An acquiring bank is essentially the medium through which all credit card processing occurs. These banks and institutions acquire and verify payments made through credit associations such as Visa, MasterCard, and others, which are then paid to the merchant account, held by a business. Credit and debit card transactions aren’t simple two party exchanges between seller and customer, there is always an acquiring bank in between.
The Role of Acquirers
As the key middle piece of credit transactions, the primary purpose of acquiring banks is to maintain transaction security. On a merchant’s behalf, they handle credit card processing, and avoid risk as best they can by staying with the constantly evolving security standards in the modern world. They process all kinds of transactions, not limited to the usual buyer and seller situation, but also refunds, reversals, and chargebacks. Acquiring banks exist so that credit associations and businesses don’t have to work directly with each other, but they aren’t entirely unincorporated with the associations. Rather, they are comparable to an extension of the agency, created to make the transaction process simple.
In regard to refunds, reversals, and chargebacks, acquiring banks bear the biggest burden of risk, as these types of transactions come with larger fees and in the case of chargebacks, heavy fines from credit associations. While these are normally passed on to the merchant, if a merchant can’t maintain solvency, the acquiring bank, being in the middle, stands to lose the most.
Merchant Accounts
A merchant account is essentially a businesses’ bank account with an acquiring bank. With one, a business is able to accept and settle credit card transactions. Like any ordinary bank account, they come with their own set of rules and processing fees. In order to open one, the merchant is required to sign a contract agreeing to abide with the regulations and policies of a credit card association. While enabling, it is important that merchants keep in line with their contracts in order to avoid culpability in the event they are victims of credit card fraud. Should all regulations be followed, an acquiring bank is able to fulfill its purpose, processing and protecting credit card transactions, with ease.