Demystifying the Vital Relationship between Acquirers and Merchants in Payment Processing

CatalystPay #PointOfView is a series, in which our skilled crew are sharing their point of view and industry insights on online payment.

In our latest installment, Georgi Trichkov, Risk & Monitoring Analyst, shares his view on the relationship between the merchants and the Acquiring banks and why the PSP plays a crucial role in it. 

Don't miss out on this opportunity to learn from "the kitchen" in the industry. Stay tuned for more expert articles in the coming weeks.

Today`s technology allows online payment processing to be quick and effective. For the end consumers this comes down to a simple swipe or tap of their credit card.

However, to have a complete payment – we need to go through a series of actions that involve different systems. These systems do all the work behind the scenes – all the communication between the merchant, the customers and all the banks and financial institutions that stand in between.

Very often the relationship between the merchants and the Acquiring banks remains hidden for the end-consumers due to the fact that they are not involved in it.

Acquiring bank (Acquirers) – what is their role?

The Acquiring bank is the financial institution that enables a merchant to accept card payments. Acquirers also handle the connection between the merchant and the end-customer`s Issuing Bank.

Acquiring banks hold merchant`s accounts, which means that the funds from all completed transactions are first received by the Acquirers and then transferred to a chosen business account on a daily, weekly, or monthly basis.

Basically, every business that is willing to accept online payments needs an Acquirer. As soon as the transaction is initiated, the Acquirer receives a request for authorization and this information is then forwarded to the customer`s Issuer bank for approval. In case the transaction is approved – the payment will be deposited in merchant`s account with the Acquiring bank.

Why is the relationship between the Acquirers and merchants so important?

The relation between the Acquirers and the merchants starts right away with the onboarding procedure and continues throughout every transaction that is received.

Good communication and mutual trust are crucial for this relationship. Acquirers are directly involved in merchant`s finances while standing in the way of cashflow and are also collecting fees for the service that they provide. A key moment here is the fact that the Acquiring Bank takes on risk when acting as intermediary. If for some reason merchant goes out of business and is not able to cover the expenses related to requested refunds, fees etc., that liability falls on the Acquirer. This is why Acquirers always impose a collateral for the merchant in the form of reserve accounts that could be either fixed or rolling.

Risks and Challenges – where CatalystPay comes in play?

In order to have a successful partnership and to enjoy continued mutual growth – Acquirers and merchants need to work as a well-balanced team. In my experience so far – this is one of the most interesting aspects of what we do as professionals who understand the value of partnership. To make things work, sometimes we must do some “heavy lifting” by communicating back and forth with the Issuing Banks, Card networks, Acquirers and Merchants.

Banks and merchants all have, for the most part, common goals – they all want to grow fast and to be profitable. However, risk management is also very important for every business. Therefore, we need to make sure that we comply with all requirements and rules set by the Card schemes.

This is where sometimes we need to balance and step in between the Acquirers and merchants. We look after their best interests and at the same time – we make sure that all participants in the online payment processing are kept safe and are not exposed to any unnecessary risks that are related to the nature of their business.

For example – sometimes a merchant might want to process payments from all over the world including high-risk geo locations… or might want to process payments with no amount or velocity limitations. This, of course, would increase merchant`s overall volumes. However, it would also put the Acquirer into a higher risk situation where there is an obligation to compensate Issuers and cardholders in case the merchant cannot fulfil their financial obligations due to insolvency or planned fraud.

It is the reason why Acquirers often set various rules and regulations along with strict limitations that would mitigate the possible risks even though merchants are usually not thrilled with the fact.

The balance is key here – same as it is in every aspect of life.

We always communicate every situation with both sides – the Acquirers and the merchants. The goal is to find the best possible solution that would benefit everyone and will comply with the rules set by the regulators.

In my opinion – it is very important for us and all participants in the process to analyze every case individually. We work with different Acquirers with different risk tolerance. We also do work with different types of merchants who have different risk profiles.

To be successful in what we do – we need to communicate effectively and understand the business models and the goals of each and every partner of ours. This would allow us to set the right expectations and work towards our mutual growth and prosperity.

 

You may also like the following #PoV articles:

Challenges Merchants Face During Onboarding and Merchant Account Opening

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