Acquiring Bank Payment Processing

Definition: The terms “acquiring bank” and “issuing bank” represent two pivotal entities in the payment processing ecosystem, each playing a distinct role in facilitating credit and debit card transactions. Understanding the differences between these banks is essential for merchants, cardholders, and anyone involved in the payments industry.

Acquiring Bank (Acquirer): An acquiring bank, also known as an acquirer, is a financial institution that processes credit and debit card payments on behalf of a merchant. The acquirer establishes and maintains merchant accounts, enabling businesses to accept card payments. Acquiring banks are responsible for collecting transaction details from merchants, obtaining authorization from the card issuer, and settling the funds into the merchant’s account.

Issuing Bank: In contrast, an issuing bank is the financial institution that issues credit and debit cards to consumers on behalf of the card networks (e.g., Visa, MasterCard). The issuer approves the cardholder’s credit application, sets credit limits, and is responsible for sending payments to the acquirer to settle transactions made with the issued cards.

Acquiring Services: These are services provided by acquiring banks that encompass the authorization, settlement, and funding of card transactions. Acquiring services also include fraud monitoring, chargeback management, and providing technical support for payment terminals and online payment gateways. Merchants partner with acquirers to access the payment processing network, ensuring smooth and secure transactions for their customers.

Differences and Interactions: The key difference between an acquiring bank and an issuing bank lies in their roles and relationships with merchants and cardholders. While the acquiring bank facilitates the merchant’s ability to accept payments, the issuing bank provides the consumer with the means to make payments. In every card transaction, both entities must communicate and collaborate to authorize, process, and settle payments, ensuring the transaction is legitimate and funds are appropriately transferred.