Understanding Merchant Acquiring: The Key Steps and Services

Key Takeaways

– The classical payment model consists of three steps: Authorization, Clearing, and Settlement.
– Payment Service Providers (PSPs) act as intermediaries between merchants and acquirers.
– Merchant acquirers provide value-added services to help merchants run their businesses efficiently.
– Pricing models for card processing can be blended or Interchange Plus.

Authorization, Clearing, and Settlement

The first step in the classical payment model is Authorization. When a customer makes a purchase using a card, the merchant’s payment system contacts the customer’s bank to request authorization for the transaction. The bank checks the available funds and applies fraud rules to determine whether the transaction should be approved or declined. If the transaction is approved, the customer’s bank sends an authorization code back to the merchant, allowing the transaction to proceed.

Once the transaction is authorized, the next step is Clearing. In this step, payment information is exchanged between the customer’s bank and the merchant’s bank. The customer’s bank sends the transaction details to the card scheme, such as Visa or Mastercard, who then routes the information to the merchant’s bank. The merchant’s bank receives the payment information and verifies its authenticity. If everything is in order, the merchant’s bank accepts the transaction and prepares for settlement.

The final step in the classical payment model is Settlement. In this step, the customer’s bank pays the merchant’s bank for the transaction. The funds are transferred from the customer’s bank to the merchant’s bank, and the merchant becomes the beneficiary of the payment. Settlement can happen in real-time or on a delayed basis, depending on the agreement between the merchant and the acquirer.

Payment Service Providers (PSPs)

Payment Service Providers (PSPs) play a crucial role in the payment process. They act as intermediaries between merchants and acquirers, managing connections and routing payments. PSPs provide a range of services, including payment gateway integration, fraud prevention, and reporting tools.

By using a PSP, merchants can simplify their payment operations and gain access to a wide range of payment methods. PSPs typically offer integration with various card schemes, alternative payment methods, and digital wallets. This allows merchants to cater to the preferences of their customers and expand their reach to a global audience.

PSPs also provide advanced fraud prevention tools to help merchants mitigate the risk of fraudulent transactions. These tools analyze transaction data in real-time and apply machine learning algorithms to detect suspicious patterns. By identifying and blocking fraudulent transactions, PSPs help merchants protect their revenue and maintain a secure payment environment.

Merchant Acquirers

Merchant acquirers are financial institutions that provide services to merchants to accept and process card payments. In addition to facilitating transactions, merchant acquirers offer value-added services to help merchants run their businesses efficiently.

One of the key services provided by merchant acquirers is payment processing. They handle the technical aspects of accepting card payments, such as integrating payment terminals or online payment gateways. Merchant acquirers ensure that transactions are securely processed and funds are settled to the merchant’s bank account.

Merchant acquirers also offer reporting and analytics tools to help merchants gain insights into their payment data. These tools provide detailed transaction reports, allowing merchants to track sales, identify trends, and make informed business decisions. By analyzing payment data, merchants can optimize their pricing strategies, identify customer preferences, and improve their overall performance.

Pricing models for card processing can vary among merchant acquirers. Blended pricing is a common model where the acquirer charges a fixed percentage of the transaction value as a processing fee. Interchange Plus pricing, on the other hand, provides more transparency by separating the interchange fees charged by the card schemes from the acquirer’s processing fees. This allows merchants to see the exact costs associated with each transaction and can help them negotiate better rates.


Merchant acquiring is a crucial part of the payment ecosystem, enabling merchants to accept and process card payments efficiently. The classical payment model involves multiple steps, including Authorization, Clearing, and Settlement, to ensure secure and seamless transactions. Payment Service Providers (PSPs) act as intermediaries, providing merchants with the necessary tools and services to manage their payment operations. Merchant acquirers offer value-added services and pricing models to help merchants optimize their payment processes and improve their business performance. By understanding the role of merchant acquiring and leveraging the services provided, merchants can enhance their payment capabilities and provide a seamless experience to their customers.

woman in red and black jacket using MacBook Pro

The Power of Business Technology Consulting: Developing an Effective IT Strategy

Citi Creates Marketplace for Fintech Apps