Merchant Acquirer vs Payment Processor

Merchant acquirers and payment processors are often confused with each other. However, while both are crucial for merchants and payment facilitators, they have distinct roles and functions when it comes to the payment process.

In this post, we’ll clearly define what’s meant by the terms merchant acquirer and payment processor respectively, as well as run through some definitions of other related terms.

What is a merchant acquirer?

A merchant acquirer, sometimes referred to as simply an acquirer, or an acquiring bank, refers to the bank which holds a merchant’s account. It is therefore the bank account accepting deposits from merchant sales.

Acquiring banks connect with card networks, such as Mastercard and Visa. They allow merchants to accept card payments on the networks and take financial responsibility for transactional activity. They are also required to follow rules and regulations stipulated by the card networks and must ensure merchants do the same.

What is a payment processor?

As the name suggests, a payment processor is an entity which processes payment transactions. Processors authorise transactions and move them across from merchant to consumer banks across card networks. They also handle the process of settling funds, i.e. transferring funds from a consumer’s account to a merchant’s account.

GoCardless is an example of a payment processor. With GoCardless, businesses can save time and reduce costs when collecting both regular and one-off payments. Find out how GoCardless can help you with ad hoc or recurring payments.

Merchant acquirer vs payment processor: similarities

While in technical terms, the merchant acquirer and payment processor have distinct roles, they do in fact overlap in certain cases.

Payment processors can also allow merchants access to deposit accounts through a relationship with acquiring banks, thereby functioning at least in part as a merchant acquirer.

Acquiring banks, meanwhile, especially large ones, can also offer payment processing services to the merchants.

Acquiring payment processors allow merchants to accept card payments via a payment gateway. Payment gateways are platforms through which card transactions can be processed, either online or via card terminal at a physical premises.

Once the processor receives the issuers’ authorisation, the gateway completes the transaction by forwarding all the information to the merchant.  

In the payment facilitator model, merchants have no direct communication with either merchant acquirers or payment processors. Indeed, it is the payment facilitator that interacts with both entities. These services are then offered to the merchant.

Merchant acquirer vs payment processor: differences

Some financial institutions can adopt the role of both merchant acquirer and processor. However, as fintech technology develops in the modern age, there has been more of an emphasis placed on using separate third-party processors. There are therefore a number of pronounced differences between the entities.

One essential difference is that processors operate as technological firms. Indeed, one way of looking at it is that a processor functions as a technical limb of an acquirer. Using technology, it authorises transactions and sometimes receives information pertaining to transaction settlement. Merchant acquirers, on the other hand, are simply banks or financial institutions and not technological in and of themselves.

Additionally, while processors handle these technical merchant services, they do not take on any financial responsibility for this. This responsibility remains with the acquiring banks.

Another difference is that acquiring banks are the ones that calculate risk and decide whether or not to accept liability of merchant applicants. 

Finally, while payment processors communicate directly with merchants, holding and processing credit and debit card information for transactions, acquiring banks communicate chiefly with card networks and have little interaction with merchants.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.