If you're an entrepreneur who needs to use a debit or credit card machine for your business, the terms acquirer, issuer and processor might have crossed your path.

As a merchant offering your customers payment services, it's worthwhile knowing what these terms mean, as you're likely to come across them quite often.

In fact, each payment transaction on your card reading machine will require the interactions between an acquirer, an issuing bank and a payments processor.

But what do these terms mean and how are they relevant to you?

Let's find out.

Acquiring banks

Acquiring banks in the payments process are the institutions which offer merchants accounts in which the paid proceeds can be processed. 

This is usually governed by contractual relationships between the acquirer and the merchant for accepting and processing credit card transactions. 

Once a customer makes a payment, it first goes through the acquirer, which then sends a message to the issuer bank (for more on this, see below), which subsequently approves the payment and tells the acquiring institution that the funds are available and have been withdrawn from the client's account. 

The issuing bank will transfer the funds from the cardholder's account to the acquiring bank, which will then transfer the money into the merchant's account.

Essentially, this is how transactions play out and how a merchant gets paid for their product or service. 

Issuing banks

Unlike acquiring banks, issuing banks deal with customers. In particular, they deal with the issuing of cards to cardholders.

Such cardholders then present their card to the merchant for a payment to be made, say, for a cup of coffee.

As mentioned above, the merchant's payment institution (the acquiring bank) will contact the customer's issuing bank to see if there are sufficient funds in the account, and will either decline or process the transaction.

Payment processors

Finally, there are payment processors. 

These processors - who are essentially the service providers for acquiers - work behind the scenes of payments and while in some cases they can work in tandem with acquiring banks or institutions (hence the typical confusion between acquirers and processors), they can also work on their own via outsourced channels of business.

Payment processors are usually the companies behind the payment technology, or POS terminals, which ultimately process transactions for the cup of coffee mentioned above, and ensure that the merchant gets the funds in their account.

While most payment processors see that the funds after a payment has been made appear in the merchant's account within a few days (approximately two days), others offer instant settlement of funds, like myPOS, making doing business simpler and helping businesses grow.

In conclusion

While it may seem a bit confusing at first, we hope that with the terminology outlined above in this post, you're now better empowered to know about some key industry concepts.

When it comes to the business world and the world of financial institutions, things can seem somewhat daunting, but they don't have to be that way. 

With this knowledge, you can now make more informed decisions and help your business flourish!