Unlike merchant acquirers and issuers, payment processors (or payment service providers) fill a very different role. 

Payment processors aren’t banks, they’re solution providers in charge of handling transactions between your business and its customers. It’s an important partnership since your payment processor sends your customer’s payment information to the issuing bank for verification.

Payment processors handle the technical side of electronic payments, mobile wallets, and card payments for your small business. They also handle the security aspect­­––customer spending limits, funds validity, protecting your account info, PCI compliance, and more.

Payment processors don’t, however, take financial responsibility for your transactions. That’s your bank––the merchant acquirer’s––job.

Does your small business need a merchant acquirer to accept payments?

The short answer is yes. Even if you use a merchant aggregator, you’ll need a bank account to route transactions to and from your business. 

However, all financial services companies are not created equal. The partnerships you choose for your merchant acquirer and payment processor will have a major impact on your business’s bottom line. They determine everything––from the technology used to secure your transactions to what you’re charged. 

That’s why it’s essential to choose a bank and payment services provider you can trust. While our team at Payment Depot can’t choose your bank for you, we do offer reliable and transparent payment processing. Our membership-based approach to payment processing saves SMB owners like you an average of $400 per month. 

We use interchange fees instead of hard-to-understand payment structures that take a financial strategist to decode. With Payment Depot, there won’t be any surprises on your monthly bill, so you can focus on running your business better with all the money you save. Contact us today to learn more.