Acquiring and Merchant Acquiring Services

Acquiring is the possibility for a merchant to receive plastic cards in a cashless settlement for goods and services. Acquiring also includes banking and technological services: transmission and processing of customer data. It is carried out by an authorized bank – acquirer by installing payment terminals – POE-terminals in case of traditional trader acquiring, mPOE-terminals in case of mobile acquiring – or cheque printers at trade or service enterprises. Recently, terminals built into online cash registers have gained popularity.

Most of the acquiring services market is dominated by Visa, MasterCard, JCB, and American Express member banks.

Payability by card simplifies the process and speeds up transactions at any retail outlet.

Types of acquiring

Merchant acquiring means payment via a POS-terminals, which is an integrated cash register and terminal for cashless settlement. For performing the transaction, the card is inserted into a terminal or brought to a device, and money is debited. After the money has been debited from a bank card, it instantly reaches the current account of the seller. After the crediting of money, the bank provides a commission as 1.5-2.5 per cent of the transaction amount.

Mobile acquiring is a quite new type of e-payment. The name of the terminals is mPOS terminals. With their help, the client transfers money to an account through a card reader on the merchant’s smartphone or computer. The advantage of this type of acquiring is that it is not tied to any point of sale. At the same time, the commission fee is 2.5-3%.

Internet acquiring means receiving of bank cards and electronic money for the payment via the Internet with the help of specially created web-interface that allows you to make settlements in online shops and pay for various services. It does not require the installation of any equipment. Such a type of acquiring costs for shops 3-6% of the transaction amount.

Cash disbursement to bank card holders; very often this procedure is also called acquiring. Such a disbursal usually is carried out through ATM or with the help of the specially configured POS-terminal (from English POS – cash point). The given area includes also various self-service devices, which accept cards.

Acquiring process

Merchant – organization involved in the sale of goods or services, the originator of an acquiring relationship. Pays commission to the acquiring bank for the use of acquiring.

The acquiring bank is a credit organization where the merchant current account is opened and it provides acquiring equipment. Such bank must be registered in the circular system, for example, UnionPay, Visa MasterCard, and/or any other accredited in the country of the transaction. It’s responsible for the technical side of the card purchase transactions and the commission comes from the merchant.

Issuer bank means a credit organisation which issues bank cards, terminal payments from which are accepted. It fully bears the responsibility for the right settlements with a client within the purchase procedure using a bank card.

Payment system – organization by means of which the acquiring bank can transfer information about transaction to the issuing bank for its execution. In case of non-support of the card settlement system, to which the bank issued the customer’s card by the acquiring bank, the transaction won’t happen.

Customer – buyer, holder of a bank card, received from the issuing bank.

Sequence of payment processing

Acquiring participants

Seller: organisation selling the goods.

Acquirer: Bank or service that provides the equipment and accepts the payments, servicing the current account. For this, it takes a commission.

Customer: One who performs the purchase, without using cash for it.

Issuing bank: Bank which issued the card and its maintenance in question.

The acquiring process for processing and data transfer is done with the help of a payment terminal or special application.

Card acquiring services

An agreement between an acquiring bank and a merchant starts the process of activating acquiring. Conditions can be given by the bank itself since it opens a current account, installs equipment, and trains staff.

The principle of direct acquiring works as follows:

1. Information about the payment from the card or from the buyer’s device is transferred via the terminal or application to the processing centre of the acquiring bank.
2. It sends the information to the issuing bank for the verification of the information. In case any irregularities are noticed, such as lack of funds, card blocking, seizing of account, it cancels the transaction.
3. The only thing left is to check the balance of the buyer’s account against the purchase amount by the issuer, verification of PIN-code matching and possible signs of fraud. When everything checked turns out positively, the issuer approves the transaction.
4. The transaction approval information is received by the acquirer and further transmitted to the terminal.
5. The confirmation of payment shall be sent to the issuing bank. The required amount shall be deducted from the buyer’s account and transferred to the acquirer. In return, the acquirers transfer the money into the seller’s current account.

