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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 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 card provided by the issuing bank, whether it runs on Visa, Mastercard, Discover or American Express, remains the issuer’s property for its entire validity period, while the cardholder uses it. The issuer’s name is shown on the card.
The acquiring bank, also known as the merchant acquirer, is the financial institution that signs businesses up to accept card payments — in store, online and in apps — and is responsible for them to the card networks. Acquirers are not always banks: licensed payment institutions can acquire too, either as card network members themselves or through a sponsor bank.
When a customer pays with a card issued by another bank, the acquirer sends the transaction through the card network, such as Visa or Mastercard, to the issuer for approval. After clearing, the issuer transfers the funds, minus interchange, to the acquirer through the card network’s settlement process. The acquirer then pays the merchant, minus the merchant service charge, which covers interchange, card network fees and the acquirer’s own margin.
As a bank customer willing to set up a merchant account, note that some financial institutions offer dual solutions, performing the roles of both an issuer and an acquirer.
The acquirer can transfer the technical side of the credit card transactions to specialized organizations, called processing centers.
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 |
|---|---|
| Issuing the card and opening the cardholder’s 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. |
| 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. |
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:
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.
For a deeper look, read our guide to chargebacks and how to avoid them.
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 bank acquirer — also called an acquiring bank or merchant acquirer — is the financial institution that lets a merchant accept card payments. It holds the merchant account, sends card transactions through the card network to the issuer for authorization, settles approved funds to the merchant, and answers to the card scheme for the merchant’s chargebacks. Many acquirers also screen transactions for fraud.
When businesses choose how to accept card payments, they usually look at three models — two ways to get acquiring, and one layer that works on top of it:
To be clear: Payneteasy is a technology platform, not an acquirer or an issuing bank, and it does not hold or move merchant funds. We connect merchants to multiple acquirers and payment providers through a single payment gateway, so you can add or switch acquirers without depending on one provider. See how our payment gateway works or talk to our team about the right acquiring setup for your business.
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.
It is crucial for any merchant not to forget about opening a current account. Its maintenance also requires costs. And here, it is critical to study all the proposed conditions.
Ask each acquirer for its full fee schedule and contract terms in writing — the pricing model (blended or interchange++), account and chargeback fees, rolling reserve, settlement times and termination terms — and compare them side by side.
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.
Once you have shortlisted an acquirer, there is one more thing to consider: the payment gateway that connects your checkout to it.
Choosing the wrong acquiring bank can have significant consequences for businesses, namely:
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.
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 a reliable processing layer, with:
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.
Related glossary terms: what is acquiring, what is a merchant, merchant account, merchant identification number (MID).
An acquirer bank (acquiring bank) works for the merchant: it holds the merchant account, sends card transactions through the card network for authorization, and settles the funds to the merchant. An issuing bank works for the cardholder: it issues the debit or credit card, approves or declines each transaction against the available balance or credit limit and its own risk checks, and handles the cardholder’s disputes.
Yes. Many large banks both issue cards and acquire for merchants. When the bank’s own cardholder pays a merchant that the same bank acquires, it is an “on-us” transaction, and the bank can authorize and settle it internally without sending it through the card network.
Look for an acquirer that supports your markets and card networks, settles funds on clear terms, offers transparent pricing and reporting, and handles chargebacks and fraud well — not just the lowest rate.
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