Acquiring Bank vs. Issuing Bank: What’s the difference?

Acquiring Bank vs. Issuing Bank: What’s the difference?

People typically look under the surface of the modern payment infrastructure when attempting to obtain their own merchant account or when creating a partnership with a merchant services company. Some of the first terms people will run into when diving into this world are acquiring banks and issuing banks.

So what are these banks, and what’s the difference between an issuer and an acquirer?

Acquiring Bank vs. Issuing Bank

In short, an issuing bank is the credit card holder’s bank and the acquiring bank is the merchant or business’s bank.

The services and products these banks provide go beyond this simple explanation, but it is useful to view them through this lens. Now, let’s get specific.

What is an acquiring bank?

Acquiring banks are banks that work with merchants and merchant services companies to provide merchant accounts and collect the money owed to merchants from issuing banks.

Merchant accounts are a special type of bank account merchants need to accept credit card transactions. During a transaction, funds from consumer credit cards are deposited into a business’s merchant account via an issuing bank. Once the merchant account receives those funds, they are deposited into the business account of the merchant’s choice. Applying and getting approved to have a merchant account can be a laborious process (although technology is changing that), and that’s because acquiring banks are responsible for returning funds in the case of a payment reversal or chargeback, and there are various costs associated with moving that cash around.

Providing merchants accounts isn’t the only service a particular acquiring bank can provide, but banks that have this service are known as acquiring banks.

What is an issuing bank?

Issuing banks are the banks in charge of issuing credit cards and debit cards to consumers.

This is any bank that provides cards to its customers. This could be anyone from CHASE to a local bank that provides unique cards to its customers. They work with the credit card networks like MasterCard, VISA, and Discover to deliver custom cards for their clients. Issuing banks are usually in charge of everything on the consumer end of credit cards, including payment portals, rewards programs, etc.

Which one is more important to understand as a merchant, bank, or credit union?

Both types of banks are fundamental components of the payment processing ecosystem, but most of your decisions will be around acquiring banks and their partners. If you’re a merchant, you work with issuing banks every day, but it’s simply a part of the payment process. Your choices around acquiring banks and/or how you receive your merchant account can have more substantial effects on your business’s payment system. The same goes for banks thinking about providing merchant accounts to their members.

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