It takes just a few seconds to transact. The entire process of information exchange between terminals and banks may take a little more time due to problems in the internet or breakdowns in the system.

The money is actually credited to the seller’s account only in a few days. Immediately at the moment of payment, the purchase amount is automatically reserved on the buyer’s card and becomes unavailable to him. Further, the issuer transfers the money to the acquirer, and he, in turn-merchant. The exact term of crediting is spelled out in the contract.

How acquiring is useful for business

If a business does not have acquiring, it inevitably loses customers and profits. The possibility of cashless payment brings the following benefits to a business:

• More revenue: Sometimes, customers do not have enough cash to make a purchase, though they have sufficient money on their cards. More often, once cashless payment is enabled, the average purchase receipt increases. Users have the opportunity to spend more or pay for goods by credit card.
• Expanding the circle of customers: Some categories of people almost never have cash and prefer to pay with a smartphone or card. If this option is not provided, customers simply leave for more technologically advanced competitors.
• Speed of service: Sellers do not waste time counting cash and change; that is, more rapid customer service and smaller queues.
• Security: When receiving cash, one risks getting fake banknotes. Payment by card is much harder to forge. Besides, the absence of cash in the cash desk excludes theft of it. Also, during the whole transaction, the clients’ funds are guarded to the highest possible extent.
• Geographical expansion: If you are selling some sort of service, say, counseling, an online acquiring site will enable clients to purchase your product from virtually any point of the world.

The only minus of acquiring is that you have to pay for it. Alongside purchasing equipment and securing a stable internet connection, you need to pay periodical service fees to banks or services.

Who needs acquiring and how compulsory it is

Acquiring is relevant for the introduction of any company or organisation that sells goods or services for cash. For some merchants, acquiring is compulsory at the legislative level: according to the law “On Protection of Consumer Rights”, the client has the right to choose the method of payment – in cash or with the help of a card. The seller is obliged to ensure that both cash and non-cash methods of payment are available. It is bound by law for every trader to provide acquiring. If there isn’t a good enough form of paying for goods, this is considered a breach of consumers’ rights, and this can result in a fine that is imposed on the trader or seller. In the case of an online business, the criterion general trade turnover only.

Acquiring Cost

Acquiring cost consists of two kinds of indicators: service fee and commission. The service fee is often the fixed amount charged monthly. The commission percentage rate depends on the contract agreed with the acquirer. On average, the percentage of the commission is about 1 to 3% depending on the purchase amount.

Acquisition costs depend on the following:

• If one payment system has a higher commission compared to another, then it is possible to migrate to it. Moreover, the bank also pays commission for the transaction to payment systems, which at their discretion can set different rates.
• Type of equipment: banks give terminals on various terms, you can take payments through online applications, buying a portable device or terminal rental.
• Location of the processing centre. If the bank has its own centre, it does not pay for the services of third parties. Accordingly, acquiring will cost less.

The commission amount can also vary depending on the trading turnover and the number of connected terminals.

How to choose the right acquirer

Conditions of acquiring differ from bank to bank, so all the nuances have to be considered while choosing the contractor. In Europe, cashless payment services are offered both by banks and by payment services organised in the form of nonbank credit organisations.

Generally, the service rates of acquiring banks are the lowest because they are able to work directly with the client. However, often large credit organizations refuse to cooperate with small clients and prefer to not get involved in any Internet business if there is even the slightest doubt regarding its legality.

And it is even more complicated than that. If the bank’s rules are not met by the clients of the company which concludes the acquiring contract, the bank can switch off the service.

Payment services are more loyal to small businesses and online sellers, offer more flexible terms and a wider choice of payment systems. However, their service fees are higher.

Whatever the selected acquirer is—a bank or a payment system, criteria to look out for are the same:

• speed and ease of connection;
• the size of transaction fees;
• quantity of supported payment systems;
• the term of crediting the funds to the current account;
• ways to fight fraud;
• promptness and quality of technical support.

