A Merchant’s Guide to Acquiring and Issuing Banks

A card issuing bank and an acquiring bank are some of the required parties to conduct a payment transaction. It is important for merchants to understand what responsibilities each of the parties has, how they are involved in payment processing, and what the difference between these two notions is. Let’s get started!

The Essence of Issuing Banks

The issuing bank or entity is a financial institution that issues and services debit and credit cards. Issuing banks are members of international payment networks and act as guarantors of the fulfillment of financial obligations that arise in the process of using a credit card.

The plastic card provided by the issuing bank, such as those linked to card networks like Visa, Mastercard, Discover, and American Express, is considered its property throughout the entire validity period, with the cardholder standing as its owner. The credit card’s issuing entity is indicated on the plastic.

Now you have some insights into what a few of the issuers’ most common tasks are. But what do acquirers do? Read ahead to find out!

An Overview of the Essence of Acquiring Banks

The acquiring (servicing) bank, also known as the merchant acquirer, is a credit organization that arranges points for accepting bank card purchases (terminals, ATMs). It also carries out a whole range of activities related to transaction settlements and payments on bank cards at these points, i.e. it processes credit cards.

When conducting transactions on the cards of other banks’ issuing, the acquiring bank uses the payment system of the credit card issuer to transfer money to its service point. The settlements of transactions between the merchant acquirer and the card-issuing bank are carried out by the settlement bank in which those credit institutions open correspondent accounts.

The acquirer can transfer the technical side of the credit card transactions to specialized organizations, called processing centers.

Acquirer VS Issuer: How Are Those Banks Different?

To better understand the different roles of the two institutions in question, let’s consider the main functions that the acquirer and the issuer perform.

The Issuing Bank	The Acquiring Bank
Plastic card issuing and its registration by creating a personal current account.	Customer card authorization by sending a transaction request to the issuing bank.
Customer card authorization by providing a response to the acquirer’s request.	The transfer of money to the settlement account of an outlet.
Transfer of funds based on invoices issued in the acquiring system.	Refunding the outlets where goods or services were paid for via a credit card transaction.
Transfer of funds based on invoices issued in the acquiring system.	Refunding the outlets where goods or services were paid for via credit card transactions.
Provision of an account statement.	Accepting, sorting, and sending electronic and paper documents.
Financial security. Introducing additional requirements that improve the level of the networks’ privacy and security throughout the payment process (code prompts, limits for card transactions).	Stop-list distribution.

Issuer and Acquirer in a Chargeback Process

The issuing and acquiring banks play an active role in disputes and the chargeback process that may follow. Chargebacks are instances of money reimbursement to consumers in the event of a fraudulent or unwanted transaction. In a nutshell, the procedure of disputes and chargebacks goes like this:

• If customers believe they encounter transactions that have something to do with dishonest activity or are made by mistake, they contact the network that manages credit cards and launch a dispute process that can entail a chargeback.
• The card network like Visa, Mastercard, Discover, or American Express, decides whether the issues listed in the cardholder’s claim are valid. If the transaction was faulty and the resolution is positive for the customer, the card network demands the issuer to credit the funds to the cardholder.
• The issuer then reimburses the sum of the transaction to the consumer’s credit card.
• Then, the card network forwards the claim to the merchant acquirer.
• In the end, the merchant acquirer can either accept or dispute the reimbursement of the funds involved in the transaction.

This is only a brief overview of the dispute and chargeback process demonstrating the key roles issuers, acquirers, and card networks play in the interaction with consumers and other parties involved.

But, for those who want to gain more valuable information on chargebacks, we have a comprehensive guide dedicated to them - make sure you check it out!.

Why Do Merchants Need Acquiring Banks?

The merchant acquirer is an institution that provides clients with the authorization to conduct non-cash payment transactions at the sales points or online using POS and mPOS terminals. So, the main advantages that companies get from the cooperation with the merchant acquirer include:

• A merchant account to accept cashless payments
• Getting a well-functioning payment platform for making secure transactions with debit and credit cards like Visa and Mastercard
• 24/7 availability
• Transaction process automation for smart distribution of resources
• Ease of making accounting reports
• Smooth reimbursement of payments
• Fraud prevention for the security of funds and account data

Tips on Picking the Right Merchant Acquirer

To choose a suitable bank, one needs to compare all the conditions offered by acquirers. Here are some essential features to pay attention to while selecting an acquiring bank for your business’s debit and credit card payment processing:

Fees and Commission

It is crucial that you are aware of the commission fees charged per every debit and credit card transaction alongside other costs. After all, each bank has its own tariffs and interest rates, and while the payment commission may be higher, the equipment could be offered free of charge or at a minimum price. For others, on the contrary, a low transaction rate is complemented by the high cost of the terminal. Besides, check whether there are any hidden service expenses, monthly subscription costs, or account fees.

