4 Industry Tips to Stay Ahead as a Merchant Acquirer
December 6, 2021
What is a Merchant Acquirer?
The term ‘merchant acquirer’ has the intended use of referring to an acquiring bank, or the bank that holds merchant accounts and accepts deposits from a merchant’s transactions with clients. However, the term ‘merchant acquirer’ has become somewhat of an umbrella term recently and is now used to reference any entity that acquires merchants.
An acquiring bank is specific in its scope as well. Not just any bank is considered an acquiring bank; only banks that are members of card networks are acquiring banks, such as Chase, Wells Fargo, and Bank of America.
This attribute of an acquiring bank is quintessential because without it, an acquiring bank could not do its primary task: accepting credit card transactions from issuing banks, or banks that distribute credit cards to consumers. This is the service they provide to merchants; they enable them to accept electronic payment methods in exchange for their services and/or products.
And with providing this service comes the financial responsibility of merchant credit card transactions. Acquiring banks assume the risk for merchant accounts if their customers’ payment method is fraudulent. They also take on the possible risk from merchants themselves participating in illegal activities, such as processing high-risk transactions or laundering money. Therefore, it is in an acquiring bank’s best interest to evaluate the risk of working with certain merchants; therefore, maintaining effective underwriting and risk management methods falls on them.
It is oftentimes a difficult and time-consuming process to underwrite merchants and continuously monitor them for risk and compliance. Here are some best practices that merchant acquirers can implement in order to mitigate risk, reduce friction, and increase the overall speed of merchant onboarding and underwriting.
First, let’s make some distinctions.
Merchant Acquirer vs Payment Processor vs Acquiring Bank
As stated above, the term ‘merchant acquirer’ is often used to refer to an entity that acquires merchants, but is not an acquiring bank. Payment processors are one of these businesses that is often called a merchant acquirer, but lacks the characteristics and services of a bank.
Acquiring banks are often called ‘payment processors’, and they can, and often do, perform the duties that a payment processor does. However, not all payment processors are acquiring banks, so the terms are not mutually exclusive.
Whereas all acquiring banks give a merchant access to a bank account and process card transactions, a payment processor only does the latter. A merchant needs both of these services in order to accept digital transactions; thus, if a merchant’s payment processor is not an acquiring bank, also known as a sponsor bank, they will need to seek out an independent payment processor in order to successfully receive electronic tender.
However, even with these distinctions, the number of businesses that can be technically categorized as merchant acquirers is expanding. Many business models can now both process and acquire merchants and their transactions, and some, like payment facilitators, can provide all payment services a merchant would need in order to process electronic payment methods.
All merchant acquirers could, however, benefit from these merchant tips:
Four Solutions for Merchant Acquirers
1. Partner with ISVs
ISVs, or Independent Software Vendors, are starting to take up a large chunk of the payments market, especially in the United States. ISVs mainly develop and sell software solutions to businesses and consumers, and the rise in popularity of working with ISVs is representative of a larger shift in the payments industry as a whole; a shift towards leveraging technology as a way to address pain points in the merchant onboarding and risk underwriting processes.
Partnering with an ISV means moving with this industry shift and the future of payments, which is beneficial for merchant acquirers who want to offer the best services to their merchants and avoid risks in their process of merchant onboarding.
2. Broaden Your Range of Services
Firms in the payments industry aren’t siphoned into different services anymore. Many companies are expanding their offerings to include things like payment facilitation, Buy Now Pay Later (BNPL), or are developing the capabilities to become merchant acquirers.
In order to give your company the bandwidth to expand your services, look into leaning on innovative technology and automation solutions. Read more about how tech solutions can boost your company’s automated underwriting bandwidth here.
3. Offer Customized Services to Different Industries
The rationale behind this tip is relatively straightforward: if you can serve a wider range of merchants, you stand to make more revenue than a merchant acquirer that can only offer its services to a few types of merchants.
Develop industry-specific models to underwrite and monitor multiple merchant types in order to expand your offerings, but stay risk-averse. This diversification is often made possible by technology that allows merchant acquirers to underwrite more merchants with less risk, so that the expansion of services doesn’t end up being a net-detriment.
4. Invest in Solutions for Merchant Onboarding
The process of merchant onboarding, or the procedure of setting merchants up to use an acquiring bank’s platform, can be a difficult and confusing process for both merchants and merchant acquirers. Long merchant onboarding processes can lead to disgruntled merchants, and eventually less merchants overall. In fact, 70% of merchant abandonment occurs because of slow and confusing merchant processes.
Some solutions for the merchant onboarding process include technology that allows acquiring banks to give merchants a straight-through processing experience. Learn more about straight-through processing and its benefits to a business here.
Which Merchant Service is Best?
The actionable takeaway from all of these tips is investing in a software solution to broaden a merchant acquirer’s range of services and be able to serve many different types of merchants. Here’s one solution to rule them all: Agreement Express.
Agreement Express has onboarding and underwriting automation and tools (like our Merchant ScanXpress risk scorecard) that save merchant acquirers time so they can focus on growing their business by expanding their bottom line, without having to endure setbacks due to bandwidth restrictions. Implementing technology eliminates the need to increase employee headcount to cater to more merchants.
Our white-labeled technology is also customizable to fit the needs of any type of merchant, meaning that working with Agreement Express automatically expands an acquiring bank’s ability to work with different types of merchants and expand your partner or sales channels.
Furthermore, our intuitive interface design and single-point-of-contact client dashboard allow merchant acquirers to interact with merchants easily and give them a quick and efficient experience working with a firm. In fact, Agreement Express’s software affords companies a 70% decrease in abandonment rate and a 30% decrease in NIGO.
Overall, Agreement Express is an all-in-one solution to the problems that can arise in the merchant underwriting and onboarding processes, and the best way to implement all of these tips and stay ahead of the competition.