Card Acquiring Essentials: A Merchant's Handbook

Understanding Card Acquiring

Card acquiring refers to the process of collecting card-based payments from customers and their banks, delivering them to retailers and merchants for both in-person and online transactions.

The acquirer, or acquiring bank, is a financial institution licensed by major payment processors such as Mastercard or Visa, responsible for securely transmitting payment data for authorisation. 

Merchant acquiring involves managing the outcomes when card issuers approve or deny credit or debit card payments, ensuring the transaction process is seamless. When a customer completes a payment, the acquirer deposits the correct transaction amount into the merchant's merchant account if a payment is approved. Acquirer also handles disputes that arise from transactions between card issuers and merchants, facilitating resolutions as needed. 

Types of Acquiring Models

Acquirers can operate as single-acquirers, meaning all transactions for a payment processor pass through one acquiring bank or as multi-acquirers, which allows transactions to be routed through different acquirers for optimal outcomes. 

The integration methods for payment processing can either be via API, facilitating direct server-to-server communication, or through a payment page, where the checkout interface is managed by the payment provider. Some acquirers offer additional services beyond transaction processing, such as payment gateways and integration with wider card associations, enhancing the overall payment service offerings to merchants. 

The payment processing costs and models can vary significantly, with structures like Interchange Plus Pricing, where merchants pay a fixed markup over the actual interchange fees, and Tiered Pricing, which categorises transactions by risk levels and adjusts fees accordingly. 

The efficiency and reliability of merchant-acquiring solutions are crucial for ensuring quick and secure transaction approvals, which directly impact customer satisfaction and the potential for sales conversions.

Payment Processing Flow

The payment processing flow begins when a customer chooses a product or service and enters their card details on the merchant's checkout page, where the information is securely passed to the payment gateway. 

The payment gateway encrypts transaction details, performs anti-fraud security checks, and sends the information to the merchant's acquiring service provider for further processing. 

The acquiring service provider communicates the payment data to the corresponding card organisation, which conducts its own security checks before forwarding the request to the customer's card issuer. 

The transaction process involves multiple entities, including banks, card networks, and payment processors, which collaboratively finalise the transaction to ensure prompt and secure payments. 

Upon transaction authorisation by the issuing bank, the acquiring service provider receives a confirmation, and the funds are subsequently deposited into the merchant's account after all checks are complete.

Associated Risks in Card Acquiring

Acquirers face heightened risks when processing transactions, particularly chargebacks, refunds, and fraud, which necessitate higher fees for merchants to offset these risks. The risk of chargebacks increases significantly for merchants processing card-not-present (CNP) transactions due to the inability to physically verify the card, making them more susceptible to fraud. Chargebacks and refunds typically arise from four scenarios, impacting acquirers financially: 

• voluntary merchant refunds, 
• cancelled transactions, 
• customer-initiated chargebacks, 
• and detected fraud. 

CNP transactions generally incur higher interchange fees due to the associated fraud risks, resulting in increased processing costs for merchants. When a chargeback occurs, the acquiring bank must pay the customer before receiving reimbursement from the merchant, leaving the acquirer temporarily out of pocket.

Chargebacks Explained

A chargeback allows an issuer to reverse a disputed transaction, providing protection to cardholders against fraudulent charges or errors in transactions. Merchants can trigger chargebacks for several reasons, including failure to obtain proper authorisation, not securing card imprints, or accepting expired cards. 

When a chargeback is initiated, the issuer sends the transaction amount back to the acquirer, who consequently researches the transaction to determine its validity. If a chargeback is deemed valid, the acquirer deducts the chargeback amount from the merchant's account, thereby impacting the merchant's revenue. Chargebacks are often initiated by cardholders when they believe a transaction is fraudulent or when they do not receive the goods or services they were charged for.

Handling Refunds

Transaction reversals can occur through voluntary refunds, cancellations by the merchant, customer-requested chargebacks, or detection of fraud. When a merchant voluntarily refunds a customer, the acquirer receives immediate notification to process the return of funds, allowing for a quicker resolution compared to other types of reversals. 

The presence of frequent refunds and chargebacks raises the risk level for acquirers, which typically results in higher fees charged to the merchant. Acquirers must wait for the merchant to return funds after processing refunds or chargebacks, creating situations where the acquirer may initially be out of pocket. Merchants are responsible for ensuring proper disclosure of refund and credit policies to cardholders during the transaction process in order to facilitate smooth refunds.

Benefits of Merchant Acquiring for Business

Merchant acquiring enables businesses to accept a variety of payment methods, including credit cards, debit cards, and mobile payments, thereby increasing revenue and customer convenience. The acceptance of diverse payment options through merchant acquiring can significantly boost sales by providing customers with greater convenience during transactions. 

Merchant acquirers enforce PCI-DSS compliance, ensuring that security standards are met to protect against data breaches and fraud. 

Robust security measures provided by merchant acquirers include the deployment of fraud prevention tools, implementation of 3D Secure for added authentication, and the use of tokenisation and encryption. 

Effective chargeback management by merchant acquirers helps reduce risks associated with transaction disputes, benefiting both merchants and customers.

Enhancing Sales Opportunities

Merchant acquiring allows businesses to accept a variety of payment methods, which can increase revenue by offering more convenience to customers. By tapping into merchant segmentation and key metrics, businesses can explore and analyse segments to quantify potential growth. 

Accessing recommended merchant actions through actionable dashboards enables businesses to understand which merchants need immediate focus, thereby optimising engagement strategies. 

Detailed reporting provided by acquirers offers merchants valuable insights into customer behaviour and payment performance, aiding in more informed business decisions. 

The ability to filter merchant lists and dive deeper into potential risks and revenue opportunities enhances the effectiveness of sales strategies.

Improving Security Measures

Merchant acquirers provide enhanced security by implementing tools and technology systems designed to detect and prevent fraudulent activities. 

Increased data security is ensured through adherence to PCI DSS standards, which protect sensitive cardholder data during transactions. The use of secure payment gateways, Address Verification System (AVS), and Card Verification Value (CVV) verification are essential fraud prevention tools that help reduce risks in card-not-present (CNP) transactions. For CNP transactions where the merchant enters card details, compliance with PCI DSS requirements is necessary to handle card data securely. 

Additional services offered by merchant payment acquiring include fraud detection and PCI compliance support to aid businesses in maintaining secure payment environments.

Choosing the Right Acquiring Partner

When selecting an acquirer, it is important to inquire about their capacity for supporting your business's growth trajectory, as limited growth potential can hinder your operational success. The right acquiring partner can provide tailored industry expertise and services that extend beyond transaction processing, facilitating smoother transactions. 

Global acquirers can enable businesses to accept cross-border payments effectively, providing the necessary infrastructure for international expansion and a frictionless payment experience. Each region may have distinct preferred payment methods; thus, an acquirer must offer an array of local acquiring services to cater to specific market needs.

If you're seeking an acquiring partner, Amaiz provides comprehensive acquiring services for Mastercard. 

Contact us to explore more details and receive a customised offer tailored to your business needs. Visit https://amaiz.com/ and get in touch via chat or contact form.