What is an Acquirer?
Before we start explaining what local acquiring is, let’s recap what an acquiring institution means in the payment processing context:
Acquirers are financial institutions with credentials from major and minor card schemes that will accept transactions from credit/debit cards. They are used in both e-commerce and onsite shopping (through portable smart payment machines).
It is also very important to notice that acquirers can be local or international, which means that they can be located within a specific market to attend it or be internationalized, covering many countries or regions.
What is a Local Acquirer?
Local acquirer is a financial institution that is located within a specific market that a merchant is operating. Having a local acquirer enables the merchant to transact with a local cardholder and has many advantages compared to an international acquirer. It also facilitates a business to offer local payments, which are types of payments that are provided in a specific geographical area (most commonly within a region or country) and are not accepted outside of it.
Local Acquiring Advantages
First of all, local acquirers ensure a much higher approval rate compared to international ones. When a merchant opts for international acquirers, the approval rate usually ranges from 30% to 50%. On the other hand, local acquirers can generate approval rates from 70% to 90%. Why is that?
Considering international acquirers, when the transaction goes to the issuer bank, it won’t be recognized as a local one and the issuer will not know the merchant or the customer information, being more likely to decline the transaction. So, since local acquirers know more about the merchant and consumer, the risk rules are considered “less strict” for them and approval happens oftenly.
However, it is not all about approval rates. The benefits of local acquisition goes beyond that:
Less cross border fees: Although international acquirers allow a business to cover all territories at once, it has many cross-border fees (eg: interchange fee, international acquirer fee, international service assessment, scheme standard assessment, etc) that local acquirers don't charge.
Better customer experience: international cards usually have low acceptance in some markets, currency conversion can be very costly for the shopper, and local charges can also be applied. Thus, when processing card transactions with local acquirers, all these downfalls are excluded from the shopper’s experience.
More addressable market: some cards can be domestic linked to local schemes and not enabled for international purchases. Thus, if a business only accepts international cards linked to global schemes and international acquirers, its reach will be limited to a small portion of the population.
Optimized cash flow: the settlement of international payments can take several working days in many markets. However, for a business that counts on a local acquiring to offer domestic payments, the settlement can happen on the same day. By doing that, managing a cash flow becomes much easier, controlled and predictable.