Local Acquiring

TL;DR

Local acquiring is a payment process where businesses work with an acquiring bank or payment provider within the same country or region to process transactions in the local currency. This setup reduces transaction costs, speeds up payments, and improves acceptance rates. Local acquiring is especially beneficial for international companies that want to offer seamless, familiar payment experiences to local customers without high cross-border fees.

Executive Summary

Local acquiring is a process in which a business partners with a local acquiring bank or payment processor in the country where its customers are located. By using a local acquirer, companies can process transactions in the local currency, reducing foreign exchange fees, cross-border transaction costs, and improving acceptance rates. This process benefits businesses that operate in multiple regions by making payments more accessible to local customers. Local acquiring is commonly used in e-commerce, retail, and service industries, as it optimizes payment experiences and helps increase conversion rates among international audiences.

What is Local Acquiring? A Detailed Overview

Definition and Concept

Local acquiring is a payment method where a business partners with an acquiring bank or payment processor within the same country or region as its customers. In payment processing, an acquiring bank (or acquirer) is the financial institution that processes credit and debit card payments on behalf of a merchant. By working with a local acquirer, businesses can handle payments in the local currency, avoid cross-border fees, and improve transaction approval rates.

In essence, local acquiring allows companies to process payments “locally” in each target region, rather than routing payments through international channels. This setup is beneficial for businesses that serve customers in multiple countries, as it enhances the payment experience for local customers and reduces processing costs.

How Local Acquiring Works

1. Merchant Partners with a Local Acquirer:
   • The business establishes a relationship with a local acquiring bank or payment provider in the target country, often through a payment service provider (PSP).
2. Transaction Processing in Local Currency:
   • When a customer makes a purchase, the transaction is processed in the local currency, avoiding foreign exchange fees and cross-border costs.
3. Improved Transaction Approval Rates:
   • Local acquiring increases the likelihood of transaction approval, as local banks are more likely to approve transactions from domestic merchants.
4. Lower Costs and Reduced Cross-Border Fees:
   • By keeping the transaction local, businesses save on international processing fees and benefit from better exchange rates.
5. Settlement to the Merchant Account:
   • Funds are settled in the local currency to the merchant’s account, allowing them to access revenue in the currency of their customers’ country.

Benefits of Local Acquiring

1. Reduced Cross-Border and Currency Conversion Fees:
   • Local acquiring avoids cross-border transaction fees and foreign exchange rates, reducing the overall transaction costs.
2. Higher Transaction Approval Rates:
   • Local banks are more likely to approve transactions, leading to fewer declines and higher conversion rates for the merchant.
3. Improved Customer Experience:
   • Local acquiring allows customers to pay in their local currency, providing a more familiar and trusted payment experience.
4. Faster Settlement Times:
   • Transactions processed locally often settle faster than those routed internationally, improving cash flow for businesses.
5. Compliance with Local Regulations:
   • Local acquiring helps businesses comply with country-specific regulations around data protection, taxation, and financial reporting.

Challenges and Considerations of Local Acquiring

1. Multiple Banking Relationships Required:
   • Businesses operating in multiple countries may need to establish separate acquiring relationships in each region, which can be complex to manage.
2. Regulatory Compliance by Region:
   • Companies must navigate and comply with local regulations and financial requirements, which vary by country.
3. Currency Management:
   • Businesses must manage funds in multiple currencies, which may require robust financial and accounting systems.
4. Higher Initial Setup Costs:
   • Establishing local acquiring arrangements involves costs for setting up new banking relationships and integrating payment systems.
5. Limited Availability in Some Regions:
   • Not all countries offer local acquiring options, limiting the effectiveness of this strategy in certain markets.

Examples of Local Acquiring in Action

1. E-commerce Business Expanding Internationally:
   • An online retailer from the U.S. partners with a local acquirer in Europe to process European transactions in euros, reducing foreign exchange fees and providing European customers with familiar payment options.
2. Subscription Service Operating in Asia:
   • A subscription-based service provider partners with acquirers in Japan, South Korea, and Singapore, allowing customers to pay in their local currencies, which improves approval rates and customer satisfaction.
3. Travel Booking Platform Serving Global Customers:
   • A travel platform integrates with local acquirers in several countries, enabling travelers to book in their local currency and reducing the risk of transaction declines.

Comparison Between Local Acquiring and Cross-Border Acquiring

Aspect	Local Acquiring	Cross-Border Acquiring
Transaction Fees	Lower, with minimal cross-border fees	Higher, with foreign exchange and cross-border fees
Approval Rates	Higher, due to domestic processing	Often lower, as international banks may decline transactions
Currency Options	Local currency	Foreign currency conversion may apply
Settlement Speed	Faster settlement in the local currency	Slower, often due to international processing
Compliance	Better alignment with local regulations	May face regulatory challenges in some regions

When to Use Local Acquiring

1. Operating in Multiple Regions:
   • Local acquiring is essential for businesses that operate across multiple countries and want to improve customer experience by offering local currency payments.
2. Increasing Approval Rates in Foreign Markets:
   • Companies looking to reduce transaction declines in specific regions benefit from local acquiring, as local banks are more likely to approve domestic transactions.
3. Optimizing Transaction Costs:
   • For businesses with high transaction volumes, local acquiring reduces transaction costs by eliminating foreign exchange and cross-border fees.
4. Enhancing Local Payment Options for Customers:
   • Offering local acquiring lets businesses provide popular, region-specific payment methods, improving the likelihood of customer satisfaction and loyalty.

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Conclusion

Local acquiring is a valuable payment strategy for businesses looking to streamline international transactions, reduce costs, and enhance the customer experience by working with acquiring banks in specific regions. By processing payments locally, businesses can reduce cross-border fees, improve transaction approval rates, and provide a seamless payment experience in the customer’s currency. While setting up local acquiring requires establishing multiple banking relationships and understanding regional regulations, it is increasingly beneficial for e-commerce, retail, and service providers expanding into new markets. With local acquiring, businesses can offer a more trusted and accessible payment solution, making it a key tool for companies aiming to build strong connections with international customers.

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This page was last updated on December 3, 2024.

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