An acquiring bank (also known simply as an acquirer) is a

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

financial Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

institution that processes

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

debit card A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...

payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within a card association, such as

Visa Visa most commonly refers to: *Visa Inc., a US multinational financial and payment cards company ** Visa Debit card issued by the above company ** Visa Electron, a debit card ** Visa Plus, an interbank network *Travel visa, a document that allows ...

, MasterCard,

Discover Discover may refer to: Art, entertainment, and media * ''Discover'' (album), a Cactus Jack album * ''Discover'' (magazine), an American science magazine Businesses and brands * DISCover, the ''Digital Interactive Systems Corporation'' * D ...

China UnionPay UnionPay (), also known as China UnionPay () or by its abbreviation, CUP or UPI internationally, is a Chinese state-owned financial services corporation headquartered in Shanghai, China. It provides bank card services and a major card sch ...

American Express American Express Company (Amex) is an American multinational corporation specialized in payment card services headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Manhattan in New York City. The company was found ...

. The acquiring bank enters into a contract with a merchant and offers it a

merchant account A merchant account is a type of bank account that allows businesses to accept payments in multiple ways, typically debit or credit cards. A merchant account is established under an agreement between an acceptor and a merchant acquiring bank for t ...

. This arrangement provides the merchant with a

line of credit A line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A line of credit takes se ...

. Under the agreement, the acquiring bank exchanges funds with

issuing bank An issuing bank is a bank that offers card association branded payment cards directly to consumers, such as credit cards, debit cards, contactless devices such as key fobs as well as prepaid cards. The name is derived from the practice of issuing ca ...

s on behalf of the merchant and pays the merchant for its daily payment-card activity's net balance — that is, gross sales minus reversals,

interchange fee Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card-based transactions. Usually for sales/services transactions it is a fee that a merchant's bank (the "acquiring bank") pay ...

s, and acquirer fees. Acquirer fees are an additional markup added to association interchange fees by the acquiring bank, and those fees vary at the acquirer's discretion.

Risks

The acquiring bank accepts the risk that the merchant will remain

solvent A solvent (s) (from the Latin '' solvō'', "loosen, untie, solve") is a substance that dissolves a solute, resulting in a solution. A solvent is usually a liquid but can also be a solid, a gas, or a supercritical fluid. Water is a solvent for ...

. The main source of risk to the acquiring bank is fund reversals. Consumers can trigger the reversal of funds in three ways: * A card refund is the return of funds to the consumer, voluntarily initiated by the merchant. * A card reversal is where the merchant cancels a transaction after it has been authorized but before settlement occurs. * A card

chargeback A chargeback is a return of money to a payer of a transaction, especially a credit card transaction. Most commonly the payer is a consumer. The chargeback reverses a money transfer from the consumer's bank account, line of credit, or credit ...

occurs in a dispute between the merchant and the cardholder over the validity of the transaction. The cardholder may request the return of funds through the issuing bank for various reasons, including that the goods were not received or were faulty, or that the cardholder lacks knowledge of the transaction. Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a chargeback.

and Mastercard levy fines against acquiring banks that retain merchants with a high chargeback frequency. To defray the cost of any fines received, the acquiring banks are inclined (but not required) to pass such fines on to the merchant. These fees are generally charged to the merchant. New merchants pose risk to acquiring banks as well, beyond solvency concerns. A fraudulent new merchant could take a large number of orders, and after receiving payment, disappear without delivering the promised goods or services. As such, identifying legitimate vs. fraudulent new businesses is critical for acquiring banks. Due to the high amount of risk that acquiring banks are anticipated to face, as well as their key position in the payment chain, the security of electronic payments is a great concern for these institutions. For this reason, they have been involved in the development of electronic

point-of-sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoic ...

security standards such as

PCI DSS The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard used to handle credit cards from major card scheme, card brands. The standard is administered by the Payment Card Industry Security Standards Council a ...

. Many acquiring banks insist on their merchants being PCI DSS compliant. If merchants are not PCI DSS compliant, the merchants themselves may be responsible for losses due to fraud, which may result in fines from the card schemes.

References

{{Reflist Merchant services Payment systems Banking terms Payment cards

Risks

See also

References