It is also worth drawing attention to additional features. Sometimes an acquirer provides services, which are at least useful for business. For example, multicurrency payments—with favorable conversion within the system; one-click payment—based on saved information about the client; recurring payments—connection of regular debiting; holding—blocking of funds on the buyer’s account until the seller confirms the order; invoicing—electronic invoicing. Besides, acquiring can become the source of extra income for a company with EMI/PSP licence in Europe.

How acquiring is beneficial for merchant business

More sales. Consumers won’t be able to leave purchases if for some reason they don’t have cash with them. Moreover, a lot of people prefer to pay by cards due to cashbacks – partial returns after a purchase provided by banks. It is known that having spent money from a card is easier for a customer, and the average cheque turns out to be higher than when paying by cash. It is difficult to predict precisely the revenue growth after cashless payment introduction, but, on average, at least 10%.

Reduction of queues. Terminals process a payment almost instantly and withdraw an exact amount. The cashier does not waste time to check the notes and to count out the change. With intensive flow of customers, merchant acquiring considerably accelerates the calculation at the cash desk, that allows the shop to get rid of large queues.

Decrease of risks and expenses: when the majority of revenue is a non-cash payment, less time and funds are spent on collection services. Besides, if the payment is made by card, the cashier won’t make a mistake in the change, and fraud is impossible.

Protection from counterfeit money. The terminal is not protection against counterfeiters, but thanks to it, you can decrease cash turnover, thereby reducing your losses connected with the acceptance of fake banknotes.

Improved business reputation. The shop which has the service of an acquiring bank looks reliable and modern for visitors.

Improvement of service quality. To take care of customer comfort is a clear competitive advantage of any retailer.

Disadvantages of acquiring

In a number of cases, the connection of merchant acquiring may not bring such obvious benefits. Among the main problems are noted:

Technical failure of the equipment. Some of the shops can be shown as a bright example of regular system failure because of the lack of communication with a bank. For them, the terminal is a problem and not a profitable acquisition. The easiest way to avoid it is to choose the right internet provider and credit organisation.

The need for expenses on the purchase, maintenance of devices. Relevant for small businesses that do not have high sales and customer flow. For them, these expenses may be unreasonable.

Losses from fraudsters. If in the case of payment with a bank card, frauds with buyer’s bank details occur and as a result – blocking the account, then the seller is obliged to compensate for losses. His own losses are only compensated if the offender is caught.

Merchant acquiring services

• Payment information is transferred from the customer card (or mobile phone) to the terminal.
• The information reaches the bank’s processing centre with which the merchant has entered into an acquiring agreement.
• The credit organisation sends the information to the payment system that owns the card. The latter checks the information received and searches for matches in the lists of accounts blocked or seized.
• In case anomalies are found, a transaction reject is produced. In case of approval, information is transferred back to the bank that issued the card.
• The balance of the account holder is matched against the purchase amount, and simultaneously, fraud signs are spotted; also, PIN-code matching.
• A transaction response is issued after all checks are performed at the end.
• It reaches the acquiring bank, which in turn transfers the information to the terminal.
• Confirmation of payment is forwarded to the credit organisation servicing the buyer.
• Money is withdrawn from the account, goes to the acquirer, and then directly to the merchant.

Payment is automated, and it takes only a few seconds. The sum of the purchase gets reserved on the buyer’s card and becomes unavailable to him. It is actually after a few days that the money enters the seller’s account. The exact term of receipt is stipulated in the contract.

Sometimes information exchange between the terminal and banking systems takes some time. This could be so if, for instance, the internet connection has failed or any of the links delay the response due to internal failures.

Acquiring for buyer and seller

The procedure for a buyer is quite straightforward: he or she brings the card to the terminal, the money is debited, and the cheque is printed. There are no additional commissions. The procedure of cashless payment organization and the accompanying costs are taken over by the seller.

To provide merchant acquiring, the shop needs to conclude an agreement with a bank that provides such a service. The simplest scheme looks the following way: a credit organisation opens a current account for a corporate client, turns on the chosen package of services, leases or sells the equipment. The banking offer also includes:

• POS-terminals, Wi-Fi routers setup;
• 24/7 technical support;
• Instruction of the shop personnel to work with the equipment in normal situations and failures;
• Machinery repair, if necessary.

