“Cross-border acquiring” is when a merchant operating in Country A uses an acquirerAcquirer (or Acquiring bank) Acquirer (or Acquiring bank) A bank or a financial institute, which acquires funds for its merchant from a shopper. To accept card payments, an acquirer should be licensed by corresponding card networks and either partner with a payment processor, or be a payment processor itself. from Country B.
Cross Border Acquiring is preferred by merchant of digital goods such as gaming, online betting, sports betting and also for niche music, movie streaming services, as well as niche e-marketplaces (CBD Oil etc).
Many a times large established online merchants also use international acquiring for speed to market, while their local entity and bank accounts are being set-up.
Pros of cross border / central acquiring:
1.Speed to market: Merchant has recently entered a new market and has no legal entity and no bank account in the new country of operations and hence wants to use its existing acquirer.
2. Tax: Cross Border acquiring is popular with merchants of high gross margin items – digital goods like gambling, gaming etc. Since the merchant has no legal entity and no bank account in the country of operations, using a international acquiring service can help them remain non-taxable. The taxation authorities in the country of operations will have a differing view.
3. Central Acquiring: Merchant has a legal entity and a bank account in the country of operations, but wants to use a centralised acquiring service.
4. Niche Business Merchants: Small online merchants can leverage cross border acquiring to grow business internationally without setting up a local entity, tax registration and bank accounts.
5. Lower implementation cost: Central acquiring means one single integration with your platform so the costs are lowered.
Cons of cross border / central acquiring:
1. More expensive than local acquiring: Cross Border Acquiring is more expensive than local acquiring on a standalone basis, unless subsidised by the acquirer. If we add foreign exchange charge, potential tax issues, cross border acquiring becomes even more expensive.
2. Lower AuthorisationAuthorisation Authorisation This is the process of the card issuer (like Visa or Mastercard) verifying payment details and reserving the funds to capture it later. In ecommerce, in-app and point-of-sale payments, authorisation is implemented as an API call to the payment gateway. The gateway and payment processor then perform required validation and risk checks, and ask a corresponding card network to authorise this payment from an issuer to an acquirer. When a payment was authorised but hasn’t been captured yet, a merchant can also decide to cancel it for some reason (like a high risk of fraud). Note that authorisation is valid only for a limited amount of time. In case an authorised payment hasn’t been captured or cancelled, it expires after the predefined deadline is missed. / Success Rates: Cross Border acquiring is not optimised for local country rules, since payments are rooted in local regulations and jurisdictions. For eg Country A may have mandatory 3DS / Second Factor authentication, where the cross border acquirer from Country B may not be optimised for 3DS.
Working with payment partners that have acquiring licenses in the local markets being served can have a dramatic impact on approval rates.
It’s not uncommon for merchants to see double-digit decreases in bank declines when switching to local acquiring. The reason is simple: When an acquirer based in one market requests authorization from a cardholder’s bank that is based in a different market, there is a greater propensity that the cardholder’s bank will decline the transaction. This can be due to various factors, such as lack of familiarity with the acquirer, high cross-border fraud rates in the acquirer’s home market or an unrecognisable authorization request.
A local acquiring partner is positioned much more favorably to reap higher approvals given the request is seen as local instead of cross-border, and because it is more likely to be formatted to the issuerIssuer Issuer (or Issuing bank) A bank that issued a card for a shopper to make cashless payments via an ecommerce website, inside a mobile app, or in a physical store. To be able to issue a card, an issuer must be a member of one or several card networks. Sometimes a shopper’s bank is referred to as an issuer even if there is no card issued. This is to distinguish between a shopper’s bank, which sends funds, and a merchant’s bank, which acquires funds.’s specifications.
3. Higher Chargeback Rate: Cross Border acquiring leads to higher chargeback rates for the merchant for multiple reasons. One key reason is that the DBA (Doing Business As) name on the customer card statement may be different from the merchant’s recognisable name to the customer. Seeing an unrecognisable name, the customer could raise a charge back for a perfectly legitimate transaction. The merchant would spend time and resources defending the chargeback.
4. Higher Fraud Rates: Cross Border acquiring is not optimised for reducing fraud at a local country level.
5. Violation of local jurisdiction taxation and business norms – Potential tax liability: Cross Border involves outbound and inbound international flows, Central Bank are clear that a local business must use a local acquirer.
6. Violation or MasterCard and Visa Scheme Rules: It used to be that merchants who were unable to get a domestic merchant account could opt for an offshore merchant account, and register their business in the country of their acquiring bankAcquirer (or Acquiring bank) Acquirer (or Acquiring bank) A bank or a financial institute, which acquires funds for its merchant from a shopper. To accept card payments, an acquirer should be licensed by corresponding card networks and either partner with a payment processor, or be a payment processor itself. without having much of a presence.
Card schemes like Visa and Master have stringent rules against cross border acquiring. The rules specify that acquirers must ensure merchants have real business operations before undertaking to acquire for them.
For example, Visa is requiring a few things:
- A physical office in the country of the acquiring bank.
- An employee working in that office.
- In some cases, a bank account – business or personal — in the same country of your acquiring bank.
7. Business Continuity Risk: Cross Border Acquirer may not be licensed with the extant payment regulations in the merchant’s country of operations, for example Phillipines requires an OPS registration for all payment gateways, networks, channels etc. Cross Border Acquirers with no bank office and bank accounts will resist to register with the authorities and this could lead to a business continuity risk, should the cross-border acquirers local partner insist on the registration.
So net-net, if you have a local bank account and an entity, go for local acquiring.
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