Acquiring bank
Encyclopedia
An acquiring bank is the bank
or financial institution that processes credit and or debit card payments for products or services for a merchant. The term acquirer indicates that the bank accepts or acquires credit card transactions from the card-issuing banks within an association. The best known (credit) card Associations are Visa USA, MasterCard, American Express, Diners Club, JCB and China UnionPay.
and not a bank account
. Under the agreement, the acquiring bank exchanges funds with issuing bank
s on behalf of the merchant, and pays the merchant for the net balance of their daily payment card activity: gross sales, minus reversals, interchange fees, and acquirer fees.
Interchange fees are fixed rates set by the card association, varying by the merchant's industry, as reflected in their SIC codes. Acquirer fees are an additional markup added to association Interchange fees by the acquiring bank, varying at the acquirer's discretion.
over time, and thus has an incentive to take a keen interest in the merchant's products and business practices. Crucial to maintaining an ongoing positive balance is the limiting of reversals of funds. Consumers may trigger the reversal of funds in three ways:
Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a charge back. Visa and MasterCard
levy fines against acquiring banks that retain merchants with 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.
Due to the high amount of risk acquiring banks are subject to, 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 security standards, such as PCI-DSS and the emerging SPVA standards.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
or financial institution that processes credit and or debit card payments for products or services for a merchant. The term acquirer indicates that the bank accepts or acquires credit card transactions from the card-issuing banks within an association. The best known (credit) card Associations are Visa USA, MasterCard, American Express, Diners Club, JCB and China UnionPay.
Merchant Accounts
The acquiring bank contract with the merchant is a merchant account. The arrangement is actually a line of creditLine of credit
A line of credit is any credit source extended to a government, business or individual by a bank or other financial institution. A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of...
and not a bank account
Bank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
. Under the agreement, the acquiring bank exchanges funds with issuing bank
Issuing bank
An issuing bank is a bank that offers card association branded payment cards directly to consumers.-Detail:The issuing bank assumes primary liability for the consumer's capacity to pay off debts they incur with their card....
s on behalf of the merchant, and pays the merchant for the net balance of their daily payment card activity: gross sales, minus reversals, interchange fees, and acquirer fees.
Interchange fees are fixed rates set by the card association, varying by the merchant's industry, as reflected in their SIC codes. Acquirer fees are an additional markup added to association Interchange fees by the acquiring bank, varying at the acquirer's discretion.
Acquirer Risk
The acquiring bank accepts the risk that the merchant will remain solventSolvency
Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term...
over time, and thus has an incentive to take a keen interest in the merchant's products and business practices. Crucial to maintaining an ongoing positive balance is the limiting of reversals of funds. Consumers may 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 (as if the transaction has never taken place).
- A card charge back is a dispute between the merchant and the card holder over the validity of the transaction. The card holder requests the return of funds to the consumer through the issuing bank for a number of reasons including: goods not received, goods not as advertised or faulty or when the card holder denies all knowledge of the transaction..
Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a charge back. Visa and MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
levy fines against acquiring banks that retain merchants with 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.
Due to the high amount of risk acquiring banks are subject to, 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 security standards, such as PCI-DSS and the emerging SPVA standards.