eCommerce Glossary
This e-commerce glossary features over 250 essential terms every online seller should know to succeed in digital commerce.
What Is an Acquiring Bank?
An acquiring bank—also called an acquirer—is a financial institution that enables merchants to accept credit and debit card payments. Acting as a key player in the payment processing ecosystem, an acquirer facilitates transactions between merchants, card networks (like Visa, Mastercard, or American Express), and issuing banks (the cardholders’ banks).
By processing card transactions on behalf of merchants, acquiring banks ensure the secure, seamless transfer of funds in both online and in-person environments. Their role is essential in supporting the digital economy and enabling electronic commerce worldwide.
How an Acquiring Bank Works
- Membership in Card Networks: Acquiring banks are registered members of card networks such as Mastercard or Visa. They have agreements in place to accept transactions on behalf of merchants and process them through the respective card networks.
- Transaction Acceptance: When a cardholder makes a purchase using a debit or credit card, the transaction details are transmitted to the acquiring bank. The acquirer verifies the transaction and communicates with the card network to connect with the cardholder’s issuing bank.
- Verification and Authorization: The acquiring bank works with the card network and the issuing bank to verify the cardholder’s account and authorize the transaction. Based on the information available, the acquirer either approves or declines the transaction.
- Assumption of Risk: Acquiring banks assume full risk and responsibility for the transactions they process. This includes potential fraud, chargebacks, and other risks associated with electronic payments.
- Fee Assessment: Acquiring banks charge various fees for their services, including transaction fees, refund fees, chargeback fees, and other miscellaneous fees. These fees compensate the acquiring bank for the risk they assume and cover the costs associated with transaction processing.
- Compliance and Regulation: Acquiring banks must adhere to industry regulations and compliance standards, such as the Payment Card Industry Data Security Standard (PCI DSS), to ensure the security and integrity of card transactions.
In summary, acquiring banks play a vital role in enabling merchants to accept debit and credit card payments, managing transaction processing, assuming risk, and ensuring compliance with regulatory requirements. Their services are essential for facilitating electronic commerce and driving the growth of digital payments worldwide.