How much acquiring services cost

The seller pays a commission for each transaction in the amount of 2-3% of the purchase price, depending on the terms of the bank agreement.

What is the composition of the amount of commission:

• Charging to the bank, which issued the card of the buyer. It depends on the structure of the used system of payment, location of acquiring member banks, the security protocols involved, assortment sold—food and household goods, household appliances, electronics, etc., status of the card, total turnover of the shop.
• Acquiring bank’s share. Stipulated in the contract, determined by the credit organisation itself. Theoretically it is possible to be any, but in practice it rarely exceeds 3%.
• Payment system fee. A fixed sum depends on the number of transactions for the selected reporting period – usually a month.

What to pay attention to when connecting acquiring services

Turnover requirements. Check whether the turnover of your company is big enough to use the selected bank tariff and whether fines are provided for its reduction after the start of using the service.

Period of receipt of money to the account. A transaction may take either one or ten days. Be sure to specify the maximum terms specified in the agreement and the credit organisation’s liability for breaching them.

Consideration time of the application. It is worth finding out in advance how long the verification of documents takes and how long it takes to make a decision on the provision of the service.

Terminal costs. Some banks charge only for the lease or purchase of equipment, others charge extra for installation, configuration, and training.

The technical and service support is available 24/7; though the shop opening hours may be limited.

Work with the work of payment systems: it is good if various systems are supported by the terminal.

A possibility of working with Contactless technology: the fact is that not all terminals can make a contactless payment, and this question is better to be pre-specified.

Who are the parties involved in an Acquiring Transaction?

Bank. In acquiring there are two banks participating: the acquiring and the issuing one. The first one provides an acquiring service. It gives the business a terminal for accepting cards – on the Internet this is replaced by an Internet payment gateway – and credits the money from the buyer to the account. It is up to entrepreneurs to decide with which bank they want to use as an acquirer.

The issuing bank is the bank that issued the buyer’s card, which he uses to pay either at a terminal or online. An issuing bank transfers money from the buyer’s account into the merchant’s account. The acquiring and issuing bank may or may not be the same bank.

Selling goods and services. Vendors are online shops and offline points of sale that conclude an agreement with a bank providing acquiring services. In the event it is an offline shop, an entrepreneur has to come in person to the bank to pick up the terminal and take it to his point of sale.

Afterwards, the terminal is installed and connected at a point of sale in the shop, and you can receive by card. Certain banks bring the terminal themselves to a point of sale. For an online shop, some sort of payment gateway should be connected.

Purchasers. For using the service, the buyer should possess a bank card of the accepted paying system of the seller. In Europe, buyers most often have Mastercard, Maestro and Visa cards. It is better to check that you can pay for their purchase in your shop with the help of cards of common systems.

Minuses when using acquiring

Bank fees. Acquiring costs money. Usually, the commission is 1-2.5% for merchant acquiring and 3.5-5% for internet acquiring. With each card payment, this amount is paid by the merchant. For a business where the head is a small percentage of the profit, this can be an expense. A terminal for an offline point of sale also costs money. It can be bought or rented.

It does not credit the money instantly. The term of crediting money is decided by the acquiring bank. It is usually 1 to 3 working days. If the money is not credited, the business cannot utilize it.

Technical problems might occur. The terminal can fail. To operate, both fixed and mobile terminals should have access to the internet. In the absence of an internet connection, you won’t be able to receive payment with a card. And last but not least, electricity is needed-the terminal won’t work without it. An online store may face such technical glitches as network failures, and the payment may not go through.

Acquiring security

In the case of the merchant or mobile acquiring, the terminal reads information from the customer’s card and sends this to the bank in encrypted form. The bank will secure the data transfer. The business only has to use the terminal as instructed and the money is transferred to the current account.

The security of the internet acquiring depends on the merchant gateway through which the payment is made. It is also provided by the bank itself since it monitors the security of data transmission.

