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 ...

financial institution A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial ins ...

that processes

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

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 card usually consists of the bank's name, a card number, the cardholder's name, and an expiration date, on either ...

payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from card issuers such as

Visa Visa most commonly refers to: * Travel visa, a document that allows entry to a foreign country * Visa Inc., a US multinational financial and payment cards company ** Visa Debit card issued by the above company ** Visa Electron, a debit card ** Vi ...

, MasterCard,

Discover Discover may refer to: Art, entertainment, and media * ''Discover'' (album), a Cactus Jack album * ''Discover'' (magazine), an American science magazine * "Discover", a song by Chris Brown from his 2015 album ''Royalty'' Businesses and bran ...

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 sch ...

American Express American Express Company or Amex is an American bank holding company and multinational financial services corporation that specializes in payment card industry, payment cards. It is headquartered at 200 Vesey Street, also known as American Expr ...

. The acquiring bank enters into a contract with a merchant and offers it a

merchant account A merchant account is a type of bank account that allows a seller, known as the merchant, to accept payments by debit or credit cards. A merchant account is established under an agreement between an acceptor and a merchant acquiring bank for th ...

. This arrangement provides the merchant with a

line of credit A line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A financial institution ...

. Under the agreement, the acquiring bank exchanges funds with

issuing bank An issuing bank is a bank that offers card association branded payment cards directly to consumers, such as credit cards, debit cards, contactless devices such as key fobs as well as prepaid cards. The name is derived from the practice of issuing ...

s 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 An interchange fee is 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") pays a customer's bank (the " issuing bank"). In a ...

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 (from the Latin language, Latin ''wikt:solvo#Latin, solvō'', "loosen, untie, solve") is a substance that dissolves a solute, resulting in a Solution (chemistry), solution. A solvent is usually a liquid but can also be a solid, a gas ...

. 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 A chargeback is a return of money to a Payment, payer of a transaction, especially a credit card transaction. Most commonly the payer is a consumer. The chargeback reverses a Electronic funds transfer, money transfer from the consumer's bank acc ...

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.

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 f ...

security standards such as

PCI DSS The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard used to handle credit cards from major card brands. The standard is administered by the Payment Card Industry Security Standards Council, and its use ...

. 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.

References

{{Reflist Merchant services Payment systems Banking terms Payment cards

Risks

See also

References