Who is the acquirer in a card payment, and how is it different from the card issuer?
Summary
The acquirer is the merchant's bank for card payments, and the issuer is the customer's. You pay the acquirer a merchant discount on each sale, and the acquirer pays the issuer an interchange fee out of it at a rate set by the card network. A processor is the technology that moves the transaction, and the same company can be both acquirer and processor.
Five parties to every card sale
The Federal Reserve lists at least five parties in a debit card transaction.
| Party | Role |
|---|---|
| Cardholder | Pays with the card |
| Issuer | Usually a bank; issued the card to the cardholder |
| Merchant | Accepts the card |
| Acquirer | The merchant's depository institution |
| Card network | Moves information and funds between issuer and acquirer, and sets rules and certain fees |
Mastercard uses the same word for the same job: financial institutions that provide card acceptance services to merchants are typically called acquirers. When a customer pays, the merchant routes the transaction through its acquirer to one of the networks the issuer has enabled on that card.
Small businesses never connect to the network themselves. Visa says businesses reach VisaNet through the banks or Visa partners that connect to it.
Who pays whom
Start with what reaches you. The Fed defines the merchant discount as the difference between the face value of a transaction and the amount the acquirer transfers to the merchant. It includes the interchange fee and other fees.
Interchange is the acquirer's payment to the issuer on each transaction. Mastercard sets its own interchange rates and typically updates them twice a year, but it states that it has no involvement in acquirer and merchant pricing. Visa describes the same split from the merchant's side: merchants do not pay interchange; they negotiate and pay a merchant discount to their financial institution.
On debit cards, the interchange piece is capped by the Fed's Regulation II, and the Fed publishes what issuers actually receive. For issuers with at least $10 billion in assets, the cap is 21¢ plus 0.05% of the sale, plus 1¢ for fraud prevention if the issuer qualifies.
The Fed's figures for 2024 put the average at $0.23 per transaction on regulated cards and $0.51 on exempt ones.
Where the processor fits
In Stripe's glossary the processor is whoever moves the money from the customer to the business. The Fed's five-party list has no separate slot for it.
What a merchant sees on the sign-up page is a brand, and the company providing the service may be named only in the fine print. On Chase's merchant fee page, for instance, the provider named in small print is Paymentech, LLC or another JPMorgan Chase Bank, N.A. subsidiary. The parties section of the agreement names the company you are actually dealing with.
Sources
- federalreserve.gov/aboutthefed/boardmeetings/reg-ii-memo-20231025.pdf
- federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm
- federalreserve.gov/newsevents/pressreleases/bcreg20231025a.htm
- mastercard.com/us/en/business/support/merchant-interchange-rates.html
- usa.visa.com/support/small-business/regulations-fees.html
- corporate.visa.com/en/about-visa/visanet.html
- stripe.com/resources/more/payment-processor-vs-gateway-vs-merchant-acc…
- chase.com/business/payments/merchant-fees
Related on this site
- What actually happens between a card tap and the money reaching your bank?
- Is a merchant account just another business bank account?
- Who is your contract really with when you sign up through an ISO or a payment facilitator?
- Does a flat rate, interchange-plus, tiered, or subscription plan cost a merchant the least?
- Is a debit card sale cheaper for a merchant than a credit card sale?
- Why interchange-plus pricing cannot be totaled
- What card payments cost a small shop
Written by Kaz (pen name). Figures are copied from providers' published pricing pages on the dates shown. We have not used these products. Corrections: contact form.