An acquirer, or acquiring bank, is the bank that acts as an intermediary between buyers and the issuing bank within the credit card company for electronic transactions.
What is an Acquirer
An acquirer, which can also be called an acquiring bank, is the bank that acts as an intermediary between buyers and the issuing bank (the issuer) within the credit card company for electronic transactions. This bank is thus responsible for the flow of data between the two parties. Online merchants receive a contract from this financial institution to accept credit cards as means of payment. During the payment process, the acquiring bank authorizes the card transactions and establishes the link between the issuing banks and the merchants. It thus serves as the merchant bank and settles the card payment for the merchant.
An acquirer can also be a payment service provider itself. However, it is common for them to focus on banking and only work with payment service providers for additional payment services.
The parties involved in a card purchase transaction – and the role of the acquiring bank
For a financial transaction to take place successfully with a card, five parties are involved:
- the card-issuing bank
- the merchant / network operator (existing online system, e.g. the online platform)
- the owner of the platform where the purchase is made (e.g. an online shop)
- the cardholder (the person making the purchase)
- and the acquirer.
The latter is the one that processes the card transactions. This company supports the merchant as a contractual partner for credit card payments and concludes acceptance contracts for credit card organizations. The acquiring bank settles the transactions sent by the resellers and pays these sales to the resellers. The fee an acquirer receives for the service is a certain percentage of the sales billed (e.g. discounts that include interchange fees to the sender).
Merchant Acquirer Agreements
In a commercial purchase agreement, the acquirer acts as a business partner to a merchant. Merchants must partner with a financial institution to process one-time or recurring electronic transactions and receive electronic payments.
The merchant acquirer is generally a banking service provider that manages electronic deposits of customer funds that are deposited into a merchant account. It can also be referred to as a settlement bank as it facilitates the communication and processing of merchant payments.
Whenever a debit or credit card is used for a payment, the merchant acquirer should be contacted for processing and billing purposes. This also allows the merchant acquirer to specify the payment types that the company can use to process them. Some may only have network rights with a single card processor, which may limit the types of card types the merchant can accept.
When processing the electronic payment on the merchant bank’s account, the acquirer charges variable fees as provided for in the Merchant Acquirer Agreement. The fees may be charged per month or per transaction. The fees are used to cover the costs associated with processing the network.
The online acquirer and security
The relevant banks also assume the risk and responsibility for the transactions processed with the issuing bank. For this reason, the acquirer is charged various commissions for their services, such as transactions, refunds and chargebacks. With every online transaction, there is a certain security risk, which is why they have to follow high security standards for fraud prevention, as they are jointly responsible for all card transactions.
Conclusion: Acquiring banks bear a high responsibility in the interaction between customer and merchant
The acquiring bank may also be referred to as a merchant bank, merchant service or merchant acquirer. It can be a bank or financial institution that is a licensed member of a credit card issuer such as Visa and Mastercard and whose role is to register merchants to accept electronic payments at their locations. Essentially, it authorizes customers’ credit card payments and links them to the issuing bank on behalf of the merchant.
When a customer makes a credit or debit payment to the merchant, the buyer must be contacted so that the payment can be processed and cleared.
The acquirer therefore also bears the responsibility for risks in transactions carried out with the cards and must therefore follow security standards to prevent fraudulent acts.