Acquirer vs Issuer vs Processor - Explained

Learning to speak payments can be difficult.

There are many parties involved, and each can perform several functions. And many terms have variants or sound similar to others.

But once you grasp a few basics, you will be fluent in fintech and understand the payment basics of payment processing in (almost) no time.

You'll fully understand what it takes for a merchant to accept payments from the cardholder's bank and who does what.

Let's unpack the differences and similarities between the processors involved.
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What is a payment processor?

The term 'payment processor' refers to financial institutions and technologies that provide electronic payments processing services. This includes credit card transactions, debit card payments, bank transfers, e-wallets, and mobile payments.

Payment processing entities can be grouped into many different categories, including:

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• Merchant account providers
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• Payment gateways
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• Mobile payment processors
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• Online payment processors
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• Point of sale (POS) systems
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• Issuer processors
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• Acquirer processors

What is an issuer processor?

An issuer processor is a techical institution that helps facilitate transactions between merchants and cardholders.

Using technology, it connects issuing banks (see below, 'What is an issuing bank?') with a card network (like Visa or Mastercard) to perform the following tasks:

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• Provide records to issuing banks, including ledgers of cardholder data
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• Manage card issuance, including physical and virtual banking cards
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• Authorise transactions based on the available funds and other signals related to the cardholder's account activity
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• Securely transfer data with fraud detection measures
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• Help settle transactions by providing relevant information to issuing banks and merchant accounts
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Once a card network receives authorization from an issuing bank, it forwards it to the issuer processor.

There are many different issuer processors with different capabilities. For example, some specialize in accepting crypto payments, others use may use particular technology such as cloud computing, or offer other related services.

Why do card payments rely on issuer processors?

Issuer processors play an essential role in card and other electronic payments.

Most businesses can't directly accept credit and debit card transactions. In-house payment processing needs to meet and maintain complex regulatory and technological requirements.

PCI DSS

The Payment Card Industry Data Security Standard (PCI DSS) is a set of information security standards.

It applies to all businesses and organizations involved in processing or storing card information and transmitting card payments.

In practice, many organizations rely on issuer processors to meet PCI compliance for them. It is their (the issuer processor's) role to also ensure that both the issuer bank and the card networks involved are also PCI DSS compliant.

What is an issuing bank?

An issuing bank (often simply called an 'issuer') is a financial institution authorized to issue credit or debit cards.

Issuing banks work closely with payment networks and set credit limits, interest rates, and other fees associated with their cards.

They are also responsible for the final stage of the settlement process - i.e., transferring funds from customers to merchants, and they provide fraud protection and dispute resolution services for their cardholders.

Issuer processor vs issuing bank

Issuer processors and issuing banks are separate entities. They both play an integral - but different - part in processing payments.

Let's look more closely at their two main differences.

1. Roles in payment card transactions

The issue processor's role in the payment process is forwarding transaction information from the payment gateway to the card network.

The issuing bank's role is to receive and verify transaction information. If the full credit or debit card amount is available, it sends an authorization code for the transaction back to the card network.

2. Functions

An issuing bank is a bank or financial institution that offers payment cards to consumers on behalf of a third-party payment service provider or card network. This is its primary role.

It also facilitates the payment of funds to merchant accounts.

The issuer processor helps facilitate the issuing bank and card network relationship. It does this on behalf of the acquirer (see below, 'What is an acquirer bank?').

It enables transactions to take place by connecting the issuing bank with the acquiring bank and merchant bank account. The technology capabilities of an issuer processor are an important factor in the type of functions and capabilities a card programme can offer cardholders.

Examples of issuer processors

Examples of issuer processors include: Marqeta, Paymentology, Carta Worldwide and CLOWD9.

‍What is an acquirer processor?

An acquirer processor is a technical institution that links merchants, card networks and acquiring banks (see below, 'Acquirer processor vs acquiring bank').

It mirrors the role of the issuer processor, but on the merchant and acquirer side of the same transaction process.

The acquirer processor manages payments for the merchant through the acquirer bank and then the card network. It does this to ensure that the issuing bank authorises and settles the transaction.

What is an acquiring bank?

An acquiring bank (also known as a merchant acquirer or acquirer) is a financial institution that initiates transaction authorisation requests and retrieves funds.

It works on behalf of merchants to manage the final stages of the payments process.

Acquirer processor vs acquiring bank

The roles of acquirer processors and acquiring banks are sometimes carried out by the same entity.

However, in recent years they are increasingly separate. This is because they perform different roles and functions in the payment process.

1. Differences in Role

As the merchant's account provider, the acquiring bank has a direct relationship with them.

So, the acquiring bank has financial liability for the merchant and agrees a fee structure with them. The acquiring bank is the 'face' of the operation regardless of whether it is the same entity as the acquirer processor.

The acquirer processor, on the other hand, does not take on any liabilities for the merchant, nor do they interact directly them.

2. Differences in function

The acquirer processor is the 'technical arm' of the payments operation - as opposed to the acquiring bank, which is the 'business arm'.

Its function is to receive, record and authorise transaction settlement information for merchants. It also evaluates transactions to minimise fraud and chargebacks.

The acquiring bank does not handle any of these technicalities. It addresses more surface-level and direct business matters involving the merchant and their merchant account.

Examples of acquirer processors

Examples of acquirer processors include Worldpay, Barclaycard, Elavon, and Fiserv.

Issuer processors vs acquirer processors - the differences

1. Who they work for

Issuer processors connect card issuers with card networks, whilst acquirer processors connect acquirers with card schemes.

In effect, each entity is working on behalf of the opposite side of the transaction process:

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• Issuer processors work on behalf of issuing banks (representing cardholders)
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• Acquiring processors work on behalf of acquiring banks (represent merchants accepting payment cards)

1. When they do their work

Issuer processors communicate with settlement entities to ensure there are sufficient funds available for transactions. They also ensure funds are deducted from and deposited into the correct accounts.

‍Acquirer processors double-check this process and authentication later on. They then deposit funds into the merchant's bank account, minus fees.

Conclusion

'Payment processor' is a broad category that covers various financial institutions and technologies offering electronic payment processing services.

Payment processors play a vital role in card and other electronic payments. They help businesses meet complex regulatory and technological requirements, including the Payment Card Industry Data Security Standard (PCI DSS).

‍Issuer processors and acquirer processors are two kinds of payment processor. The former facilitates transactions between merchants and cardholders, while the latter link merchants, card networks, and acquiring banks.

The primary function of an issuer processor is to provide records to issuing banks, manage card issuance, authorize transactions, securely transfer data, and help settle transactions.

Acquirer processors' roles come in at the other end of the payments process. They manage payments for merchants through acquiring banks and card networks to ensure that issuing banks authorize and settle the transaction.

Payment processing can be a complex and confusing subject for anyone, especially those not familiar with the industry. With multiple parties involved, each performing several functions, and many terms with similar variants, learning to speak payments can seem like a daunting task.

However, understanding payment processing is crucial for any organization that depends on it to get paid. In this blog post, we will unpack the differences and similarities between the processors involved, specifically the acquirer, issuer, and processor.