This can be done in several ways:

1. Contacting the nearest bank branch
2. Calling the hotline number to discuss the details over the phone
3. Contacting the institution through their website

After you learn all the information you wanted to know about the current account’s terms and applicable policies, you can rest assured that you will not encounter any unexpected expenses the moment you start receiving payments.

POS Terminal for Card Transactions

Not all banks give authorization to work with POS terminals and smart cash registers obtained from third parties. Thus, it is essential to compare the expenses related to renting, purchasing, setting up, and maintaining these devices.

Transaction Coverage

Is your target customer group local, or are you aiming for an international outreach? If you are willing to conduct business with a global card transaction scale, make sure that the bank you choose offers worldwide coverage and won’t run into an unexpected issue when authorizing cross-border payments.

Customer Service and Technical Support

Check whether the bank's staff will deliver and set up the equipment. Besides, it is essential to know the support team’s working hours and whether or not their services are included in the pricing.

Available Features

Is the bank you have in mind versatile enough in terms of functionality? Does it have features like payment routing, credit card transaction processing, fraud detection, and purchases with delayed confirmation? Checking such details is extra important.

Customization

Selecting a merchant acquirer that can offer your business a tailored solution is a brilliant idea. In the long run, collaborating with banks that offer both direct acquiring and various additional payment methods will save you money, time, and human resources.

So there you have it - you are now ready to make an informed decision while selecting the ideal option among the variety of acquiring banks. But there is yet another thing to consider: a reliable payment gateway.

What Are the Dangers of Choosing the Wrong Acquirer?

Choosing the wrong acquiring bank can have significant consequences for businesses, namely:

• Lower revenues. Should your bank’s pricing structure be unfavorable or have hidden costs, your profit margins will be reduced. In turn, this can eat into your revenue and potentially make your products less competitive in the market.
• Little to no client satisfaction. If transactions fail and payments are declined often, it can negatively impact your customers’ experience with your business and, consequently, your revenues.
• Lost commercial opportunities. Some banks may not support certain payment methods or may have limitations on international transactions. This can result in losing multiple commercial opportunities and revenue loss.
• Delayed payments. A bank with slow settlement processes can lead to delays in receiving money from transactions. This could affect your cash flow and hinder your ability to manage your business’s finances.
• The risk of data breaches. Inadequate protection measures and non-compliance with industry standards can expose your business and clients to higher risks of data breaches and dishonest activity. This is likely to result in monetary losses, legal liabilities, and the loss of client trust.
• Reputational damage. Consumers often associate their payment experience with your brand. Thus, choosing a bank with a poor reputation can affect your entire company’s image and revenue negatively.
• Compliance and regulatory risks. Banks are subject to various requirements, including rules related to monetary transactions and sensitive data. A bank that doesn’t adhere to these regulations can result in your company facing legal problems and penalties.
• Limited support for growth opportunities. The wrong bank may not be able to support your growing operations or scale up to meet your expansion needs. This can lead to operational bottlenecks and hinder your growth plans.

What’s more, if you realize that you’ve chosen the wrong bank, switching to a new one can be challenging, as it can involve data migration, complex technical integration, and potential downtime. Thus, at the end of the day, it is crucial to take your time when researching banking alternatives.

Helping Cards, Merchants, Customers, and Banks Work Together

As you probably know, a payment gateway is an intermediary that networks between a merchant and a customer. It passes encrypted credit card information to multiple parties, including the acquiring and issuing banks. That is why it is an essential link in the payment process and should also be selected wisely.

Payneteasy offers a customizable, PCI DSS-compliant payment gateway solution that offers a full range of processing services. You can count on a smooth shopping experience for every client and enhanced safety of their funds, as we guarantee:

• Fast integration
• Catering to any payment interaction
• Effective fraud prevention process
• Unbeatable uptime
• Full technical support
• Solutions tailored to customer resources and needs
• Multiple merchant acquirer banks support

Contact us now and we will get back to you with a personalized quote within one workday! Besides, when you connect with us, you can receive expert help in resolving your doubts about our solutions and offers.