Sponsor Bank

A Sponsor Bank — also known as an acquiring or merchant bank — is a bank that is registered with a card network, such as Visa or MasterCard. It allows the payment processor to process transactions and extends its line of credit to the processor.

It’s the entity that facilitates the transfer of funds from customers’ accounts to a merchant’s account following card transactions. The role of the sponsor bank is critical in the payment processing ecosystem as it acts as a bridge between the merchant, the card networks, and the issuing banks.

It is responsible for obtaining the necessary approvals from the card networks for the transactions, settling the transactions with the issuing banks, and depositing the funds into the merchant’s account. The sponsor bank also assumes the risk associated with the transactions, as it is ultimately responsible for the funds until they are deposited into the merchant’s account.

This relationship is governed by a contract between the payment processor and the sponsor bank, which outlines the responsibilities, fees, and other terms and conditions.