The Growth of the Merchant Acquiring Business – A Favorable Evolution

Keith Vander Leest, Head of Payments

April 1, 2024

4 min read


Acquiring solutions  

From the first Diners Club card issued in the 1950s to the four-party payment model today, merchant solutions have aimed to reduce friction and add value to both buyers and sellers. As merchants consider the benefits to their customers and stakeholders, it's important to understand how modifications in the flow of funds are enabling merchant success.

Moving money faster for merchants - a secure, cash alternative for instant settlement 

The subset of the flow of funds that contains the biggest benefit is the time required to settle. While cash remains the original “instant” payment, the buyer journey in a digital and increasingly cashless economy, alongside heightened scrutiny of cash sources, demands innovative processing solutions that serve all parties in the transaction. 

While card networks leverage value/adds such as extension of credit, risk mitigation, and rewards/loyalty programs to drive consumer convenience, adoption, and usage, it's important to ask- how can we also improve experiences for merchants participating in the flow? The answer: help them settle and receive funds faster in a digital age.  

The most impactful way to improve merchant experiences is to enable faster payouts for card payments. 


On-us Transactions: a source for faster payouts 

To dissect the first pathway, let's consider the facts between cash and cards. In a cash payment, one transaction occurs directly between the buyer and the seller- an instant payment with no banks involved. A card payment requires a minimum of three transactions between the issuing bank, the network’s bank, the acquiring bank and the merchant's account.  

To expedite the settlement, what if all these accounts were at the same bank? An on-us transaction, in theory, could happen in near real-time. Solutions like these, however useful, can be difficult to architect. Herein lies a compelling case for technological advancements to disrupt systemic barriers. 


Technology paving the way 

This is where RTP®, FedNow® and in the future, stablecoin settlement, come into play. By accessing instant payment rails, processors can provide these instant settlement options to merchants on their platforms. This operation, however, requires partnerships with financial institutions that not only offer these payment modalities but also provide the technology support to help processors build cohesive tech stacks – having a centralized partnership for a multi-rail infrastructure is a bonus.  

Cross River’s proprietary API-first bank core (COS) is just that and allows for direct access to the US faster payment rails. In addition, COS has fully routable subledgers and customer records allowing for merchant accounting, reconciliation and settlement as if they had their own bank account offered by the ISV or Payfac. The combination of these features deployed in a thoughtful design can provide significant value to merchants while at the same time provide real-time granular insight into merchants’ transactions, increasingly important for compliance and long-term viability. This is just the beginning of better, more holistic merchant experiences that the future demands. 


The latest payment processors: software companies embedding payments  

ISOs, payfacs, and ISVs as well as other entities have been displaying an appetite to provide layers in the acquiring flow. Many software providers see embedded payments as beneficial to their merchants. The software is often unique to a specific vertical, and payments capabilities are added to the software to reduce the technology burden on the merchant while adding revenue streams to the software vendor. 

These software vendors are not payments native and rely on payfacs or ISOs to provide embedded payments functionality. In addition to ISVs, mobile wallets & many others are creating value in the acquiring stack to drive ecommerce transactions.


Keith Vander Leest

Head of Payments

Cross River

The additional transactions in the flow of funds from the network’s bank account to the merchant account cost very little and could be offset by the value add that that additional step provided. However, this model struggles in high interest rate environments. While the value adds that these additional layers in the tech stack are providing have only increased, acquirers are having a hard time keeping up with the increasing cost of capital in the inevitable additional pools of liquidity each transaction creates. 


Merchant experiences matter most

To reduce these pools of liquidity and subsequent costs, these value-added providers need the ability to move money faster than traditional ACH transfers, which are still beholden to traditional bankers’ hours. Square pioneered this several years ago with push-to-card through which a micro merchant selling goods at a weekend farmers market can offer its buyers the ability to pay with card instead of cash. Leveraging push-to-card in this use case enables proceeds from the sale to be instantly pushed into the merchant’s bank account via debit card rails linked to the account.  

If we can extend this weekend settlement to corporate merchants who may not use debit cards or to those that may have larger settlement amounts, not currently allowed on card rails, the value add further integrates into the core technology of an ISV or Payfac. It is through these enhanced tech stacks and capabilities that we can reduce the cost of settlement and generate greater margins, creating a ripple effect of benefits to the chain of payment users.