What Is An Acquiring Bank?

An acquiring bank, sometimes referred to as the processing bank, is one of the key players among the team that works to get you the funds from a credit card transaction. And what is their role? To understand what an acquiring bank is, you should know that it acts as the middleman between your credit card processor and the card associations (MasterCard, Visa, Discover, American Express, etc.) to process credit card transactions. The credit card associations do not deal directly with merchants, so if you want to accept credit cards at your place of business, you’ll need to have a merchant account at a registered acquiring bank. This account acts as a repository for your money.

Let’s Clear Up A Misconception

Credit card processing companies are third party companies that work with banks to process credit card transactions. Independent, third party processors are sometimes referred to as ISO’s (Independent Sales Organization) or MSP’s (Merchant Service Provider). Although some acquiring banks handle the whole credit card transaction process, most ISO’s and MSP’s are independent third party companies that manage your credit card processing services. These ISO’s and MSP’s are not banks, and must be sponsored by an acquiring bank registered with MasterCard, Visa and/or one of the other credit card brands to handle credit card transactions. The acquiring bank that has a bank card relationship with the credit card associations then partners with your third party processor so you can accept credit card payments.

The Acquiring Bank…A Hardworking Member of the Team

Once your customer swipes his credit card at your point-of-sale terminal, or inputs his credit card information into your on-line shopping cart, the process of authorizing this credit card transaction begins. Knowing what an acquiring bank is relates to the fact that your acquiring bank receives the information from your provider, passes it on to the bank who issued the card, who, hopefully, gets an approval from the credit card brand to process the transaction. An authorization is passed back to the issuing bank, who transmits it to your acquiring bank and on to your processor, and within seconds you see that approval flash on your terminal or screen.

At that point you’re a step closer to getting paid for your product or services. At the end of the day, you batch all your sales together and send this information to your processor who in turn forwards this information to your acquiring bank again. Now it’s the acquiring bank’s job to send these authorized transactions back to the card association, and then they are sent to the issuing banks to be paid. The issuing banks send the money to your acquiring bank, and that money is deposited into your merchant account and the money is now available for your use.

When answering what an acquiring bank is you should be aware that, although your merchant account at the acquiring bank seems to function like a regular checking or savings account, it’s really much more. Once a credit card transaction settles, the money from the transaction is deposited into your merchant account. It would seem like this money is yours, right? You made the sale, your customer has his product or service, and you get your money. Dribble, shoot, and it’s a slam dunk! But that’s not always the case.

What happens if your customer is dissatisfied with his purchase and returns it for a refund? The credit card transaction process starts again, but this time the money flows in the other directions. This time, your acquiring bank takes the money from your merchant account and returns it to the cardholder’s issuing bank. It’s the acquiring bank that acts as the liaison between you and your credit card processing provider and the credit card associations to insure the return is handled efficiently.

For your understanding of what an acquiring bank is, you should know that it collects a small fee for each credit card transaction they handle. But as you can see, your acquiring bank plays an important role in the process of getting you paid for credit card transactions. Go team!!