Difference Between ‘Acquiring Bank’ and ‘Issuing Bank’

Sydney VaccaroIndustry TermsLeave a Comment

Difference Between ‘Acquiring Bank’ and ‘Issuing Bank’
An acquiring bank (the merchant’s bank) is a financial institution that initiates and maintains contractual agreements with merchants for accepting and processing credit card transactions.

An issuing bank (the cardholder’s bank) is a financial institution that issues payment cards and maintains the contract with cardholders to ensure repayment.

Acquiring and issuing banks are some of the necessary parties that make payments happen. It is important for merchants to understand what these parties do, how they connect in the payments process, and what their roles are in the dispute process.

What’s the Difference Between “Acquiring Bank” and “Issuing Bank”?

Without further ado:

What is an Acquiring Bank?

An acquiring bank (the merchant’s bank) is a financial institution that initiates and maintains contractual agreements with merchants for accepting and processing credit card transactions. The acquiring bank is also referred to as the merchant acquirer, or simply acquirer. Acquirers are typically banks, but can also be other entities like processors.

What is an Issuing Bank?

An issuing bank (the cardholder’s bank) is a financial institution that issues payment cards and maintains the contract with cardholders to ensure repayment.

What’s the Difference Between a Merchant Acquirer and a Merchant Processor?

We now know that the merchant acquirer is the entity in-contract with merchants to facilitate payment card transactions. We also know that these acquirers can sometimes be processors. So what’s the difference between an acquirer and processor?

Put simply, while the acquirer is the source of settlements, disputes, and the like, the processor is in the weeds providing authorization, settlement, data transmission and security, as well as connections to payment networks.

You’ll often hear these two words used interchangeably (even though they are two distinct entities) because many large banks and institutions perform both acquirer and processor functions. In addition, many merchant processors provide outsourced services to acquirers.

Is an Acquirer Necessary to Process Payments?

In short, yes! The acquiring bank is a necessary player in the card payment process. Check out this basic break down of the communication and parties involved to make a credit card transaction happen.

Step One: The cardholder obtains the card from their issuing bank. The cardholder presents their card to the merchant as a form of payment.

Step Two: The transaction and card information gets passed between the payment processor to the card network then to the issuing bank.

Step Three: The issuing bank charges the transaction amount the cardholder’s account.

Step Four: The issuing bank transfers the funds to the acquiring bank, which then gets deposited into the merchant's account.

What Security Standards Exist for Acquirers?

Where there’s sensitive data, there’s a risk for a breach. This means that not only the acquirer but all parties in the card payment process must follow strict security standards for risk mitigation and fraud prevention. You can read about the Payment Card Industry Data Security Standard (PCI DSS) here.

How Do Acquirers and Issuers Fit in the Dispute Process?

After the card payment process is completed, customers have the right to dispute a purchase for a range of reasons. This dispute process goes through the same parties as the payment process does.

Step One: The cardholder disputes a transaction by contacting their issuing bank.

Step Two: The issuing bank will review the disputed transaction and determine whether the dispute is valid or not. If the dispute is found to be valid it is sent to the card network and the cardholder is refunded.

Step Three: The card network passes the dispute to the acquiring bank. The acquiring bank then informs the merchant.

Step Four: The merchant has two option when they receive the dispute. Merchants can either accept the dispute and the process ends there. Or to try to regain the revenue merchants can respond to the dispute.

Step Five: The merchant’s response get passed through the acquiring bank, the card network, to the issuing bank. The issuing bank reviews the chargeback claim and the merchant’s compelling evidence. Each card network requires specific information to prove or disprove a dispute. The required information is typically listed in the network’s rules and regulations.

Step Six: The issuing bank decided if the cardholders or the merchant wins the dispute. If the cardholder wins the merchant will lose the revenue from the sale. If the merchant wins they will gain back their revenue.

Above is a simplified version of the dispute process. If you want the full, in-depth process you can check out The Chargeback Process: Explained.

Acquiring and issuing banks are some of the necessary parties that make payments happen. It is important for merchants to understand what these parties do, how they connect in the payments process, and what their roles are in the dispute process.

What’s the Difference Between “Acquiring Bank” and “Issuing Bank”?

Without further ado:

What is an Acquiring Bank?

An acquiring bank (the merchant’s bank) is a financial institution that initiates and maintains contractual agreements with merchants for accepting and processing credit card transactions. The acquiring bank is also referred to as the merchant acquirer, or simply acquirer. Acquirers are typically banks, but can also be other entities like processors.

What is an Issuing Bank?

An issuing bank (the cardholder’s bank) is a financial institution that issues payment cards and maintains the contract with cardholders to ensure repayment.

What’s the Difference Between a Merchant Acquirer and a Merchant Processor?

We now know that the merchant acquirer is the entity in-contract with merchants to facilitate payment card transactions. We also know that these acquirers can sometimes be processors. So what’s the difference between an acquirer and processor?

Put simply, while the acquirer is the source of settlements, disputes, and the like, the processor is in the weeds providing authorization, settlement, data transmission and security, as well as connections to payment networks.

You’ll often hear these two words used interchangeably (even though they are two distinct entities) because many large banks and institutions perform both acquirer and processor functions. In addition, many merchant processors provide outsourced services to acquirers.

Is an Acquirer Necessary to Process Payments?

In short, yes! The acquiring bank is a necessary player in the card payment process. Check out this basic break down of the communication and parties involved to make a credit card transaction happen.

Step One: The cardholder obtains the card from their issuing bank. The cardholder presents their card to the merchant as a form of payment.

Step Two: The transaction and card information gets passed between the payment processor to the card network then to the issuing bank.

Step Three: The issuing bank charges the transaction amount the cardholder’s account.

Step Four: The issuing bank transfers the funds to the acquiring bank, which then gets deposited into the merchant's account.

What Security Standards Exist for Acquirers?

Where there’s sensitive data, there’s a risk for a breach. This means that not only the acquirer but all parties in the card payment process must follow strict security standards for risk mitigation and fraud prevention. You can read about the Payment Card Industry Data Security Standard (PCI DSS) here.

How Do Acquirers and Issuers Fit in the Dispute Process?

After the card payment process is completed, customers have the right to dispute a purchase for a range of reasons. This dispute process goes through the same parties as the payment process does.

Step One: The cardholder disputes a transaction by contacting their issuing bank.

Step Two: The issuing bank will review the disputed transaction and determine whether the dispute is valid or not. If the dispute is found to be valid it is sent to the card network and the cardholder is refunded.

Step Three: The card network passes the dispute to the acquiring bank. The acquiring bank then informs the merchant.

Step Four: The merchant has two option when they receive the dispute. Merchants can either accept the dispute and the process ends there. Or to try to regain the revenue merchants can respond to the dispute.

Step Five: The merchant’s response get passed through the acquiring bank, the card network, to the issuing bank. The issuing bank reviews the chargeback claim and the merchant’s compelling evidence. Each card network requires specific information to prove or disprove a dispute. The required information is typically listed in the network’s rules and regulations.

Step Six: The issuing bank decided if the cardholders or the merchant wins the dispute. If the cardholder wins the merchant will lose the revenue from the sale. If the merchant wins they will gain back their revenue.

Above is a simplified version of the dispute process. If you want the full, in-depth process you can check out The Chargeback Process: Explained.