What Is a Merchant Acquirer?

A merchant acquirer is a bank or financial institution that authorises and processes card payments for merchants. Along with issuers and card associations (also called card schemes), merchant acquirers are necessary if you want to receive online payments for products.

Here, we’ll answer the question “what is a merchant acquirer?” covering some of the financial services that an acquirer offers and how its operations fit into the card payments industry.

Functions of a Merchant Acquirer

A merchant acquirer performs several key functions for businesses:

1. Authenticate the customer and seek authorisation before completing a transaction.
2. Release the funds into the merchant’s nominated bank account once they are cleared.
3. Handle chargebacks and refunds for the merchant. They take on the liability for payment if the merchant can’t repay the cost (page 2 of the PDF).
4. Ensure payment security in line with the Payment Card Industry Data Security Standards.

It’s impossible to process electronic or online payments without these essential functions. While there are different types of providers who allow you to take payments online, all of them ultimately work with a merchant acquirer.

Merchant Acquirer vs Issuing Bank

Merchant acquirers and issuing banks work at opposite ends of the electronic transaction process. While the merchant acquirer works with the merchant, a card issuer or issuing bank is a financial institution that is authorised to issue debit and credit cards to consumers from the major card schemes (Visa, Mastercard, and American Express). Just as the merchant acquirer acts on behalf of the merchant, the issuer acts on behalf of the customer.

Issuers can block cards that have been reported lost or stolen, and initiate chargebacks in the case of fraud. Issuing banks have the responsibility to vet their clients before approving credit and assume responsibility if the client cannot repay the debt.

How the Merchant Acquirer Fits Into the Transaction Process

When a customer makes a purchase online, by phone, or through a point-of-sale card terminal, the process for credit and debit card transactions is as follows:

1. The customer or merchant enters payment card details into the payment gateway.
2. The online payment gateway forwards these details to the merchant’s acquiring bank, which forwards them to the card network, which forwards them to the card-issuing bank.
3. The card-issuing bank checks whether the card is blocked or reported as lost and whether there are sufficient funds on the card to complete the transaction.
4. The card issuing bank sends either “approved” or “declined” back to the card network, which sends this message back to the acquirer, and the acquirer withdraws the funds.
5. The merchant acquirer holds the funds for an agreed-upon transaction settlement period and releases these funds to the merchant.

Merchant Acquirer Liability During the Chargeback Period

Once a purchase is completed, there is a period of time during which the merchant acquirer is liable for the reversal of any card transactions made (known as a chargeback). The issuing bank becomes liable for an unsuccessful chargeback after this period is over.

Chargebacks are often initiated when:

• The goods or services were faulty.
• The wrong goods were sent.
• The goods or services never arrived.
• The purchase was made without the cardholder’s knowledge or consent.
• The customer is trying to get goods and services without paying for them.

When a chargeback occurs, the acquirer recovers the funds from the merchant and completes the refund. However, if the merchant has become insolvent between the time of the transaction and the time of the chargeback, the acquirer has to recover the amount.

That is why acquiring banks ask for so much supporting information before taking on a merchant customer. They need to make sure that they don’t lose too much money if a company can’t cover the cost of chargebacks and refunds.

Merchant Acquirer vs. Payment Processor

Rather than working directly with an acquiring bank like J.P. Morgan, e-commerce merchants typically work with a merchant service provider or payment service provider who arranges the merchant account.

Understanding the relationship between merchant acquirers, merchant service providers, and payment service providers will help you to better understand what a merchant acquirer is.

Merchant Service Providers

Merchant service providers equip registered businesses with an individual merchant account and merchant identification number (MIN).

In addition to handling electronic payments and providing a payment terminal for physical and e-commerce companies, merchant service providers typically offer merchant services, such as software for the tracking of sales, fraud and chargeback management solutions, enhanced security policies, and 24/7 customer support.

Payment Service Providers

A payment service provider (PSP) or merchant aggregator is a third-party site that processes credit card payments, debit card payments, and alternative payment methods through a single merchant account that is shared by all of its members.

The fundamental difference is that instead of requiring their members (“sub-merchants”) to have their own merchant identification number, the PSP acts as the payment facilitator and sets its own transaction fees to cover the payment costs incurred by the acquiring bank.

How to Choose a Merchant Acquirer

There are some essential features to look for when choosing a merchant acquirer, whether a merchant service provider or a payment service provider:

• Security features: All merchant acquirers offer security features. However, it’s best to work with a provider with PCI Level 1 compliance for full peace of mind.
• Multi-currency payment gateway: The ability to process and settle in multiple currencies helps international businesses avoid unnecessary currency conversion costs.
• Wide range of payment methods accepted: Customers are more likely to go through with a purchase if their preferred payment methods are supported. Look for a merchant acquirer that supports credit and debit card payments, bank transfers (SEPA and ACH), and digital payment methods like Google Pay and Apple Pay.
• Support for recurring payments: Recurring payment services are essential if you offer memberships or subscriptions.
• Additional merchant services offered: Merchant acquirer solutions that offer reports and analytics support decision-making for greater profitability.
• Customisable fraud scrub: A customisable fraud scrub allows you to adjust your settings to block suspicious transactions while approving those you know are legitimate.
• Chargeback protection: Prevent chargebacks before they go through to reduce fees and protect your good standing with the major card brands.
• Integration support: The best merchant acquirer solutions provide integration support to get your checkout up and running in as little as 12 hours.

Protect Your Business With the Right Merchant Acquirer

Understanding what a merchant acquirer is will help you find the most appropriate bank to handle transactions on behalf of your business, with the types of key contract terms that benefit your business. Small startups may find it easier to go through a payment service provider rather than sign a service agreement with a merchant acquirer.

Established businesses will need a merchant service provider and a merchant identification number to prevent any limits on card transactions. In both cases, providing your goods and services reliably and working hard to prevent chargebacks will make it easier to find the right acquirer to partner with your business.

Published: December 21, 2021
Last updated: January 16, 2026