What’s a merchant acquirer and how to pick the right one for your business

Selecting a merchant account provider can be a daunting process, even if you have been through it before.  The fees and pricing structures from banks and card processors can feel overwhelming – device leasing costs, charges per transaction, monthly billing minimums etc.  Your business banking provider is far from your only option, there’s no shortage of non-bank payment processors or ISOs in a competitive market.  The experts in payments are often selling you their own payments services, which makes things even more complicated.  Becoming familiar with the terminology and process will help you to make the right decision for your business.

What does all this terminology mean?  Some Commonly used Terms

Acquirer : The bank or card processor which processes a retailer’s payment card transactions is known as an acquirer or merchant acquirer. The acquirer contracts with the merchant ie your business for credit card acceptance and enables card payments from customers, and deposits the funds into your bank account.  Terms like providers, acquirers and payment gateways tend to get used interchangeably.

Payment Gateway: An e-commerce service that authorizes and settles transactions for online retailers. It is the equivalent to a physical point of sale or terminal in a physical retail location.

Issuer: A financial institution that issues credit cards and maintains a contract with cardholders for repayment.

ISOs: These are non-financial institutions that pay a fee to a sponsor bank to market and sell the service under their own brand and pricing structure.

Sponsor Bank: All acquirers and merchant processors must either be, or be sponsored by, a member bank. A member bank has a direct relationship with the card networks. This sponsorship requires that the bank verify the financial stability and suitability of the acquirer or merchant processor that will be marketing on its behalf.

How do I know which is the best merchant acquirer for my business ?

The best merchant account provider is the one that suits your company.  It depends on how frequently you will use the service, whether you need a counter-top or mobile terminal, what type of cards you are likely to receive and what the average payment will be. As these variables differ for every business, what is best for one may not be suitable for the other.  Ask yourself some of the following questions before you start shopping :

• Do I need my card reader to be mobile or operate from the office only?  This will help you to know whether you need a counter-top model or a mobile device.
• How many payments do you expect to receive per week or month?
• What is the average value of a sale or invoice in your business? This can be used as a guide to what each payment is likely to cost from each provider.
• Will you be taking payments from customers while in their presence i.e. where they can put in their PIN or are you likely to take payments over the phone (when people are ordering your product or service, taking deposits or when following up accounts).  Some acquirers will only accept Chip & Pin payments where the cardholder is present.  
• What type of cards do you expect to accept in general?  Some acquirers won’t accept American Express cards.

What will the Acquirer need from you?

A processor or acquirer has to assess the risk since they have the potential to lose money every time they process a credit card transaction on behalf of your business.  For this reason, you will need to apply and be approved for a merchant account.  Don’t be surprised if it feels like you are applying for a home loan.  The bank will ask about the details and history of your business including :

• The length of time a business has been established
• Card present or not present environment
• Business type (Per the card networks, the most risky business types are: direct marketers, travel services, outbound telemarketers, inbound teleservices, adult, and betting. However, each processor maintains their own high risk list)
• Legal Entity of the business
• Business credit information
• History of processing statements

For new merchants, the burden of information is even greater.  They may be required to supply:

• Investor Information
• Principal’s credit information
• Personal Guarantee from a principal leader
• Expected average transaction amount, and expected monthly volume

If you do choose to go with the bank that holds your company bank account a benefit is its familiarity with your financial products and bank balances.  Next day funding could be available, and you may be able to build on a strong relationship with your account representative.  However, fees can be higher depending on the size of the bank, and some banks will require long term contracts.  ISOs can offer competitive rates and more flexible terms, and may be more accepting of riskier business models.

I’ve picked a potential acquirer.  What Questions should I ask?

When interviewing prospective merchant processors, some important questions to ask include :

• Who is your sponsor bank?
• Do you support online transactions, and the payment gateway I am using?
• Who will be supporting my account once it is active?
• What online reporting will I have access to?
• When should I expect the funds from transactions to be deposited into my bank account?
• How and when can I request a rate review?
• Is there a company similar to my business model that I can speak to for a referral?
• Is there a mandatory contract term associated with this rate quote?

No matter how much work there is involved in selecting your acquirer or payments processor, being able to process card payments is essential for the profitability of any customer-facing business.  Look at these 2 figures just in Ireland and the UK alone.

• Overall, three in every four pounds (75 %) spent at UK retailers in 2014 were on a debit or credit card
• €1 in €3 of consumer spending in Ireland in 2014 was done on a Visa card