This article outlines the practical and conceptual differences between merchant acquiring and payment processing to give you better insight into the best course of action for your company.
To get a clear picture of the payment flow, let’s walk through each step and see who does what along the way. When a customer makes a purchase, the transaction sets off a chain of actions involving the merchant, the payment processor, and other key players. The processor acts like a secure courier, passing transaction details through the system and making sure everything gets where it needs to go—fast and accurately.
During real-time authorisation, the processor connects to the card network and the issuing bank to validate the transaction—ensuring the customer has available funds and the card is not compromised. Upon approval, the acquirer receives the authorised transaction for stability into the merchant account and initiates the transfer of funds.
Information about chargebacks and dispute data can be transmitted through either party. While the processor handles the technology behind card transactions, the acquirer ensures the financial side is accurate and that funds are available. The acquirer also handles discrepancies in disputable transactions, ensuring funds end up with the correct party.
The processor is responsible for real-time authorisation requests—gathering transaction data and determining approval or denial within seconds. The acquirer is responsible for settling funds from batch processing, defining when the merchant receives payouts.
This distinction matters because the processor does not directly handle money. The acquirer does, maintaining the merchant's relationship with card schemes and overseeing settlement accounts. Liability for risk and fraud is typically associated with the acquirer, as it determines whether a merchant poses a risk of chargebacks or fraud.
Both have relationships with the card schemes; however, only the acquirer is a licensed member of networks like Visa and Mastercard. As a result, the acquirer communicates directly with these networks to manage how money settles.
All card transactions—whether online or in person—involve the merchant acquirer and the payment processor. While the two are related, they function differently, with responsibility for authorisation, settlement, and PCI compliance handled at different levels.
The transaction flows through each party as follows:
When a customer swipes their credit or debit card to make a purchase, the payment processor handles the initial data, encrypts it for PCI DSS compliance, and sends an authorisation request through the card network to the customer's issuing bank. The issuing bank processes the request and sends either an approval or denial back through the payment processor in real-time.
Once a payment is authorised, the merchant acquirer takes over. The acquirer facilitates settlement with the card network, moving funds from the issuing bank to the merchant's bank. Only the acquirer can perform this step.
If a payment is disputed, the acquirer initiates the chargeback process and manages communication with the card network and issuing bank. While processors may provide dashboards or alerts for potential fraud, dispute resolution is handled by the acquirer.
Underwriting, fraud management, and compliance liability are handled by the acquirer. The processor may support tokenisation and other gateway-level services but does not assume risk for transactions.
For online card payments, the processor ensures PCI compliance at the point of entry. The acquirer ensures that the merchant’s account and the full transaction path remain PCI compliant.
An unbundled solution makes sense wherever there is a need for bespoke reporting or tailored routing logic. This enables functionality expansions that are not possible with standard solutions. Merchants seeking access to advanced gateway-level services, such as tokenisation, transaction retries, or enhanced routing, benefit from the flexibility and control that separation allows.
High-volume merchants may also secure more competitive rates by splitting services—leveraging separate merchant accounts and engaging multiple processors. This approach can be particularly beneficial for merchants operating in specialized or high-risk verticals, where some processors are better suited to handle chargebacks or offer improved thresholds.
Downsides include technical separation and reconciliation burden. Without a unified access point, merchants must navigate different support channels, which complicates and slows issue resolution. Additional administrative overhead may arise from monitoring compliance and operational data from both the acquirer and processor.
Reconciliation can also become a significant task, as merchants must ensure that all transactions match across systems. This added workload requires human resources that may not be readily available, introducing inefficiencies into the payment processing workflow.
Unbundling may be ideal in specific contexts. For instance, managing relationships with multiple providers isn’t necessarily a disadvantage—especially when negotiating better terms or customizing integrations. Merchants with the capacity to support multiple relationships may gain access to more tailored operational insights, APIs, or direct integration options.
In cases where merchants require advanced transaction analytics, custom-built software development kits (SDKs), or in-depth settlement reports, separating the acquirer and processor can offer the flexibility and scalability needed to support growth and specialization.