Local vs cross border acquiring 101

I’ve been frequently explaining the difference between local vs cross border acquiring, so here’s a 101 post.

Summary

Acquiring refers to the processing of a debit/credit card transaction, which enables payments locally and internationally (“cross border”).

  • Local acquiring occurs when a customer’s card is processed within the same country that the card was issued in.
  • Cross border acquiring occurs when a customer card is processed in a country that is NOT the same as where the card is issued in.

Sounds confusing? Use the diagram below to see the differences.

Image is my own. Please do not use without written permission. Auth numbers are estimates.

As a customer, if you’re buying from local websites, it’s usually a “local acquiring transaction” (scenario 1). If you are buying from large global websites (e.g. Amazon, Shein), then depending on the merchant’s payments set up, it could be local acquiring (US card processed in the US) or cross border acquiring (US card processed out of Hong Kong).

Frequently Asked Questions

Question 1: Does the location of the customer when they are making the transaction matter in defining local vs cross border acquiring?

No, where the card was issued is what matters. For example, if you are based in Australia but are using a Singapore issued card, your transaction is a “cross border transaction” IF the merchant is processing from a merchant account in Australia (or any country that is not Singapore).

Note: Location matters more for whether your card is flagged as a high risk transaction by merchants and/or banks, but this is a separate topic.

Question 2: What is a merchant account?

For a merchant/business to accept payments (online/offline) they set up a “merchant account” with Payment Service Providers like Stripe, PayPal, Adyen etc. The merchant provides information for PSPs to review and KYB (know your business) them, before they are allowed to activate that account, integrate the APIs, and start accepting payments. This merchant account is usually tied to a local entity and a bank account as part of the KYB process.

Question 3: Why is so complicated?

It’s seamless to the end customer (which allows for frictionless online shopping) but is indeed complex for a merchant.

  • When a merchant is smaller, operating with one merchant account from one country makes sense given other priorities. It is likely not yet worth worrying about local vs cross border transactions (though it’s worth keeping an eye on total payments costs).
  • As a merchant grows bigger, there are more opportunities to optimize success rates and costs (see here). Being complacent about this opportunity will lead to lost revenue.

Question 4: What about FX?

This needs its own deep dive. My two sentence answer is:

  • For a customer, they’re likely to see extra FX charges on their card statement when it’s a cross border transaction, depending on their card issuer.
  • For merchants: you’re likely paying mark ups to your acquirer, who in turn pays mark ups to the card networks.

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Celine Wee

Celine Wee

Musings are my own: a collection of learnings from Payments, Go To Market, Web3, Biz Ops across Stripe, Coinbase, Twitter