An acquiring bank (also known simply as an acquirer) is a
bank
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
or
financial
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...
institution that processes
credit or
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but ...
payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within a card association, such as
Visa,
MasterCard,
Discover
Discover may refer to:
Art, entertainment, and media
* ''Discover'' (album), a Cactus Jack album
* ''Discover'' (magazine), an American science magazine
Businesses and brands
* DISCover, the ''Digital Interactive Systems Corporation''
* D ...
,
China UnionPay
UnionPay (), also known as China UnionPay () or by its abbreviation, CUP or UPI internationally, is a Chinese state-owned financial services corporation headquartered in Shanghai, China. It provides bank card services and a major card sc ...
,
American Express
American Express Company (Amex) is an American multinational corporation, multinational corporation specialized in payment card industry, payment card services headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Man ...
.
The acquiring bank enters into a contract with a merchant and offers it a
merchant account. This arrangement provides the merchant with a
line of credit. Under the agreement, the acquiring bank exchanges funds with
issuing banks on behalf of the merchant and pays the merchant for its daily payment-card activity's net balance — that is, gross sales minus reversals,
interchange fee
Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card-based transactions. Usually for sales/services transactions it is a fee that a merchant's bank (the "acquiring bank") pay ...
s, and acquirer fees. Acquirer fees are an additional markup added to association interchange fees by the acquiring bank, and those fees vary at the acquirer's discretion.
Risks
The acquiring bank accepts the risk that the merchant will remain
solvent
A solvent (s) (from the Latin '' solvō'', "loosen, untie, solve") is a substance that dissolves a solute, resulting in a solution. A solvent is usually a liquid but can also be a solid, a gas, or a supercritical fluid. Water is a solvent for ...
. The main source of risk to the acquiring bank is fund reversals. Consumers can trigger the reversal of funds in three ways:
* A card refund is the return of funds to the consumer, voluntarily initiated by the merchant.
* A card reversal is where the merchant cancels a transaction after it has been authorized but before settlement occurs.
* A card
chargeback occurs in a dispute between the merchant and the cardholder over the validity of the transaction. The cardholder may request the return of funds through the issuing bank for various reasons, including that the goods were not received or were faulty, or that the cardholder lacks knowledge of the transaction.
Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a chargeback.
Visa and
Mastercard levy fines against acquiring banks that retain merchants with a high chargeback frequency. To defray the cost of any fines received, the acquiring banks are inclined (but not required) to pass such fines on to the merchant. These fees are generally charged to the merchant.
New merchants pose risk to acquiring banks as well, beyond solvency concerns. A fraudulent new merchant could take a large number of orders, and after receiving payment, disappear without delivering the promised goods or services. As such, identifying legitimate vs. fraudulent new businesses is critical for acquiring banks.
Due to the high amount of risk that acquiring banks are anticipated to face, as well as their key position in the payment chain, the security of electronic payments is a great concern for these institutions. For this reason, they have been involved in the development of electronic
point-of-sale
The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice ...
security standards such as
PCI DSS. Many acquiring banks insist on their merchants being PCI DSS compliant. If merchants are not PCI DSS compliant, the merchants themselves may be responsible for losses due to fraud, which may result in fines from the card schemes.
See also
*
Payment gateway
*
Payment processor
*
Payment service provider
A payment service provider (PSP) is a third-party company that assists businesses to accept electronic payments, such as credit cards and debit cards payments. PSPs act as intermediaries between those who make payments, i.e. consumers, and those ...
*
Merchant account
References
{{Reflist
Merchant services
Payment systems
Banking terms
Payment cards