Acquiring Processor

An acquiring processor is a company that handles the technical side of accepting card payments for merchants on behalf of an acquirer. It connects merchants' terminals, websites and gateways to the card networks, routes authorisation requests, prepares clearing files, works out merchant funding and produces reporting. It is also known as an acquirer processor or merchant processor. It is also called an acquirer processor.

In the four-party card model, the acquirer is the scheme member that holds the merchant relationship and the financial risk, while the processor is often a separate technology firm that does the processing work under contract. Some large banks process in-house, but many rely on third parties, and some processors are themselves licensed acquirers that do both jobs. The equivalent role for card issuers is the issuer processor.

• Authorisation routing. The processor receives the transaction from the point of sale or payment gateway, formats it to scheme standards and sends it to the right network, then returns the issuer's approval or decline, usually within a second or two.
• Clearing. At the end of the day, or in several cycles, it gathers captured transactions into clearing files and submits them to each network as part of clearing.
• Settlement and funding. It reconciles what the networks will pay the acquirer, deducts fees and reserves, and calculates how much each merchant should receive under its merchant settlement cycle.
• Pricing and billing. It applies interchange, scheme fees and the acquirer's markup to each transaction and produces merchant statements.
• Disputes and risk. It receives chargebacks, retrieval requests and fraud reports from the networks and supports the acquirer's monitoring of merchants.

In the United States the work is sometimes split. A front-end processor handles real-time authorisation messages, while a back-end processor handles clearing, settlement, merchant accounting and reporting. A merchant may use one firm for both or different firms for each. Elsewhere the split is less common, but the same two layers exist inside every processing platform: the online authorisation switch and the batch systems that move money and data afterwards, linked by what is described as authorization and settlement.

The acquiring processor sits in a chain of firms. Merchants often reach it through a gateway or point-of-sale software provider. Sales and onboarding may be handled by an independent sales organization or a payment facilitator, which signs up small merchants under its own master account. The acquiring bank provides scheme membership and settlement funds, and the processor provides the systems. Contracts between these parties decide who carries fraud and credit losses, who owns the merchant relationship, and who must meet each scheme rule.

Acquiring processors are not always licensed in their own right, because the scheme member acquirer is the regulated party. However, they must register with the card schemes as service providers, follow their operating rules and comply with the Payment Card Industry Data Security Standard, since they handle large volumes of card data. Banking supervisors also treat major processors as critical outsourcing providers, and in some countries, such as those applying the EU's operational resilience rules for financial entities, large technology providers to banks face direct oversight.

Acquiring processing is a scale business with high fixed costs for technology, certification and security, so it is dominated by a small number of large firms in each region, including companies such as Fiserv, Global Payments and Worldpay. Modern payment service providers have built their own processing platforms that combine gateway, processor and acquirer in one, which simplifies integration for online merchants. Merchants with high volume sometimes connect to more than one processor for resilience and price competition, a set-up known as multi-acquirer processing.

Because a processor handles thousands of merchants, an outage can stop card acceptance across a large part of a market, and a data breach can expose millions of card numbers. Processors also face criticism over complex and opaque pricing, long contracts with early termination fees, and slow funding to merchants. Consolidation among processors has raised concerns about competition, while new entrants and in-house platforms of large payment companies have increased choice for many merchants. A related distinction is with the broader payment processor, a term that covers processing for many payment types, not only card acquiring.