Acquiring Bank

What is an acquiring bank?

An acquiring bank, also called an “acquirer,” is the financial institution that allows a business to accept card payments or other alternative payment methods, either in a physical store or online.

Its main role is to act as a link between the merchant and payment networks, such as Visa and Mastercard, and the customer’s issuing bank. This ensures transactions are properly authorized and funds are efficiently settled between all parties involved.

Main functions of an acquiring bank

Acting as an intermediary means the acquiring bank has a number of responsibilities:

1. Provide the infrastructure to accept payments

The acquirer provides a merchant account and/or the devices needed to accept payments across different channels: physical POS or virtual POS, for example.

2. Handle payment requests

When a customer makes a purchase, the acquirer receives the transaction and sends it to the relevant payment network. The network then directs it to the issuing bank to verify authorization.

3. Coordinate authorization with the issuing bank

The acquirer manages communication between the merchant and the issuing bank, informing the merchant whether the transaction was approved or declined. It does not decide on fund availability.

4. Settle funds to the merchant

Once authorized, the acquirer coordinates settlement, transferring money from the issuing bank to the merchant account, applying the established fees.

5. Manage disputes

The acquirer receives chargebacks or disputes from the issuing bank and coordinates the merchant’s response, reviewing documentation and evidence. If the claim is valid, the acquirer processes the refund to the issuer following the payment network procedures.

6. Ensure regulatory compliance

The acquirer ensures that the merchant complies with regulations and security standards, such as PCI DSS, which are vital to protect cardholder data.

Differences between the acquiring bank, issuing bank, and payment processor

The acquiring bank and issuing bank have complementary but distinct roles in the payments ecosystem.

The issuing bank represents the cardholder: it manages their account, sets spending limits, and decides whether a transaction should be approved or declined. It is therefore responsible for validating that the customer has available funds or credit.

The acquiring bank, on the other hand, works on the merchant’s side. Its role is to receive payment requests, forward them to the network, and once approved by the issuer, manage the settlement of funds to the merchant.

The payment processor is not a bank but a technology provider that connects merchants, acquirers, issuers, and card networks. Its role is to move transaction information quickly, securely, and efficiently, as well as provide additional tools such as fraud prevention, analytics, or smart payment routing.

In other words, while the acquiring and issuing banks assume financial responsibilities, the processor focuses on the technical and operational side that makes the transaction possible between all parties.