What is a Merchant Acquirer and
How does the payment cycle work?

There were a total of 19.7 billion debit and credit card transactions made in the UK in 2019 by cardholders from both the UK and from overseas countries. This reflected a total spend of £721.7 billion. Simply put, in today's world, the ability to accept credit and debit card payments is vital to your business and expected by your customers.

In order to accept these payments, whether face-to-face, over the telephone (MOTO) or online, you will require a merchant account.

If you’re completely new to accepting credit or debit card payments, you’ll need to apply for a merchant account before you can start taking card payments. A merchant account is a specific bank account that acts as a holding pen for money before it is moved into your actual business bank account. Merchant Accounts are normally sourced from a Merchant Acquirer or an Independent Sales Organization (ISO)​whom will provide you with a Merchant ID (MID), which is unique identification number assigned to the business. You would normally have a MID for each channel that you wanted to accept card payments, whether that be face to face, e-commerce or over the telephone.

So what does an acquirer do?

Simply put the Acquirer will ‘Acquire’ the money from the customers bank account and ‘settle’ it into​ the business account associated with the merchant ID (MID)​, in conjunction with the card issuer. The Acquirer will charge a percentage on the transaction value for providing this service (Merchant​ Service Charge). These rates can vary between card types (Visa, Mastercard, AMEX etc) and whether​they are debit, credit or commercial/business cards.

Who else is involved in the payment cycle?

In addition, to the acquirer they are 4 other stakeholders involved in the payment cycle.

1. Acquirer
2. Cardholder/Customer
3. Merchant/Business
4. Issuer
5. Card Scheme

Cardholder

This is a person using a debit or credit card issued by a financial institution. Once the transaction has been processed, the card issuer will debit the transaction to the cardholder’s account.

Merchant

A merchant sells goods or services to their customer (the cardholder). This can be face-to-face in a shop, where both the cardholder and their card are present, or when taking orders remotely e.g. over the phone for a restaurant take-away, a mail order from a catalogue, or a purchase over the internet. In this example, it is a card-not-present transaction.

The card transaction’s details are entered into the merchant’s terminal and are sent to its acquirer who will process the transaction and send it on to the relevant card issuer for authorisation and settlement.

Issuer

The issuer is the bank, building society or financial organisation that provides payment cards (debit, credit, pre-paid or charge card) to their customer or cardholder. The issuer has responsibility for transactions made on cards that they have issued, and will be responsible for debiting funds from the relevant cardholder’s account.

Card Scheme

Card schemes are organisations that manage and control the operation and clearing of card payment transactions according to card scheme rules. The card schemes are responsible for passing card transaction details from the acquirer to the issuer and for passing payments back to the acquirer which in turn pays the merchant. American Express, Diners Club, JCB, Maestro, UnionPay International, MasterCard and Visa (including Debit) are the card schemes that operate in the UK.

Gala Technology work with a number of leading providers for all the payment solutions you may need, across all channels. Is it very important that a business understands the charges associated with a merchant account. Gala Technology can provide some free and independent advice, cutting through the industry jargon and help you set up the right merchant account for you, with the right provider. Click here to find out how.