Acquiring operations

In summary, it is prompt in its entirety in paying for goods or services in acquiring. Normally, right after the merchant has dialed the required amount on the terminal, it takes just some few seconds before the receipt is printed.

Below is how it is set up at the offline point in Merchant Acquiring:

1. The payment amount is entered into the terminal by the merchant – manually or using an accounting programme.
2. Customer uses the card or device, or inserts the card into the terminal. If necessary, the terminal requests a pin code. In some cases, the system doesn’t ask for a pin-code. For example, it can be that the transaction amount is less than the limit determined by the bank.
3. Then, the card has been read and the information about the payment has been transferred to the system of the payment and the bank – the issuer.
4. The issuing bank checks the existence of such a card, its solvency, the balance of money on the account and the pin code. If everything is in order, there is a positive response and if not enough, the transaction is rejected.
5. The issuing bank deducts the purchase amount from the buyer’s account and forwards it to the acquiring bank through the payment system.
6. The terminal prints two copies of the receipt-one for the buyer and another for the seller. The receipt prints on how the payment has been confirmed-for example, “pin code entered” or “buyer’s signature”.
7. In case confirmation of a customer against the payment requires his signature, the cashier invites him to sign the receipt.
8. Besides the receipt, the customer should be given a cashier’s cheque.

With internet acquiring, the very process of payment is somehow different: it presupposes the following steps. The buyer forms an order on the seller’s website and clicks the “Pay” button. The merchant’s website redirects the buyer to a secure payment gateway – a separate website with a special interface for entering card data.

1. On the page of the payment gateway, the buyer sees the merchant’s data: to whom, for what, and how much he pays. There, he enters his card information: number, the name of the cardholder, card expiration date, CVV2 or CVC2 code from the back of the card.
2. The request to the payment system and the issuing bank is performed through a payment gateway. Normally, debit via Internet acquiring needs to be confirmed with the code from SMS. The code is sent by the issuing bank to the buyer.
3. Then the bank of issue checks whether such a card exists, its solvency, balance, the amount of money on account and SMS code. If all is OK, then the response will be positive, in case if there is not enough money on the account, the transaction will be declined.
4. The bank of issue is to withdraw the sum of purchase from account of the buyer and transfers it to an acquiring bank through the payment system.
5. The seller is sent a receipt to his email with information about the payment: amount, date and time, identification number, transaction number and status, as well as an e-cashier’s check.

When the proceeds are credited. The bank sets the deadline for crediting the proceeds. The fastest is the next day, including weekends. Usually the money is credited in 1-3 working days.

Acquiring fee

Acquiring cost includes a commission and extra charges, which vary from bank to bank. For example, it might be the rent of a terminal, equipment maintenance as well as a commission for the money transfer to an account. The acquiring bank deducts the commission from the merchant. From its commission earnings, it pays a partial amount to the issuing bank and to the payment system.

The commission of the acquiring bank is specified in the contract with the acquiring bank. Entrepreneur pays only this commission, the rest of the participants of the transaction are paid by acquirer.

Commission of the issuing bank – is remuneration paid by the acquiring bank to the issuing bank, which transfers the customer’s payment. Its size is determined by an agreement between the banks.

Payment provider fee is a fee charged by the payment system. The fee is paid to the payment system by the acquiring bank. Usually it is 0.1-0.2% of the payment amount.

• Acquiring allows you to accept payment for goods and services by bank cards.
• Cashless payment acceptance can be set up in stationary and mobile outlets and via the Internet.
• QR code payment is an alternative to merchant acquiring for small business: there is no need for equipment to accept the payment, and transaction fees can be cheaper.
• Acquiring decreases fraudulent payments risk, accelerates serving at the checkout point, solves problems with change, and cuts refusals from purchases. Synchronization with accounting programs simplifies reporting and monitoring of financial indicators.
• It requires a contract with the bank for connection. In case of choosing the partner, attention has to be given to the possibility of providing equipment and software, technical support, transaction fees, monthly service fees.