Acquirer Markup

Acquirer markup is the portion of the fee a merchant pays for accepting card payments that the acquirer keeps for itself. It sits on top of the costs the acquirer must pay to others, chiefly the interchange fee that goes to the card issuer and the scheme fees charged by the card network. The markup pays for the acquirer's processing, risk, customer support and profit. Providers track the result as net revenue per transaction.

The total charge to the merchant is often called the merchant service charge or merchant discount rate. How visible the markup is depends on the pricing model: under interchange++ pricing it is shown as a separate line, while under blended pricing it is folded into one rate and can be hard to see.

The markup is what remains after pass-through costs are taken away from the total fee:

It is usually expressed as a percentage of the transaction value, a fixed amount per transaction, or both. As an example, suppose a merchant is charged 1.60 percent on a 100.00 euro consumer debit card sale. If interchange on that card is 0.20 percent and scheme fees come to 0.15 percent, then:

The acquirer's markup is 1.25 percent, or 1.25 euros on that sale. If the same merchant had a commercial card sale on which interchange was 1.40 percent, the blended 1.60 percent rate would leave a markup of only 0.05 percent. This shows why acquirers using blended pricing set rates with an eye on their merchants' typical card mix.

• Processing and technology. Authorisation, clearing, settlement, reporting, and connections to the card networks, often through an acquiring processor.
• Risk. The acquirer is liable to the card schemes if a merchant fails and cannot pay its refunds or chargebacks, so riskier merchants pay more.
• Distribution. Commissions paid to sales partners such as an independent sales organization or software platforms that resell acquiring.
• Service and profit. Customer support, compliance work, dispute handling and the acquirer's margin.

Some acquirers also charge separate fees, such as monthly minimums, terminal rental or chargeback fees, which add to their revenue outside the per-transaction markup.

Under interchange++ the merchant sees interchange, scheme fees and the acquirer markup as three components, so it can compare acquirers on markup alone. Under interchange plus, scheme fees may be combined with the markup. Tiered pricing groups cards into bands such as qualified and non-qualified, with a different rate for each, and flat-rate pricing charges one rate for everything, which is common with payment facilitators serving small businesses. In these simpler models the markup varies from one transaction to the next, and the merchant usually cannot see it directly. Where a reseller adds its own margin on top of a processor's price, that extra layer is sometimes called a processor markup.

Acquirers do not earn the same markup on every merchant. Small merchants with low volumes usually pay the highest markups, because the fixed cost of onboarding, support and monitoring is spread over fewer transactions. Merchants in high-risk sectors, such as travel, gaming or subscription services, also pay more because of their higher chargeback and insolvency risk, and may face reserves as well. By contrast, large retailers, supermarkets and fuel chains, with predictable sales and low fraud, can push markups close to zero and sometimes pay mainly a fixed fee per transaction. Card-not-present businesses usually pay more than shops for the same card types, reflecting higher fraud exposure. For an acquirer, the overall margin depends on this mix, which is why portfolio pricing reviews are a regular part of acquiring management.

Acquirer markups are generally not capped by law. Regulation has instead focused on interchange, for example the European Union's Interchange Fee Regulation, which caps most consumer card interchange, and the Durbin Amendment in the United States, which caps debit interchange for large issuers. The EU rules also require acquirers to offer merchants pricing that separately shows interchange, scheme fees and the markup, unless the merchant asks for blended pricing. Competition authorities in several countries have studied whether caps on interchange are passed on to merchants or absorbed into higher markups, with mixed findings.

Large merchants negotiate markups directly, often achieving a few basis points over cost, while small merchants usually accept standard rates. Factors that lower the markup include high volume, low fraud and chargeback levels, a low-risk merchant category, a high average ticket and a simple integration. Merchants compare offers by calculating their total cost of acceptance, including all fixed fees, rather than looking only at the headline rate.